The challenges for renewable generators in a post-subsidy world
The big challenge for developers of renewable energy plants today is the reduction of funding options. The government subsides that were instrumental in the rapid growth of renewables in previous years have now largely been withdrawn. These included the Renewables Obligation (RO) and Feed in Tariff (FiT) schemes, while support from the Contracts for Difference (CfD) scheme has become hard to obtain.
A crisis of confidence
With the world of subsidies coming to an end, any new renewable project must be able to attract investment on its own merits and secure reliable long-term purchasers for its output. Without subsidies, and with the energy market being more uncertain, lending has become more challenging. Subsidy-free projects are only getting underway if a buyer can be found who is willing to pay a fixed price for the output for at least ten years – providing the certainty lenders need.
Another factor adding complexity to the picture is uncertainty about future electricity prices. As more renewables come on stream there is inevitably more volatility on the electricity network. This has led to rises in third-party balancing costs and network charges in recent years, due to the costs involved in managing this volatility. Balancing Services Use of System charges (BSUoS) charges, for example, BSUos charges have gone up by from around £1.50/MWh in 2015 to having months averaging over £6/MWh in 2020. Similarly, network charges have risen with the need to build more resilience into the system and connect more generation.
Challenges for developers
For developers of new generation plants, there are many obstacles in the way. It’s still possible to establish Corporate Power Purchase Agreements (CPPAs) with large businesses that want a long-term direct arrangement with a renewable generator – but these are increasingly difficult to obtain as there are a limited number of corporates who can commit over long timescales. It may be possible, instead, to agree multiple shorter-term PPAs with a number of businesses to provide the payment assurances generators need.
Another option, which is becoming increasingly attractive to renewable developers, is to build renewable plant “off-the-grid” to supply a particular industrial estate, or large factory, via a private wire network.
The whole market for renewable generators has become much less generic than it was in the world of subsidies, so solutions are much more bespoke and involve working together with businesses, energy suppliers and investors to find solutions that work for everyone.
Optimising value from existing assets
For existing renewable generators, the challenge is to get the best value for your output and optimise your assets. It’s about trying to get the best return for the electricity you are generating. This could involve securing a fixed price for your output, or a market index linked (day-ahead) price for a set period. You could do this through a tie-up either with an electricity supplier, or direct with a customer.
There are other potential opportunities, particularly for generation facilities that can offer flexibility to help National Grid manage volatility. There may be opportunities to co-locate batteries on existing or new developments. A lot of work is currently going in to battery development. Robust, large-scale battery technology could bring about the step change required to enable 100% of the UK’s electricity to be generated from renewable sources.
Where to go for help?
ENGIE offers a range of solutions, both for developers and energy buyers. Our renewable team is constantly devising ways to help developers build the renewable generation plants that customers want. That could mean building a solar array on the roof of a factory for a specific customer, or a new renewable plant that supplies an industrial state or local council. We offer generators the chance to get involved in optimisation services including the balancing mechanism, handling all contractual arrangements on your behalf, to help extract greater value from your assets.
Support for energy buyers
For businesses, we are developing a range of green supply contracts and CPPA options that enable you to source the renewable electricity you need in the way that’s right for your business.