Renewable developers have borne the brunt of a significant downturn of late. This brief alert gives an overview of how these factors have, or are expected to change. Overall, has this created the perfect storm for renewables developers?
Historically small developers supported by the Renewables Obligation (RO) mechanism have received revenues via four main avenues: the wholesale electricity price; the Renewables Obligation Certificate (ROC); the Climate Change Levy (CCL) and Embedded Benefits.
The wholesale electricity price
Since January 2013, the UK electricity price has fallen by around 42%1 , driven by a combination of a rapid decline in global oil and gas prices; the movement away from operating the UK as an ‘energy only’ market; and the increasing penetration of low/zero marginal cost renewables cannibalising the market. In the past, lenders and financial institutions have committed capital on the basis of a central or low power price forecast. However, recent declines have been so severe that current prices are at around 65% of central forecasts made in 2013. There are potential disruptors to this trajectory, including the Government’s planned consultation on the early closure of coal plant. But for the foreseeable future, forecasts are expected to reduce further and the forward curve is flattening.
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