At our recent Renewable Energy Developers Breakfast, we explored pressing topics in the renewable energy sector. So, what were the hot topics from the event?
Policy and Regulation
This was one of the key topics of interest, especially around what might happen for Contracts for Difference Allocation Round 7 (CfD AR7) and if the Review of Electricity Market Arrangements (REMA) was still live.
Whilst there have been a number of announcements around renewables, most notably an end to “ban” on onshore wind and an increased budget for CfD AR6, there is still a lot of detail lacking – especially on how Great British Energy will work.
In addition there is still the spectre of locational or zonal pricing being implemented, as this was suggested in REMA (and consulted on) and it still a key topic of conversation in come circles. Crucially uncertainty around locational pricing in the UK means investors could be reluctant to invest in an asset that, if not given surety through “grandfathering”, could end up with a lower market price than expected.
Fixing grid connection issues is also crucial – ofgem have issued an open letter but there is still no clear solution on how we will connect all the required renewables. How the new National System Operator will contribute is also unclear.
Thus we are in a period of change and uncertainty in policy and regulation – and whilst the market hopes and expects for positive change, there is still much to clarify.
Contracts for Difference (CfD)
Many are wondering what the administered strike price, budget and pot sizes will be in CfD AR7. Will they be bigger than AR6?
Further reforms of the CfD are also possible via the resurrection of REMA or in CfD AR7. These could include capacity and deemed CfD’s ( toallow ancillary services) , streamlining appeals and auctions, allowing some repowering, phased CfD for floating offshore wind and changes to metering to allow co-location.
At the moment, the industry is waiting for more detail, but this is likely to come next year as the focus right now will probably be on executing the current CfD contracts from AR6.
Corporates Views on PPAs
There are a complex range of factors that are influencing organisations views on PPAs, including;
· Market prices and the perception of how they might evolve.
· Changing attitudes to energy price risk management.
· REGO pricing, talk of reform to REGO mechanism and public perception of “greenwashing”.
· The Energy Act 2023 means this year some businesses have to report energy efficiency and net zero actions, which could further drive zero carbon electricity.
· Perceptions on the costs of borrowing.
· Consumer confidence, the new government and interest rates.
· ESG strategy and positioning the organisation within it’s sector and with customers.
Corporates are putting more emphasis than ever on risk management and environmental and biodiversity concerns – whilst also seeking good value long term. Whilst levels of commitment and interest remain good, there can be delays and challenges in getting PPAs agreed if corporates are not able to clearly demonstrate a financial benefit (be it against concerns over price, risk or stability) in the medium to long term.
Markets
As you’d expect the interplay between PPA and long term energy/REGO pricing was of interest, as we have exited a period of very high energy and REGO prices – and things are beginning to stabilise.
There is interest in the how the CPPA and CfD markets interact and the pricing evolution longer term in both these areas as developers seek to maximise the revenue, reduce risk and attract lower cost investment. At the moment, having passed through a period of very high energy prices, there seems to be an equilibrium developing. Some organisations are waiting to see where this develops, but others are seeing clear opportunities in PPAs as projects tender a range of prices. However the sentiment appears to be that neither energy or PPA prices have fully stabilised – again with a spectrum of views as to if this is an opportunity or a challenge.
There are concerns raised about the costs/fees attached to both route-to-market PPAs (eg for CfD projects) and for the balancing and shaping of Corporate PPA contracts. High price volatility in short term and balancing markets have increased supplier risk and reduced supplier appetite for some products and technologies. This can make shaping (and balancing) for corporate PPAs a challenge – and ways to understand and mitigate this are of great interest. On the positive side, some suppliers are highly engaged in this area and have strategies to mitigate such risks, with more suppliers seeking to enter (or re-enter) the offtake market to boost their renewables portfolios and win customers who have CPPAs.
The impact of batteries on the markets and the rise of negative prices in the day ahead markets is also an area that many are keeping an eye on.
