2018: The year of subsidy-free renewables

The UK energy system is evolving quickly and the landscape for renewable generators has changed considerably over recent years. With the reduction of subsidies and technology costs falling, will 2018 be the year that subsidy-free projects take off? Chief Commercial Officer David Cockshott shares his views on the year ahead.

The renewables sector is definitely starting 2018 on a high. 2017 was the “greenest year ever” according to National Grid and 13 different renewables records were broken over the course of the year.

In the Autumn budget the Government confirmed a moratorium on low-carbon subsidies, apart from existing commitments, until at least 2025 when it expects the cost of current support to start falling.

As I said in my blog published just after the budget announcement, this will force the sector to stand on its own two feet. Renewable projects still need to be built so generators must look for creative commercial solutions to fill the gap left by subsidies.

Falling technology costs have made subsidy-free projects much more achievable. The UK’s first subsidy-free solar project went live last summer, and we know from our own conversations that other projects are moving forward without government support.

Co-located battery storage seems to be boosting the business case for these projects, as it can allow renewable generators to mitigate the intermittency of their generation and create more predictable revenues.

As we’re seeing saturation of the standalone battery market and a decline of ancillary revenues (only 2% of the T-1 Capacity Market contracts awarded last week went to battery storage), could the battery momentum shift to co-located instead? It certainly seems possible, as it provides a win-win for both the renewable and storage assets and offers many synergies in terms of sites and grid connections.

So why do I believe 2018 will be the year of subsidy-free projects?

Because this year is bringing a so-called “perfect storm” of conditions to force energy entrepreneurs to move ahead with the subsidy-free model.

I’m also excited by the increasing focus on corporate Power Purchase Agreements (PPAs) in the UK, as the changing economics of the market are reigniting interest in this opportunity.

Corporate PPAs remove the uncertainty for renewable generators by providing a long-term commitment from a corporate user, and help the corporate user meet their carbon reduction and energy security ambitions.

We are working with both generators and consumers to overcome some of the existing challenges with the corporate PPA model and look forward to sharing the detail of the innovative solution we have developed.

By solving the perennial conundrum of producers wanting to sell above market and buyers wanting to buy below market, we have a methodology that means that corporate PPAs can work for anyone - buyer or producer - prepared to commit to a medium-term duration.

We’ve been working with generators since 2001, so we have been with the sector through the huge growth driven by subsidies – and look forward to being part of continued growth in the new post-subsidy world.

About the author

Dave joined SmartestEnergy in 2017 and is responsible for all commercial activity across retail supply, generation, trading and asset optimisation. He has held director level roles with both “Big 6” and large energy consultants and he played a leading role in the development of flexible contracts in the industry. Dave joined SmartestEnergy from Inenco Group where he was Chief Commercial Officer with board responsibility for client relationships. Previous roles have included both I&C and latterly Domestic Market Director for npower, managing a team of over 1,400. He has also worked for Utilyx and Northern Electric and Gas. He is a Member of the Institute of Directors.

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