Posted on: 14/05/2018
With the ROC scheme closed, no review scheduled for FiT and only one CfD auction planned, a future without renewable subsidies is almost certain. Chris Smith, Head of Renewables, explains how generators can maximise revenues in a subsidy free landscape.
Technology enhancements and reduced costs means there is still potential for independent renewable generators to thrive without subsidy support, as long as they unlock the value in their assets by becoming more flexible. Adapting your approach can ensure you take full advantage of the changing energy system.
Last week SmartestEnergy launched the 6th Annual Energy Entrepreneurs Report, which includes a section on the future of independent generation in a post-subsidy era.
Active hedging strategy
One way to get more value from your assets is to adopt a more active hedging strategy. Maximising the price you receive for your power becomes more important in a subsidy-free world, so take advantage of wholesale price movements instead of following the more traditional ‘once-a-year’ price fix.
If you have the capability and experience to know when to hedge, then the best fit may be our Flexible PPA option. It gives you full control over when and how your power is sold onto the wholesale market.
If this feels like a big leap, then maybe our Managed PPA may be a better option. It provides an active hedging strategy without having to invest in monitoring the market. We set a reference price for each season and manage your hedging activity based on triggers.
To find out more about our various Power Purchase Agreement (PPA) options, download our new Guide to Choosing the right PPA for your project here.
Another approach that we are seeing more frequently discussed, is increasing the intensity of the generation capability on your site. Having secured a grid connection, can you add a complementary technology or new assets to extend your generation capacity?
Depending on the types of technology you are looking to add, you might also be able to access different source of revenues, stacking services to make the commercial case for further investment.
Another option that is gaining traction in a subsidy free landscape is to set up a corporate PPA. A Corporate PPA an agreement between a generator and a large investment grade consumer, often facilitated by an energy company.
The consumer business agrees to buy the power from a generation project at a guaranteed price for a long period of time, often up to 15 years. This provides the generator with the long-term price commitment needed to secure funding, hence allowing new projects to be commissioned without subsidy.
An increasing number of business customers are showing interest in Corporate PPAs, both for long-term price certainty, and for the sustainability benefits that they can deliver.
I believe we will see more of these agreements taking place in the future as all parties adjust to the new environment.
There are many ways generators can adapt to the changing energy landscape, the first step will always be to choose an experienced aggregator to ensure you are optimising revenues.
About the author
Chris joined SmartestEnergy’s Renewables team in 2017 from Danish energy trading company Neas Energy. He works with generators to develop solutions to help them maximise returns in a changing environment for renewable projects. Chris began his career in the energy sector in 1996 with Eastern Natural Gas. He went on to work as a Generation Services Senior Business Development Manager at RWE npower, developing PPA solutions for customers. He has also worked on the supply side with industrial and commercial users. His role as Business Development Manager at Neas saw him build its UK PPA and CHP portfolio from market entry. Chris has a BA in Business Studies from De Montfort University, Leicester.