Posted on: 01/10/2020
Following the launch of our Smart Generation: State of the Market Report 2020, Head of Smart Generation, Angus Widdowson pulls out some of the key takeaways in this latest blog post.
2020 has been a year unlike any we’ve seen before. The COVID-19 pandemic changed the world as we know it and the energy sector has been no exception. Despite this, independent renewables have continued to deploy and make up an ever-increasing share of the overall fuel mix. Let’s not forget that the UK went a record 67 days without using coalfired generation earlier this year.
Context is required therefore when we see that 2020 represents a 10-year low, with just 75MW of independent generation deploying in the UK. Looking at a slightly longer timeframe, 280MW of independent renewable generation deployed in Scotland across 2019-20, accounting for 11.4% of all generation which became operational during the period, showing the enduring suitability of the region to independent renewables.
However, recent (and future) reductions in the value of embedded benefits as a result of Ofgem’s Targeted Charging Review mean that embedded generators sited away from large demand centres are becoming more reliant on volatile wholesale market revenues. As a result, these projects may find the ability to turn down via balancing services such as ‘Optional Downward Flexibility Management’ (ODFM) or participation in other markets, such as the Balancing Mechanism (BM) an attractive option moving forwards.
As a company, we are already seeing energy entrepreneurs respond to these emerging challenges and opportunities by taking new and innovative approaches to deployment. Co-location with storage to enable greater flexibility remains front of mind as technologies such as solar get ever closer to grid parity (74MW of operational battery storage is now co-located with renewables) whilst maximising revenue streams by operating across multiple markets; flexible approaches to selling power; and Corporate PPAs are all playing a part in helping projects deploy without subsidy.
What we can draw from all this then is that the turn of the decade marks a real moment of transition for independent renewables. Whilst Contracts for Difference remain a potential route to market and the Capacity Market is now open to those who deploy subsidy-free, energy entrepreneurs are now operating in a much-changed landscape. With guaranteed revenues ever-less likely for the majority of projects, the upcoming shift to merchant revenue models mean that funders behind generation projects are re-assessing their appetite towards risk in the post-subsidy environment.