Welcome to a brave new world for European renewables investors, says Phil Hare, Director at Pöyry Management Consulting. If the predictions are to be trusted, exposure to market prices and imbalance risks may result in very different values for current and future asset portfolios…
For many investors, renewables have been seen as an ‘invest and forget’ class of assets- with the upfront capital outlay opening up a long term and (fairly) dependable cash flow. But with renewables now facing growing power market risks in many European countries investors are going to need to take a much more active role in managing their portfolios.
This exposure to electricity market risk is down to changing support mechanism or simply the result of projects reaching the end of their support period with many years of operational life left within the investment horizon.
Additionally, wind farms face other risks in their lifecycle: development, construction, operational and weather, but these market risks are a new and important development for many continental European renewable generators. Furthermore these market risks can be higher than the risks faced by thermal generators; so renewable investors will need to filly understand the value proposition they are putting their money behind.
Support schemes are changing for new developments…
Recent pressures on the general level of support being provided for renewables by governments, combined with new state aid guidance on appropriate support scheme design, are significantly changing the landscape for investors.
Historical Feed-in Tariff support mechanisms (FiTs) favoured by countries like Germany cushioned wind and solar technologies from wholesale energy price fluctuations as well as market imbalance risks. But current trends are seeing renewable support mechanism for new projects converge on a single model – the variable ‘top-up tariff’:
