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July 2019

Jun

Risky business: forecasting revenues for green power

Charlotte Farmer
Charlotte Farmer Analyst
25 July 2019

Our recently published Green Power Forecast provides a five-year outlook of revenue streams available to green generators. We forecast prices for wind, solar and baseload projects, providing a theoretical maximised revenue stack for comparison against PPA offers.

Our Chart of the Week shows an annual forecast of revenues for onshore wind projects with high voltage connections to the distribution network, using a national average figure for embedded benefits. Values are given for export-only revenue; however, most sites will also be in receipt of subsidy payments from either the Feed-in Tariff or Renewables Obligation schemes.

Power prices – backwardation & cannibalisation

The revenue from wholesale power declines over time due to backwardation in the market, meaning future power contracts are priced lower than those closer to delivery. This trend causes a decrease in revenue of ~£5/MWh over the forecast period.

Wind assets are also impacted by price cannibalisation. This is the depressive influence on the wholesale electricity price at times of high output from intermittent, weather-driven generation such as solar, onshore and offshore wind, and this trend is set to rise.

Embedded benefits – uncertainty remains

In this edition of the Green Power Forecast, we analysed the potential impact of proposed changes to the Balancing Use of System Charge (BSUoS) embedded benefit. Ofgem’s most recent minded-to position would see BSUoS swing from an embedded benefit to become a charge from April 2021. In total, embedded benefit values fall by £6.46/MWh (59%) between 2020-21 and 2021-22 in our forecast, with changes to BSUoS as the primary driver.

However, there is no confirmed position on BSUoS reform at present, with several options being explored.

Rego values – some respite for generators

Amidst a developing market for Regos, we have increased our assumptions of prices to 40p/Rego for onshore wind projects. While Regos remain a minor component in a generator’s revenue stack, the trend of rising values provides some respite for renewables generators that are seeing values eroded elsewhere.

The overall picture shows declining revenues for green generators in the next five years; however, the PPA market remains highly competitive keeping realised values close to our Market Benchmark Price. Whilst most operational generators are subsidised, it will be the subsidy-free projects looking to find a route to market that will be most impacted.

If you are interested in our Green Power Forecast report, please contact Charlotte at C.Farmer@cornwall-insight.com.

 

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Corporate PPAs – Current and Future Commercial Considerations Webinar

REGOs – Values, Market Sentiment and Outlook Webinar

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