Renewables investors face rising volatility

The market for investors in renewable energy is about to become a lot more volatile as Governments around Europe wind down subsidy support.


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A report from Pöyry Management Consulting claims that we are seeing the death of ‘invest and forget’, and says investors must significantly change their risk assessments.

European renewable energy markets have historically been a low risk investment proposition, as Feed-in Tariff (FiT) support schemes protect renewable generators from wholesale electricity price fluctuations.

However, many generation assets are approaching points when they cease to be eligible for subsidy support and they are exposed fully to the fluctuations of the market. 

Exposure

In the UK, the ROC scheme will end for new projects in 2017 and be replaced the Contracts for Difference scheme. This will insulate projects from wholesale markets fluctuations, but leave them exposed to balancing costs.

Similarly, many markets, including Germany and France, are evolving away from the traditional FiT schemes into ‘top-up’ tariffs.

The new ‘top-up’ schemes expose renewable generators to significant risks if the generator is unable to generate and sell energy at the wholesale market price. New projects funded under the ‘top-up’ schemes will be far more exposed to the market than their predecessors under the old FiT regime.

Part of the problem, says the report, is the volatility of the power market itself: 

Phil Hare from Pöyry management Consulting said “Investors in renewable energy must fully understand the nature of the markets from which their assets increasingly earn revenue, in order to place a value on them.

“The virtually risk free environment of FiT schemes, where investors could invest and forget, will cease to exist.”

In 2013, renewable energy was revealed to be the British public’s second favourite investment choice.

Brad Allen

© Faversham House Ltd 2022 edie news articles may be copied or forwarded for individual use only. No other reproduction or distribution is permitted without prior written consent.

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