Enabling a high renewable, net zero electricity system: what does our future energy market look like?

The BEIS call for evidence, which is due to close in less than a fortnight’s time asks this very question.  It focuses on three key areas:

• Maintaining growth in renewable deployment to meet net zero targets:  How long should the Contract for Difference (“CfD”) remain?  How should market structures evolve and change to support the vast growth in renewables deployment that is needed to reach the Government’s 2050 net zero target?  How are viable, non-CfD backed renewables and low carbon projects being developed and what revenue streams are they using to underpin their financial model?
• Ensuring overall system costs are minimised: How can market signals incentivise behaviours from renewables projects that doesn’t hinder the increased flexibility needed in our energy system?  What locational signals should be considered?
• Supporting and adapting to innovative technologies and business models:  Should the CfD support co-location of technologies or pairing generation and flexibility across different locations in a virtual power plant?  Should the CfD support repowering of older projects?

I recently participated in a Regen webinar where representatives from BEIS, alongside an industry panel debated these key questions.  There is no easy answer, but what is clear is the importance of long-term market signals, which will allow developers to plan and invest with confidence.  The government must set out a strategic vision, backed by long-term signals.  Whilst we have seen prices for successful future offshore wind projects in the most recent allocation round fall to a third of what was awarded to projects in the first competitively allocated round, back in 2015, the need for price certainty has not reduced.  The announcement of auction parameters for the allocation round four, including budget allocations, and capacity caps are keenly awaited. 

In the meantime, developers continue to consider other routes to market, and we are seeing a continued demand (from both generators and customers) in corporate PPAs and other similar products.  In 2020, Burges Salmon advised on five corporate PPAs, including advising:

• Voltalia on its PPA tender to the City of London Corporation to build a 49.9-megawatt solar power plant to supply green electricity to the City (the first of its kind in the UK to be signed directly between a renewables producer and governing authority)
•  Low Carbon on the PPAs with Tesco, which will see the creation of three solar farms generating up to 130GWh of energy per year. 

A corporate PPA can offer generators price certainly outside of the CfD, whilst enabling customers to demonstrate a commitment to additionality and traceable renewable energy from a specific generating facility.   They are not for everyone and there will only ever be a certain number of corporates who will want or be suitable to enter into these arrangements but creative routes to market are being designed.  We expect to see demand grow as the market looks to ways to fund the very significant investment needed to decarbonise the grid.

Achieving our ambitious climate targets will require significant levels of renewable deployment. Making sure we have the right policy framework to support this deployment will be crucial to delivering net zero while minimising costs for consumers

https://www.gov.uk/government/consultations/enabling-a-high-renewable-net-zero-electricity-system-call-for-evidence