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Aurora Spring Forum, March 2018

The Aurora Spring Forum is one of the leading gatherings of the European energy industry; bringing together industry leaders in an exclusive and intimate setting at Oxford University to engage on key issues impacting GB, European and global energy markets. Throughout the day, delegates discussed the policy, technology and finance perspective of the energy transition as well as the competition and interplay between conventional and renewable energy.

Our keynote speakers this year included: The Rt Hon Claire Perry MP (Minister of State, BEIS), Magnus Hall (President & CEO, Vattenfall), Rachel Reeves MP (Chair BEIS Select Committee) and Alistair Phillips-Davies (CEO, SSE)

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Commentary

Renewables have become very cheap – depending on how you do the calculations, cheaper than new build CCGTs.  Therefore, they should be able to be deployed ‘subsidy-free’. Indeed, we have seen a few, relatively small projects, which have taken the wholesale market price risk and been deployed without subsidy in the UK. But the more renewables we deploy, the more those renewables ‘cannibalise’ their own capture prices.

In economic models, where we often assume rational actors with perfect foresight, renewables should build only to the extent that price cannibalisation prevents the additional marginal unit of new build renewables from meeting their required rates of return and all the existing assets proceed to make a sensible return for their investors. In the real world, there are two very sub-optimal, potential alternative scenarios.

  • The first scenario is that renewable investors think price cannibalisation is too much of a threat, and the nascent subsidy-free renewable model never really gets going.
  • The second (but less likely) scenario is that renewables do take off subsidy-free, but that we overbuild and renewables investors get burnt when the capture prices for their assets fall and they do not make sufficient returns.
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Aurora Energy Research provides data and analytics on UK, German, European, and global energy markets. Aurora Energy Research provides data and analytics on UK, German, European, and global energy markets. The result is bankable intelligence that drives commercial lending and investment decisions, and national policy formulation.

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