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Home/How low can it go? Merchant risks in a subsidy-free world – Friday 1 June 2018

How low can it go? Merchant risks in a subsidy-free world – Friday 1 June 2018

The emergence of subsidy-free renewables is set to revolutionise European power markets. Aurora’s estimates indicate an 18 GW investment opportunity in unsubsidised assets in GB alone by 2030, and up to 60 GW across North-West Europe – over a third of all renewables investment over that period.

While undoubtedly a large opportunity, unsubsidised assets also pose a big challenge, changing the rules of renewables investment. It does not help that the merchant risks are becoming more complex. Gas and carbon prices – historically explaining most price movements – will remain the strongest drivers, but cannibalisation will be almost as important.

Quantifying the risks and accounting for their correlations will be vital in establishing a P90 lower bound – a robust view on how low capture prices could go, which could unlock a role for debt financing of subsidy-free projects. Such quantification of risks would also critically inform any risk transfers – e.g. through long-term corporate, industrial or utility PPAs, synthetic hedges, or subsidy-free CfDs.

In this session, Aurora will present a follow up to their earlier analysis on subsidy-free RES and explore the lower bound for capture prices, answering the following questions:

  • What are realistic scenarios that could push power prices down for renewable technologies?
  • How low can capture prices go for each renewable technology?
  • How should the cost of capital be priced for unsubsidised renewables projects?
  • What are the key strategies available to reduce a project’s exposure to these risks and how can government, financiers and developers intervene to alleviate them?

If you would like to listen to the recording, please get in contact

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