Podcast: How Has COVID-19 Impacted The Development Of UK Subsidy-free Renewables Projects?

• Published date: 09 September 2020
• Subject Matter: Energy and Natural Resources, Energy Law, Renewables
• Law Firm: Gowling WLG
• Author: Mr Gareth Baker

Listen in as Gowling WLG joins leading global infrastructure and renewables market analysts Inspiratia, to discuss the development of UK subsidy-free renewables projects.

In the first of two special episodes of the Joint Venture podcast, Corporate & Energy partner Gareth Baker sat down with Inspiratia and Barney Coles from renewables investor Capital Dynamics to take stock of the current state of the market.

In this podcast, we explore how COVID-19 has affected ways of working, the impact of reduced power prices and the possible consequences for the UK's development pipeline.

We also assess the tantalising prospect of renewed access for solar and onshore wind to the UK's contracts for difference support framework, and what that might mean for developers, investors and funders who may have concluded that relying wholly on merchant revenue streams locked them out of the market opportunity.

For all this and more, click the link below:

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Transcript

Jonathan McNair: Hello and welcome to another episode of The Joint Venture, the podcast that delves deep into the global renewable energy and infrastructure sectors. I'm Jon McNair and this week we return after a short break with the first of two special episodes in partnership with Gowling WLG. In today's edition we will be heading straight into a conversation I recently had with Gareth Baker who is a partner specialising in renewables at Gowling WLG, as well as Barney Coles, a director of Clean Energy Infrastructure at renewables investor Capital Dynamics.

Gareth, Barney and I got together to chat about the development of new projects in the UK renewables market with a particular focus on those being progressed without the support of government incentives. We took stock of where the market is right now, how COVID-19 had affected Gareth and Barney's ways of working as well as how the lockdown had impacted electricity prices and the knock on consequences for projects business cases.

Then we moved on to talk about the tantalising prospect of the return of solar and onshore wind to the UK's contract for difference support framework and what that might mean for developers and investors who might have given up entirely on ever being able to access that revenue stream again after several years without it.

Well, why don't we dive straight into the discussion to hear what was said on all of these topics as well as many others.

Well Gareth and Barney, thanks for joining me here today on the podcast and we are here obviously to talk about the development of UK subsidiary free renewables projects at the moment. So just to kick off very generally, firstly, and perhaps starting with you Gareth. What would you say are the key considerations for project development and subsidy free segments at the moment?

Gareth Baker: Thanks Jon. Well, the developers we are working with are focussed on the skills and the areas in which they continue to excel and be excellent and those really comprise making sure that they are getting the right kind of lands rights, making sure that they are getting a good deal and fair deal on a grid connection. But also looking at the planning and on that, as an area, we are seeing a number of projects where perhaps they didn't quite make it in the original subsidy phase and as they are right now they still don't add up economically. So a number of developers are going back in and they are looking at how they can adjust that planning in order to make the project work which might be, for example, to make a wind farm reach higher heights on its tips or it might be the size and scale of a particular development. What I would say finally is that I think a number of them are finding it refreshing that they are not necessarily chasing the next quarter. There was an awful lot of outside pressure in the rock days of that degradation date coming if you didn't get to a particular milestone by a particular date.

Jonathan: Yes, so freeing in a sense and Barney, so what's your take on how the land lies at the moment.

Barney Coles: Yes, looking at things slightly from a more financial perspective. I think if you consider the developers main drivers. They were developing with traditionally up until 2016 with a rock subsidy in mind and with that comes circa '100 a megawatt hour price for the power that those projects were going to be generating and obviously once the subsidies fell away that revenue stream is halved and as a result developers, in order to hit the similar development premium that they were getting previously, are having to really rationalise their costs and optimise their sites. Gareth mentioned the tip point extensions. That has been a major aspect of what we have seen on the development side. Then also trying to really push the underlying contractors, maintenance providers, construction contractors on price and I think what that is doing is putting more pressure on developers. It means they have got to be a little bit more potentially commercial and have really got to sweat every penny. It is much more of an American style model that we are used to seeing in places like the US but I think the other main aspect or main inspiration for developers is really on an uptake strategy and how that links to the ultimate finances of these projects. So before under the subsidy regime not a huge amount of thought really needed to go into that because developers knew the projects would end up being delivered under the rock of whatever quite [unclear] amount it was it was always going to get a rock and that was always going to be appealing to most of the financers out there.

Now the developers have a choice. They can either engage with private off takers of the power under long term arrangements with a certain buyer ultimately in mind or they might choose the more merchant room which potentially doesn't deliver as much value to them but it allows them to get projects away and sold and recycle that capital quickly. So these are the sort of things they didn't have to think about so much before. These are really very much on their, part of their thinking now and who is going to end up buying these and when.

Jonathan: Obviously we had a pretty tumultuous year this year to say the least, but in broad terms across the society and economy through COVID-19. Now lots of people tout the resilience of renewables and other kind of infrastructure sectors in the face of that but there were, perhaps back at the start of the crisis...