The Energy industry is seeing more and more auctions taking place as governments around the world seek the greatest value through competition. To compete, you need to sharpen your pencils across the board whilst still maintaining the balance between risk and reward.
The UK government CfD used to provide Offshore Wind early awards upwards of £100/MWh. Today the investment in the supply chain is reflected in the recent CfD clearing prices. Although prices have come down signficiantly the CfD provides bankability, without such perceived certainty lenders are unwilling to finance these projects.
SDIC Red Rock Power were provided investment management by TCEF Director, Tom Charlesworth, in the most recent CfD auction for the Inch Cape project. Tom built and managed the bid model, provided bid optimisation, analysis, tendered for the Power Purchase Agreement (PPA) and presented investment cases to shareholders.
The first seabed leasing round of its kind in the UK for a decade, Offshore Wind Leasing Round 4 opens up opportunities for around 7-8GW of new Offshore Wind to the UK pipeline. With a tight programme for auction, site selection plays a critical role in finding the best value proposition to maximise option bids, not to mention the forecasting required on where procurement pricing will be in some 5 years time along with financeable route to market.
Scotwind is another seabed leasing round for the UK that will also add multiple-GW to the UK pipeline. Generally seen to have deeper waters than Round 4, Scotwind may see more floating offshore than English and Welsh waters. However, similar to Round 4, it too will attract significant competition from developers and will require a great deal of measured risk to be taken.
The Capacity Market is the UK government auction process to help maintain security of supply and provide a route to market for new build, large scale plant capable of balancing the system. TCEF Director, Tom Charlesworth, helped to bring a new build Open Cycle Gas Turbine (OCGT) online through achieving Capacity Market auction success. The project, InterGen's 300MW Spalding OCGT, cleared the 2016 auction at £22.50/kW and completed construction in 2019. A £100m project designed to operate as peaking plant, the OCGT is capable of ramping up at short notice to help keep the lights on.
It is not just the UK that uses auctions to subsidise energy projects, Ireland is rolling out the first of a series of renewable energy auctions in 2021 as part of the Climate Action Plan whereby 70% of all generation is to come from renewable sources. RESS is a key part of this and with 10GW of Offshore Wind in the pipeline to help achieve that goal RESS is also expected to attract significant competition.
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