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Britain’s uncompetitive electricty marke: big electricity companies don’t want the competition from renewables

Dave Toke’s Blog 1st April 2018, The media is awash with stories of the imminent emergence of ‘subsidy free’
wind and solar power in the UK, but the reality is that the uncompetitive  nature of the British electricity market mostly undermines that prospect.
In theory onshore wind power and maybe some solar power projects would be able to generate power to sell at competitive prices on the British
wholesale electricity market.

In practice most of the potential buyers of energy from new renewable energy projects will not be interested in buying
the energy even at cheap prices simply because it conflicts with their own  generation portfolios. True, there is a limited possibility for some very
large corporate consumers who are interested in buying green electricity to fund new projects by issuing corporate power purchase agreements (PPAs).

But in reality this market is small, and I have heard this estimated to be no larger than 100 MW a year. That means it would take around 20 years for
not quite 1 per cent of electricity to be supplied this way. PPAs are  needed for new renewable energy projects that offer the generators the
certainty that they can be paid a minimum amount for each MWh that they  produce for the long term. The UK Government’s PPAs, called contracts for
differences (CfDs), last 15 years. However they are no longer available for  onshore wind and solar.

The problem is that most of the market for offering PPAs that can fund new renewable energy projects comes from the big
electricity suppliers, who have been known in the past as the ‘Big Six’.

Only PPAs offered by really large companies will be usually taken seriously enough by banks and and other institutions to enable renewable energy
projects can obtain long term loans or equity. The trouble is that the Big Energy suppliers will usually have little interest in offering long term
PPAs to new renewable energy projects since. For a start they can buy in power at much the same price as the renewable energy generator can offer
without needing to commit themselves to long term agreements.

Crucially, the big electricity companies are struggling to keep their own power stations in business, and are not going to sign up competition from other people for their own business!


April 2, 2018 - Posted by | business and costs, ENERGY, UK

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