PÖYRY POINT OF VIEW REPORT / 20 Apr 2015
The Death of ‘Invest and Forget’ - A brave new world for European renewables investors
A report by Pöyry Management Consulting on the growing risks facing renewable investors in European power markets.
The days of “invest and forget” are over for investors in renewable energy. Pöyry forecasts greater risk to renewable revenues as existing government supports are wound down or replaced and advises investors to gain a deeper understanding of the value proposition they are putting their money behind.
This new report from Pöyry finds that European renewables investors must significantly change their risk assessments as traditional support schemes evolve. European renewable energy markets have historically been a low risk investment proposition. Feed-in Tariff (FiT) support schemes in continental Europe have protected renewable generators from wholesale electricity price fluctuations. As assets mature however, the point in time when they will cease to be eligible for support – and be forced to trade their power in the wholesale electricity – draws ever nearer. Inevitably the value of maturing assets becomes increasingly determined by expectations of market revenues and prone to the volatility of electricity prices.
In many markets, including Germany and France, support mechanisms are also evolving, away from the traditional FiT schemes into ‘top-up’ tariffs. Under these new schemes future generators will also have to trade their power in the market but will see their wholesale market revenues ‘topped up’ from a benchmark price to a fixed support level.
The new ‘top-up’ schemes expose renewable generators to significant balancing risks and to a basis risk if the generator is unable to sell its output at the benchmark price. New projects funded under the ‘top-up’ schemes will be far more exposed to the market than their predecessors under the old FiT regime.
“The Death of Invest and Forget” highlights the significant new risks associated with the European renewables market and the need for investors to acquire an in-depth understanding of these markets in order to make informed investment decisions.