OTHER NEWS 20 Apr 2015
The Death of 'Invest and Forget' - a brave new world for European renewables investors
A report by Pöyry 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 Management Consulting 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.
A 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.
Phil Hare from Pöyry Management Consulting says “Investors in renewable energy must fully understand the nature of the markets from which their assets increasingly earn revenue, in order to place a value on them. There is now real focus on France and Germany in this respect. Operators will also have to actively manage these new risks by setting up trading operations or finding financial or physical trading counterparties and then implementing risk management strategies. The virtually risk free environment of FiT schemes, where investors could invest and forget, will cease to exist.”
Pöyry’s experts have an intimate knowledge of renewables markets. The risks they have identified to existing asset portfolios, as support is wound down, and to new investments made under more market-orientated support mechanisms will unavoidably impact on asset valuations. “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.
For further information contact:
+44 207 413 3161
External Communications Manager, Pöyry
+44 7824 145091
Pöyry is an international consulting and engineering company. We serve clients globally across the energy and industrial sectors and provide local services in our core markets. We deliver management consulting and engineering services, underpinned by strong project implementation capability and expertise. Our focus sectors are power generation, transmission & distribution, forest industry, chemicals & biorefining, mining & metals, transportation and water. Pöyry has an extensive local office network employing about 6,000 experts. Pöyry's net sales in 2014 were EUR 571 million and the company's shares are quoted on NASDAQ OMX Helsinki (Pöyry PLC: POY1V).