Whether discussing REMA, TNUoS reform or delivery of government targets, the question of investability is key. However, unless you are directly involved in project investment decisions, it is challenging to understand how a particular reform will affect investment decisions in practice. Costs, revenues and assumptions about financial parameters such as ‘hurdle rates’ are commercially sensitive. Often, it feels like these debates are held in the abstract, with little access to real-world numbers.
To make the discussion about Clean Power 2030 a little more concrete, Regen has laid out a simple financial model for a wind farm in the North of Scotland using, as far as possible, publicly available numbers. We apply this to five scenarios to explore how a developer reaching Final Investment Decision (FID) in the first half of 2025 might fair.
The scenarios cover:
- Negative pricing in a national market
- Negative pricing in a national market and capped TNUoS charges
- Zonal pricing
- Poor performance in the merchant tail period after the CfD
Based on the assumptions used, we conclude that, while there is a way forward that maintains investability in onshore wind in Scotland, there is significant risk that reforms lead to uninvestable scenarios.
However, this analysis is a first pass. We expect many of the assumptions to need adjusting. Are the hurdle rate or Capex costs (which we take from the UK government’s 2023 figures) too low? What assumptions are reasonable for the prevalence of negative pricing? What might happen in a zonal market?
We need a clearer understanding of the numbers. Your input will be valuable. The paper concludes with a set of questions which we think it would be useful for government, Ofgem and the wider sector to understand better. We would welcome your input – publicly, or confidentially. Please reach out to Simon Gill via email.
