Bracewell ( UK ) LLP 127
■ Intermittency of output ( given that renewable sources , by their nature , will vary and not be continuous ) presents an issue for renewables integrating into a stable power supply . This can be mitigated , to some extent , with energy storage systems . However , whilst the technology is developing rapidly and the costs are falling , such storage systems can be expensive ( particularly on large-scale projects ).
■ Much of the technology involved with renewables project is new or rapidly evolving and there is an investment risk associated with any nascent technology , including in respect of deployment issues and risk of obsolescence .
■ Grid inflexibilities mean that integration of variable renewable sources into grid infrastructure creates increased complexity , including with respect to balancing supply and demand .
2.6 How are large utility-scale renewable power projects typically tendered ?
The CfD scheme is the government ’ s main mechanism for supporting low-carbon electricity generation ( see question 3.2 for more detail ).
CfDs are awarded in a series of competitive auctions , which drives efficiency and cost reduction . To date , there have been three successful CfD allocation rounds ( 2015 , 2017 and 2019 ). The fourth allocation round , planned for December 2021 , is expected to include auctions in different pots : one for “ established ” technologies ( including onshore wind , which was excluded from the previous round ); one for less-established technologies ( such as floating offshore wind ); and a third for offshore wind projects .
2.7 To what extent is your jurisdiction ’ s energy demand met through domestic renewable power generation ?
The share of UK electricity generated from renewable sources has increased dramatically in recent years , with a 500 % increase in the amount of renewable capacity connected to the National Grid from 2009 to 2020 .
In 2020 , electricity from renewable sources became the largest source of electricity in the UK for the first time in history , providing 42.9 % of all UK power , with fossil fuels ( primarily natural gas ) accounting for 38.5 %. The Q1 2021 figure is slightly lower , at 41.6 %, as a result of less-favourable weather conditions .
32 Sale of Renewable Energy and Financial Incentives
3.1 What is the legal and regulatory framework for the sale of utility-scale renewable power ?
The Energy Act and related secondary legislation provide the main legal and regulatory framework for the sale of utilityscale renewable power in the UK and implement the UK ’ s Electricity Market Reform policy . The Energy Act supplements the Electricity Act and the Utilities Act 2000 , which provide a legal and regulatory framework for the wholesale electricity market generally in the UK .
3.2 Are there financial or regulatory incentives available to promote investment in / sale of utility-scale renewable power ?
The primary incentive schemes related to renewable energy include :
The Renewable Obligation ( RO ): the RO scheme , which came into effect in 2002 in England , Wales and Scotland , followed by Northern Ireland in 2005 , was previously the main financial mechanism to incentivise large-scale renewable electricity projects in the UK ( see question 3.7 for more detail ). The RO scheme closed to all new generating capacity on 31 March 2017 and has now been replaced by the CfD scheme .
The CfD scheme : the CfD scheme is the primary mechanism to incentivise new low-carbon electricity generation . The CfD is a quasi-PPA between an eligible generator and the Low Carbon Contracts Company ( LCCC ), a wholly government-owned company established under the Energy Act . Generators with a CfD sell their electricity into the wholesale electricity market in the typical way ; the CfD then pays the difference between an estimate of the market price for electricity and the generator ’ s lowest estimate for the costs of developing , financing and operating the given technology ( the strike price ). When the market price is below the strike price , the generator receives a top-up payment from the LCCC for the additional amount . However , when the market price is above the strike price , the generator must pay back the difference to the LCCC . Although a CfD is a private law contract between a low-carbon electricity generator and the LCCC , it is issued under a detailed statutory framework under the Energy Act .
The Offtaker of Last Resort ( OLR ): the OLR scheme aims to promote the availability of PPAs . It is intended as a last resort to help independent renewable generators who cannot get a PPA through the usual commercial means by providing eligible generators with a guaranteed “ back-stop ” route-to-market at a specified discount to the market price .
3.3 What are the main sources of financing for the development of utility-scale renewable power projects ?
The offshore wind sector currently represents the primary source of financing activity for large-scale renewable projects in the UK . A low interest rate environment coupled with a large number of lenders looking to participate in this sector has provided project developers with favourable conditions to finance their projects in recent years . To date , the main source of debt financing has been commercial banks ; however , we have seen participation from export credit agencies ( the Japanese ECA JBIC lent to the Moray East offshore wind farm in 2018 ). In recent years , we have also seen investment activity from new entrants to the market , such as pension funds ( Danish pension funds PFA and PKA invested in the Walney Extension offshore wind farm in 2017 ) and infrastructure investors ( Dalmore Capital Limited and Pensions Infrastructure Platform acquired a minority stake worth £ 701 million in 24 UK wind farms owned by EDF in 2018 ).
3.4 What is the legal and regulatory framework applicable to distributed / C & I renewable energy ?
Distributed and C & I renewable energy facilities are subject to the same legal and regulatory framework as utility-scale renewable energy facilities with respect to the sale of electricity , participation in the wholesale market and connection to distribution and transmission networks .
3.5 Are there financial or regulatory incentives available to promote investment in distributed / C & I renewable energy facilities ?
Available incentives include : Feed-in Tariffs ( FiT ): the FiT scheme supports investment in small-scale renewable and low-carbon electricity generation
Renewable Energy 2022 © Published and reproduced with kind permission by Global Legal Group Ltd , London