Merchant finance for renewables projects is unlikely to lead to mass capacity additions to the generation fleet, according to a new paper from Cornwall Insight.
Cornwall Insight surveyed 258 individuals across the industry on what type of merchant onshore wind projects are most likely to succeed and what the implications might be for the developers who take them forward.
Fully merchant projects are rarely considered financially viable, with only 7% of respondents saying they would invest in such plants, the survey found.
Other findings include investment premiums for the risk are prohibitive, hurdle rates are unlikely to be met, while price volatility and cannibalisation concern investors the most.
Cornwall Insight research partner Daniel Atzori said: “Currently, it is hard to see investors taking the leap of faith on merchant renewables when debt leverage is low, and expectations of price volatility and capture price cannibalisation is high.
“On top of this, the sheer volume of decisions in policy and regulation, and the scale of technological development that could unfold over the medium to long term, makes it difficult for investors to be confident in these types of projects.
“These factors create more uncertainty today about long-term power prices than ever before.
“This may explain why so few fully merchant onshore wind financings have actually taken place in Great Britain and Ireland, and in reality, may struggle to ever really take off at all.”
Based on Cornwall Insight’s survey findings, merchant projects or part merchant are unlikely at this stage to lead to mass capacity additions to the renewables generation fleet.
Atzori added: “Governments hoping to see lots of merchant projects be developed through private capital are likely to be disappointed.
“If, as the consensus analysis shows in both GB and Ireland that technologies like onshore wind will be required at scale to meet decarbonisation targets, then it will be vital that auctions are calibrated to buy as much of the target capacity as possible.”