EDF Energy predicts that the renewable generation market in the UK is set to double over the next five years to reach the 75TWh mark – a contribution of roughly 20% of the UK’s total generation capacity – as the cost of technology comes down and a larger volume of accredited projects come online.
The growth in the renewable market is expected to be driven mainly by independent generators in the wind and biomass sectors, which by 2017 might account for around 60% of the total renewable generation market.
According to EDF Energy, existing independent specialist generators are expanding their operations whilst many other businesses are establishing their own independent generation operations, leading to significant growth in the sector. Smaller generators, in majority waste and water management businesses, utilities and industrial/manufacturing units, are expected to be key in driving growth in the non-specialist generation market.
To capture the full benefit of their investment, businesses should look into commercial contractual arrangements that help them manage their individual risk-reward business policies. Thus, to improve the business case for investing in their own power generation, those new to the market should seek best practice from established experienced generators as government incentives seem certain to plateau.
Paul Bennett, senior manager of EDF Energy’s Export and Low Carbon Energy team said, “Our projections for growth in independent generation simply highlight the potential opportunities for all types of businesses. We are keen to help new and existing generators understand how their risks and returns can be optimised by learning from experienced generators and traders and engaging in a power purchase agreement that can be tailored to suit their specific management approach.”
EDF Energy has recently signed a landmark contract with one of the UK’s leading recycling and waste management companies, which is an example of how specialist and non-specialist generators can maximise benefits with the right guidance and approach.
This company combines its electricity demand and self generation into an innovative single contract with hedging and trading flexibility. Its business driver is to manage the exposure to wholesale market price movements by aligning its off-take and supply energy requirements over a single contract.
Bennett added, “With the predicted growth in the market, it is encouraging that self generating businesses are taking the opportunities available, but there is plenty more to achieve.
“This most recent contract agreement is an example of best practice and where businesses that currently generate, or are starting to generate their own power, can aim to be. It is a breakthrough for these types of businesses because they can now have a longer term framework agreement under which market exposure can be effectively managed through financial netting and trading.
“By consolidating import and export volumes, this company has been able to mitigate the price risk volatility of the wholesale market through a financial self supply netting arrangement where the consumption energy rate is set at the same level as the self supplied export energy rate.
“Consequently, they have eliminated the bid/offer spread which is typically in the region of £0.50/MWh based on current market prices and have removed the price risk of their self supply volumes. Through the financial netting mechanism, the customer has saved the cost of selling low at bid prices and then having to buy back at offer prices which is not an option if locking supply and export volumes and energy rates separately.
“Further, we can combine a multi-site generation portfolio into a single net export power position that can be sold into the market when the customer wants. So it’s an efficient and transparent way for a business to manage their entire power portfolio.”