Article

Energy Market Predictions 2019

Post subsidy world – are we there yet?

December 18, 2018

As 2018 draws to a close, we look back at the impact of:
 

  • Deep divisions at COP24 in Katowice, Poland, on establishing a common rulebook for implementing the Paris Agreement, despite increasing signs that global warming is accelerating;
  • Resurgent European carbon price clearing at €20 per tonne for first time since 2008 while the United States registers the largest annual retirement of coal on record;
  • Non-hydro renewable electricity generation rising on both sides of the Atlantic, with a new record set by windfarms in the UK during Storm Diana through supplying about a third of the UK’s electricity;
  • European Commission ending minimum import prices (MIPs) on Chinese solar imports while record low electricity supply tender prices enabled new wind and solar to undercut short-term costs of generating electricity from existing coal and gas plants; and
  • The shock suspension of the Capacity Market coming just days ahead of Ofgem’s minded-to decision on the Targeted Charging Review and an announcement from BEIS confirming a £60m Contracts for Difference (“CfD”) budget for offshore wind in the UK.
What is the lucky colour for 2019?

In the wake of these developments it is timely to pause, take a breath and reflect on what the New Year may have in store for the low carbon economy. In 2019 we anticipate investors will reflect on the prospect of further withdrawals of renewable energy subsides and increasing merchant exposure. Notwithstanding these moving parts, as is tradition we are pleased to share our top 10 predictions for the New Year…

  1. Despite trumped up dramas over trade tariffs, the banality of Brexit and falling technology costs - 2019 will be the ninth consecutive year global renewable energy transaction volumes surpass US$200bn, with an upside case delivering a US$300bn high water mark.
  2. Building momentum in the transition to zero-subsidy renewables and growing deployment in emerging markets will help deliver over 200GW of new renewable energy capacity globally in 2019, driven by sustained investment in utility scale solar and an expanding offshore wind sector.
  3. Continued investment in Europe will ensure the EU reaches its 20 percent target for renewable energy by 2020, buoyed by the build out of over 2GW of zero-subsidy projects in 2019.
  4. A strong price cannibalisation effect from renewable output will provide increased volatility to UK prompt, spot and imbalance prices over the year ahead, with imbalance prices topping their previous high of £1,500/MWh to reach £2,000/MWh.
  5. With over 6GW of offshore wind sites chasing UK CfDs in the Spring, we will undoubtedly see huge competition, but the highly aggressive administrative strikes mean that many investment committees will have some tough decisions to make as returns are squeezed ever tighter.
  6. We see no sign in M&A activity abating in the offshore wind space with increasing global development activity supported by continued interest from Asian investors plus we expect at least one more oil major will enter the market in 2019.
  7. On the back of Ofgem’s strategic paper on Smart Systems and Flexibility and National Grid’s System Needs and Product Strategy (“SNAPS”) consultation we expect to see a growing market place for innovative route to market products delivering greater floor price protections and increased value capture potential.
  8. Transaction activity for flexible generation and storage will rebound on the anticipated reinstatement of the UK Capacity Market mechanism unlocking in excess of £500m in committed capital in H2 2019.
  9. The build-out of the first large scale grid tied battery on a fully merchant basis plus over 250MW zero subsidy solar plants to reach financial close in the UK on the back of bespoke Route to Market agreements and corporate PPAs.
  10. At least five capital raises in the UK electric vehicle (“EV”) charging infrastructure space underpinned by the launch of the UK Government’s £400 million EV charging fund and rising plug in EV sales, which are expected to break through 10,000 sales per month in 2019.
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