Price Cannibalisation Poses Threat to Revenues of Unsubsidised Renewable Projects, Reports Pexapark
Titled ‘Renewables-plus-Storage Co-Location Trends: Hybrid PPAs and more’, the report explores the drivers, value streams, contractual arrangements and regional insights of this emerging market segment. It draws on the company’s market research and experience in supporting clients on hybrid projects.
July 31, 2023. By Anurima Mondal
According to the report, price cannibalisation - a phenomenon that occurs when increased volumes of renewables with the same generation profile produce at the same time and depress power prices – is posing a serious threat to the revenues of unsubsidised renewable projects. Around 64 percent of survey respondents to Pexapark’s ‘Renewables Industry Survey Report 2023’ want to introduce or increase storage in their portfolios to mitigate this risk.
The new report outlines the complexity and challenges of monetising co-located assets. Co-location creates value at both the grid and asset levels, which are not mutually exclusive and therefore require full visibility of market opportunities and sophisticated revenue modelling. Pexapark’s research demonstrated that modelling revenues was the biggest challenge when considering contractual arrangements for co-located projects.
The report highlights the role of hybrid power purchase agreements, which could offer the best of both worlds: revenues from grid services, while improving the value of the energy produced from the renewable asset.
A major takeaway is the report’s regional insights into different markets and drivers for co-location in Europe. For example, the UK leads Europe in co-locating solar and storage, with 70 percent of new solar project applications featuring batteries in Q1 2023. Co-location growth has been driven by the UK’s mature grid services and energy storage market, as well as increased contractual readiness for hybrid PPAs.
Germany has pioneered government-backed, innovative tenders that have awarded a partial subsidy to more than 1 GW of solar-plus-storage projects, leaving room for contractual innovation to further optimise the merchant exposure of the plants.
Brian Knowles, Director of Storage & Flexibility, Pexapark said, “Price cannibalisation is a key challenge for revenue management and investment decisions. We have been very active in understanding the challenges of the industry on multiple levels, and we are excited to contribute to much needed knowledge-sharing to move the needle amid this tremendous momentum we are seeing”.
Xuejiao (Jo) Han, Lead Storage Quant, Pexapark added, “Co-locating renewables and storage can create new value streams and opportunities for hybrid projects, but it also adds complexity and uncertainty to the revenue modelling. Our report aims to help developers, IPPs and funds overcome this challenge and explore this emerging and exciting market segment.”
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