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There are a couple of things which are misleading about the quoted CfD strike prices. Firstly they are in 2012 prices. Secondly, they are inflated by CPI every
by tomatocracy 3y ago
There are a couple of things which are misleading about the quoted CfD strike prices. Firstly they are in 2012 prices. Secondly, they are inflated by CPI every year which means the market prices then lower than a true fixed price would be priced. Thirdly, in all rounds prior to the most recent round, what was granted by govt were actually options to enter into a CfD, so developers were able to walk away and replace CfDs with higher-priced market PPAs at COD if they wanted to (and many have indeed done that). As a result, the business plan which some developers have followed has essentially been to bid the lowest price they could get sufficient debt financing with and then try to improve on that with higher priced PPAs or finding financing willing to take merchant risk at COD.
- VBprogrammer 3y agoI actually meant to say interest rates above but that these strike prices are inflated by CPI isn't really obvious so I'm glad you've mentioned it. Is there anywhere I can read about these arrangements? It would be really interesting to know the true cost per mWh delivered from some of these schemes.
- tomatocracy 3y agoYes, interest rate rises have made a meaningful difference too via their impact on cost of capital/discount rates/IRRs demanded. There's a summary at the House of Commons library website here. I hadn't seen it before today but it seems to cover most of the key points I'm aware of (from investing in the UK and European power space for work) and is reasonably concise: https://commonslibrary.parliament.uk/research-briefings/cbp-9871/ https://commonslibrary.parliament.uk/research-briefings/cbp-...
- VBprogrammer 3y agoThanks for digging that out. I'll take a look at it later.