Tuesday, October 7, 2014

Is the end in sight for renewable subsidies?

FINLAND: Pöyry’s latest Point of View report, ‘Is the end in sight for renewable subsidies?’, explores when grid parity for solar and wind might happen and what the implications could be. Grid parity occurs where emerging technologies such as wind and solar produce electricity at the same levelised cost as buying power from the grid.

It has long been considered the ‘holy grail’ for renewables as it will usher in a new era of unsubsidised renewables where market forces, not subsidies, would drive large scale deployment. The revenues of any investment now undertaken with a defined economic life (e.g. 30 year) will be affected by the build of unsubsidised renewables (as typical subsidy regimes are 10-20 years in duration).

As a result, investors must ensure their revenue projections post-subsidy period take into account the impact of increasing amounts of competing (unsubsidised) renewables – which will act to lower their capture prices and revenue post-subsidy. If they don’t take this into account, they risk overestimating the long-term profitability of projects built at the moment.

With a focus on Europe, the analysis has been conducted by Poyry’s state-of-the-art electricity model BID3. The report defines grid parity, explores where and when it might happen first and the implication of it being reached.

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