http://www.cir-strategy.com/events

1. Independent
Power
Provision
in
the
UK
Presenta)on
to
4th
Annual
Smart
Grids
&
Cleanpower
2012
Conference
14
June
2012
Cambridge
www.cir-­‐strategy.com/events
Mark
Simon
mark.simon@farmpowergen.co.uk
Farm
Power
0796
816
4171

2. Objec9ve
• Describe
the
genesis
of
IPP
and
why
it
maOers
• What
is
an
IPP?
• Why
is
it
a
good
thing?
• What
obstacles
does
it
face?
• What
does
a
perfect
world
for
IPPs
look
like?
• Opportunity
arising
from
IPPs
• How
you
can
help
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference
2

3. Site
/Asset
What
is
an
IPP?
Owners
Investors
Energy
Suppliers
Genera)on
• Power
Genera)on
business
– Renewables:
wind;
solar
PV;
biomass;
micro-­‐hydro;
renewable
heat
– Demand-­‐led:
despatchable,
on
demand
Renewable
Energy
– Process-­‐led:
excess
provided
from
industrial
processes
Sales
• Independent
of
Big
Six
and
other
incumbents
– But
interdependent
with
them
as
suppliers
and
customers
• Management
– Entrepreneurial,
technology-­‐literate
– Project
management
skills
– Focus
on
environmental
policy
– investment
experience
– Low
overheads
• Economically
dependent
(in
2012)
on
tariff
incen)ves
and
long
term
electricity
price
trends
• Dependent
upon
UK
Electricity
Market
reforms
(exis)ng
and
future)
– Obliga)on
of
registered
FIT
licensed
suppliers
to
buy
electricity
and
offer
FIT
• Philosophy
:
partnership,
focus
on
efficiency,
spend,
best
prac)ce,
modular
approach
3
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference

4. IPP
Case
Study:
Farm
Power
• Renewable
distributed
power
company
–
“we
generate
green
electricity”
• Low-­‐risk
assets,
easy
to
explain
– Exploi)ng
regulated
marketplace
– Low
risk
technology,
low
risk
projects
• Local
UK-­‐based
business/close
to
community/landlords/suppliers
– Small
scale,
small
sites,
low
impact
• Annuity
return,
index-­‐linked,
guaranteed
• Close
to
investors
–
direct
link,
frequent
communica)on,
maximum
trust,
eliminate
fees,
project
scale
(£100K-­‐£1m)
• Commitment
to
investors
– All
money
goes
into
assets
– Each
project
to
deliver
strong
IRR
– No
project
undertaken
unless
it
can
be
completed
– Funds
commiOed
but
called
only
when
needed
– Cash
flow
posi)ve
on
commissioning
– No
salaries
or
overheads
at
company
level
(except
statutory
costs)
• Solid
and
proven
SME
model,
applies
broadly
to
genera9on
investment
4
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference

5. Why
IPPs
are
a
good
thing
• For
development
of
secure
and
local
electricity
genera)on
assets
– Pornolio
approach
–
best
sites
get
developed,
and
have
the
best
genera)on
capacity
deployed
– Range
of
power
sources
can
be
developed
with
different
characteris)cs
– Which
develops
the
electricity
genera)on
market,
resul)ng
in
more
niche
provision,
market
efficiency
.....
and
lower
prices
• For
market
responsiveness
– Changes
in
policy
and
technology
require
agile
decision
making
– Rapid
learning
results
in
improved
market
prac)ce
• For
development
of
new
jobs
– Rapidly
redeploy
capital
and
focus
in
new
sectors,
channel
capital
efficiently,
encouraging
new
skills
and
technologies
• For
investors
– Arms
length
from
contractors
–
allows
contractors
compete
and
improve,
while
providing
investor
security
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference

6. Obstacles
to
IPP
market
• Incen)ve
uncertainty
– Government
consulta)ons
cause
doubt
for
long
term
interests
of
IPPs
• DNO
network
reinforcement
costs
• Decision
making
data
on
grid
and
connec)vity
– Held
by
DNOs,
resistant
to
sharing
(unlike
government
data)
• Long-­‐term
finance
– Debt
periods
which
match
genera)on
/
incen)ve
life)mes
– Long-­‐dated
junior
debt
providers
• Electricity
market
illiquidity
– Would
like
to
be
able
to
bid
my
supply
compe))vely
online
(>800MWh
pa)
• Legals
– Unfamiliarity
(especially
regarding
Land
Registry)
by
landowners
and
solicitors
– Lack
of
standard
legal
structures
to
allow
permanent
genera)on
sites
to
be
established
NOT
Environment
Agency,
SNH,
Planning
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference
6

7. Opportunity
for
IPPs
Desired
environment
IPP
as
agents
for
change
• Incen)ve
/
FIT
certainty
• Specialist
providers
of
electricity
– over
project
delivery
period
(5,
20
yrs)
– Electricity
quality
of
supply
– or
pre-­‐cer)fica)on
– Origina)on
• Open
access
to
DNO
data
– Licensed
to
sell
to
corporates
and
others
• DNO
funding
responsibility
• Enablers
of
community
schemes
– Linked
to
consumers
loca)on
– Retail
corporate
bonds
– Marketplace
for
electricity
‘islands’
– Partnering
with
communi)es,
landowners,
companies
• Electronic
market
for
the
sale
of
long
• Partners
with
mul)ple
DNOs
and
term
electricity
provision
in
UK/
contractors
Europe
– Reflec)ng
nature
of
electricity
provided
• Working
with
companies
and
public
(intermiOency,
despatchability,
bodies
to
‘buy-­‐out’
heat
/
CHP
renewable)
provision
• Land
Registry
innova)on
– Schools,
MOD,
Health
– giving
telephone
mast
rights
to
generators
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference
7

8. What
you
can
do
to
help
• Keep
thinking
about
SME
and
non-­‐tradi)onal
power
genera)on
players
– Involve
– Invest
– Introduce
• Influence
policy-­‐makers
to
favour
innovators
– Link
back
to
informa)on
technology
analogy
Mark
Simon
mark.simon@farmpowergen.co.uk
Farm
Power
0796
816
4171
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference
8