The regulatory position in the UK does not tend to mandate particular forms of technology for on-site generation. The key regulatory constraints instead tend relate to fulfilling the necessary criteria for licence exempt/unlicensed generation, conveyance over wires (“distribution”) and supply of electricity – given generally there are practical and commercial advantages (often imperatives) to avoiding the need for licences. Accessing these avenues to unlicensed/licence exempt generation/distribution/supply is broadly speaking about size and context rather than technology type.
We expect significant incentives for on-site generation in the UK to remain in place for the foreseeable future. However, the approach to network charges is undergoing reform, with on-site generation in particular likely to be a net “loser” in terms of the financial impact of these changes as proposed. At a high level, this outcome is driven by a policy view that the rise of self-generation (domestic and larger-scale) risks, under the current approach, concentrating network costs on the smaller volumes of electricity being taken off the grid by a smaller group of consumers. Therefore moves have been implemented to levy more network charges on a fixed basis and to reduce some of the reduction in connection charging benefits of investing on-site generation associated with export to the grid from (among others) most forms of on-site generation.
Further, the funding of renewable subsidies via levies on electricity supplied on a licensed basis is under political scrutiny, in the context of the impact this has on electricity prices (for example some of these costs may be applied to gas supply). Given that, like with network charges, the avoidance of these levies is often a feature of on-site power solutions, the impact such changes will have on the economics of such projects will warrant ongoing scrutiny.
Green subsidies available for new small and medium-scale renewable generation in the UK have significantly diminished. While volumes of existing on-site generation continue to benefit from long term subsidy that was locked-in from the point of commissioning, for new projects the absence of these long-term and relatively simple subsidies can render the income streams/commercials more complicated. The absence of green subsidies has resulted in significant reliance on the long-term power purchase arrangements with large corporates with bankable covenant strengths.
