About Renewables

Revenues & Costs

Operating wind farm and solar park revenues come from the sale of generated electricity and green benefits which supplement the value of the electricity reflecting governments’ policy to encourage the development of renewables. Both the electricity and the green benefits are sold via Power Purchase Agreements (“PPAs”) to a counterparty, usually a wholesale energy supplier. Government support can take different forms but it is usually secured at the commencement of an asset’s operational life and is payable for 15 to 20 years (with electricity generation expected to continue for at least 25 years).

Renewable assets mostly operate with high operating margins which reflect the low marginal cost of producing power without fuel costs, once an asset is operational. Costs for renewable assets include asset maintenance, repairs and life cycle replacements, land rent, rates and corporate taxes.

Renewable Energy Demand

Demand for renewable energy results from a combination of factors including an ageing conventional/fossil fuel power infrastructure network, concerns over security of supply when relying on imported fuels, legally binding national or EU targets for decarbonisation, increasing cost efficiencies in development of new projects and local job creation.

In order to implement the binding greenhouse gas emission reduction targets set at the United Nations Framework Convention on Climate Change (“UNFCC”) and the resulting Kyoto Protocol, the EU introduced a Renewable Energy Directive. This requires Member States to achieve national targets for renewables that are consistent with reaching the Commission’s overall EU target of 20 per cent of gross final energy consumption from renewable sources by 2020. The UK has its own decarbonisation legislation (the Climate Change Act 2008) which sets out more extensive decarbonisation targets out to 2050 which are also legally binding. Implementation is via a series of decarbonisation budgets which are set every 5 years. The most recent of these (for the five year period 2028-2032) was agreed by the UK parliament on 30 June 2016 and sets a decarbonisation target to cut emissions by 80% by 2050 and 57% by 2030 on 1990 levels.

As a result of these targets, the European Environmental Agency forecasts that renewable sources of electricity are expected to continue to experience rapid growth. Among the different renewable sources of electricity, wind and solar PV are expected to provide the largest share of new installed capacity. 

In 2016, the Paris Agreement of the UNFCCC entered into force, reinforcing the global efforts to respond to the threat of climate change. The Agreement does not impose legally binding targets but does represent an agreement to maintain a trajectory of emission reductions which will establish a global warming goal of well below 2°C on pre-industrial averages. The collaborative approach of the Paris Agreement with nearly 200 countries as signatories should provide a sound basis for long term, international cooperation on climate change which in turn supports the build-out of renewable energy generation projects and related infrastructure.