MEXICO CITY, MEXICO – Collaborator of Kartoshka, Pablo Soria de Lachica is one of the first experts to voice their opinions on the results of the inaugural Contract for Difference (CfD) auctions which took place in February earlier this year. CfDs are private contracts between low carbon electricity producers and the British government’s Low Carbon Contractions Company (LCCC) (source: https://www.gov.uk/government/collections/electricity-market-reform-contracts-for-difference). An integral part of the latest Electricity Market Reform, each contract is designed to ensure a constant and certain flow of revenue to electricity generators by limiting their exposure to changing wholesale prices. Meanwhile, consumers will be protected from paying higher support costs whenever electricity prices rise.
After the first CfD allocation auction round, 27 contracts worth £315 million (approximately $492 million) were offered to projects that generate 2GW of renewable energy in Great Britain (source: http://www.eversheds.com/global/en/what/articles/index.page?ArticleID=en/Energy/first-cfd-auction-results-announced-150226). Onshore wind generation was awarded more contracts for 750 MW whereas solar PV was only awarded a CfD for 72 MW. Two large-scale solar PV projects were granted a £50 strike price for delivering in 2015-2016, which is significantly lower than the administrative strike price of £120 per MWh. As for the budget set for less established technologies, two large offshore wind projects producing 714 MW and 448 MW were given the lion’s share. Commenting on the CfD auction’s results, Pablo Soria de Lachica believes that the auction overall was a success as it managed to commit budgets through a competitive process while the market cleared well below administrative strike prices.
However, Soria de Lachica believes that the results will affect the solar PV industry immensely.
“The auction’s results were definitely disappointing for the solar PV industry, especially since some of its projects have shown their capability of competing in the auction. Some may even say that the CfD regime was unfair to small- and medium-sized enterprises, which is why I believe many SME developers may exit the market.
If the next auction includes more onshore wind projects, solar PV will have more competition to deal with and may even end up with fewer projects.”
Soria de Lachica added that developers will be under pressure to comply with LCCC’s regulations. “Developers only have 12 months to submit their Milestone Requirements Notice once they receive the CfD, so they should know how long financial close can take. If, however, they don’t meet a deadline and the LCCC decides to revoke their contract, developers can face bankability issues. Developers also need to be realistic about the overall economics of their projects. Submitting too low a bid without factoring in delays, unexpected costs, and additional credit support requirements will lead to lower equity returns at best or failure to fund the project at the worst.”
Internationally acclaimed broker, Pablo Soria de Lachica is a Universidad Tecnológico de México (UNITEC) alumnus with a Master of Business Administration. After specializing in international trading and learning the art of foreign exchange transactions on his own, Soria de Lachica has helped hundreds of clients profit through his experience and instincts for profitable transactions.
