AFRY Launches Study into Financing Merchant Renewables
AFRY is launching a new multi-client study to develop sophisticated risk assessment metrics for use in the financing of merchant renewables projects.
Decarbonisation ambitions imply very significant deployment of renewables over the coming decades. AFRY’s current Central scenario projects almost 450GW of new wind and solar generation being deployed across Europe between 2020 and 2040, requiring capital expenditure averaging over €20bn per year. Meeting long-term decarbonisation targets could imply much higher capacity and expenditure.
Whilst various national level renewables support schemes have been successful to date, there is a clear trend away from explicit subsidies as projects increasingly become viable on a subsidy-free basis.
To unlock potential investment in merchant renewables, new sources of finance will be required:
- Equity investors will need to be drawn from outside the traditional pool of companies able to take merchant risk.
- Lenders will need to become comfortable with assessing appropriate levels of debt and structuring payments in increasingly sophisticated ways.
AFRY is launching a multi-client study to develop advanced ‘revenue at risk’ metrics to help understand how merchant risk could develop in the future, which will:
- Incorporate a probabilistic approach to assessing the chance of future revenues falling below a certain level (e.g. P50, P90), to allow investors and lenders to quantify their exposure to both short-term market volatility and long-term uncertainty.
- Examine how this risk changes over different timescales – months, years and the full project life.
We aim to develop a set of widely accepted metrics that investment and credit committees can use to assess risks to future revenues. A steering committee formed of the members of project development, investment, and lending communities will be involved in key decision points throughout the project.
For further information and to join the study, contact Andy Houston.