Cost inflation creates new bidding dynamic in UK renewables auction
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PA Consulting's Alon Carmel, renewable energy expert, discusses the impact of inflation on the cost of developing renewables in an article by Alex Blackburne and Henry Edwardes-Evans in S&P Global.
Commenting on this, Alon says: "In the outside world, we're seeing inflationary pressure, interest rates going up, cost of capital going up, meaning the cost of developing renewables has gone up."
He adds: "The tight budget will mean bidders will be forced to sharpen their pencils and think creatively about bidding strategy."
Alon goes on to say: "The budget [for round five] looks like it may be enough to keep a steady pace, but not enough to accelerate deployment. The government can still increase the size of the funding pot should it wish to do so."
Adding: "It's really important that government does all that it can to enable the pipeline to come forward. There are still too many delays in consenting and grid connection that are holding projects back."
Commenting on calls for additional tax breaks in a bid to offset the rising capital costs, Alon explains: "That's not really a good situation for anybody either. The government doesn't want prices to be driven down so low that projects don't make a profit."
He concludes: "With power prices still above the long-term average, the non-CFD option looks more attractive than it has for a while."