INTERVIEW: Emerging stability supports renewables' investment: Low Carbon CFO

A return to more stable market prices is in the long-term interests of the renewable energy sector as it takes a central role in energy systems, Low Carbon Chief Financial Officer Juan Martin Alfonso told S&P Global Commodity Insights in an interview June 19.

UK-based Low Carbon has just announced GBP310 million ($388 million) of new finance for 448 MW of solar PV capacity in the UK and the Netherlands. It has recently opened an office in Germany and is now targeting the North American market as it targets creating 20 GW of capacity and becoming net zero by 2030.

"For this next round of assets we're still looking at auctions but we're also seeing growing appetite in the corporate PPA market compared to 2022," Alfonso said.

Price volatility remained a risk in Europe this winter but the return of some stability was a major positive, he said.

"We [the renewables sector] are the energy industry now. The sector needs to become more customer-centric. Last year the PPA was seen as attracting high levels of leverage and contracted revenues. The last 12 months have forced an evolution and I see a more sophisticated, nuanced solution now. That is good for investment," he said.

Founded in 2011, Low Carbon operated as a developer for 10 years, taking projects through to financial close prior to divestment, often negotiating an asset management contract in the process.

In 2021, it then decided to become an integrated independent power producer, still investing in greenfield projects, but now owning and running the assets long term.

"Integrating the value chain from development to construction and asset ownership allows more visibility and allows us to plan ahead where others find it harder," Alfonso said.

The company has raised over GBP1 billion of capital, with a GBP500 million debt facility the largest of its kind in Europe.

"We went to market in January 2022, and I'll be honest - many people said it would be difficult. I wanted to test our ability to build a structure similar to fast growing funds based on the gross asset value of facilities, but for construction," he said.

One advantage as a developer is the visibility it gives Low Carbon of when assets will be ready for construction.

This has helped it lock in agreements with suppliers during a period of unprecedented supply chain disruption.

"We have a framework agreement with Trina Solar for 1-GW of panels. Its over three years and we're in discussions to extend the framework," he said.

Letters of intent with EPC providers, meanwhile, helped secure switchgear and transformers that otherwise would take 12 months to deliver.

"Our hybrid role is efficient - we put half a gigawatt of solar into construction last year in the Netherlands and the UK and we have another half of gigawatt of solar and potentially batteries going into construction in 2023," he said.

Revenue drivers

The majority of these assets are contracted under the contract for differences regime in the UK and SDE++ in the Netherlands, Alfonso said.

Allocation Round 4 in the UK saw 2.2 GW of solar capacity awarded subsidies at a strike price of GBP45.99/MWh (2012 prices).

Adjusted for inflation, AR4's solar strike price today is around GBP61.70/MWh.

The Dutch SDE++ scheme, meanwhile, offers an operating premium that pays the difference between the cost price of awarded technology and the market price of avoided CO2.

The 2021 scheme saw ground based solar projects awarded an average subsidy intensity of Eur94/mt CO2.

"In both cases we're capturing the merchant nose available last year, which helps the economics for those projects," he said.

Meanwhile, Low Carbon has started building some projects on a fully merchant basis "so we have the natural offsets you need in your portfolio," Alfonso said.

The company has recently opened an office in Germany, is bullish on opportunities in Poland, Sweden, Romania and Finland, and is looking to expand in the US and Canada.

As well as solar and storage, it has wind projects in Finland and Romania and a few waste-to-energy projects.

Planning and grid connections were "very live challenges in development everywhere", Alfonso said.

"We've supplemented the team so we have people much closer to the distribution network operators -- this is a relationship game," he said.

In the UK, National Grid ESO's latest efforts to streamline the UK connection queue were welcome.

"The barriers to entry are pretty low. You need a stick to move projects back if they are not progressing, so we see this as very positive," he said.

For its part, Low Carbon had only experienced minor delays with two sites initially set to energize in Q4 this year now moved to April next year.

One way round the challenges was to go for size when the opportunity arose.

"We have a 500-MW UK solar project that went into planning a few months ago, which needs Development Consent Order," Alfonso said.

This is the Gate Burton Energy Park site in Lincolnshire, just about to go into a round of public hearings. The project is just 4 km from Cottam substation, used for the coal plant that closed in 2019.

Finally, with an ambitious target of 20 GW by 2030, Low Carbon needs continued growth in supply chains.

"Trina added 20 GW this year and SMA Solar Technology is doubling its capacity by 2035," Alfonso said. "There is a sense of less tightness in the supply chain. Wind turbine costs are still up but conditions and offers are more relaxed. Where before an offer valid for more than 30 days was getting difficult, today we are seeing 60 to 90 days becoming the norm."

Platts, part of S&P Global Commodity Insights, assessed the GB solar renewable capture price at GBP78.93/MWh June 18. The average "capture rate" year to date is high at 97% - the capture price expressed as a proportion of day-ahead wholesale market prices.