The transition to new renewable subsidy schemes

David Taylor, VP Sales and Marketing

5th June 2015

2

Source to supply...

600+ projects in the UK

From community schemes and local landowners to major renewable developers

3

Wholesale cost; 43.0%

Taxes and Levies ; 28.5%

Systems and Network charges ; 27.0%

Supplier Costs ; 1.5%

October 2015

What makes up a typical business Electricity Bill?

*Estimated based on a typical SmartestEnergy business electricity fixed contract (quoted February 2015).

Wholesale cost; 53.0%

Taxes and Levies ; 21.0%

Systems and Network charges ; 25.0%

Supplier Costs ; 1.0%

October 2014

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Subsidy schemes changing under Electricity Market Reform (EMR)

UK grid is changing, existing infrastructure dates back to the 1950-60’s

the UK needs investment to achieve low carbon targets

Existing subsidy schemes being replaced or reviewed:Renewables Obligation (RO)Small Scale Feed-in Tariff (FiT)

Electricity Market Reform (EMR) introduces new cost recovery schemes

Contracts for Difference (CfD)Capacity Market

What will the new government bring to the energy market?

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Renewables Obligation (RO) still significant despite being replaced by FiT CfD

2015-16 2016-17 2017-18 2018-1912

12.5

13

13.5

14

14.5

15

15.5

16

12.86

14.11

14.83

15.28

Previous Central Case

Possible Im-pact of Early Onshore Wind Review

Central Case£/M

Wh

The RO is due to close for new projects on the 31st March 2017

2014/15 saw significant solar activity

1.28GW of solar capacity commissioned*

Will there be a last minute push for onshore wind?

Forecast suggests an increase in the cost is linked largely to

Higher load factors Additional capacity Lower UK demand

*Renewables and CHP register, Ofgem

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Feed-in Tariff (FiT) remains open for <5MW projects even after CfDs

2014-15 2015-16 2016-17 2017-183

3.2

3.4

3.6

3.8

4

4.2

4.4

4.6

4.8

5

3.31

4.15 4.45

4.58

Previous Central Case

Possible Impact of Summer Review

Central Case

£/M

Wh

Small changes to FiT due to demand and inflation

FiT review scheduled for the summer

Review objectivesNew tariffs for wind Level of export payment Vs wholesale prices

The results of the first FiT CfD auction:

27 projects in total Budget of £315m 2.1GW capacity

New scheme brought in uncertainty at high cost to bid

Clearing price of c£80 for onshore wind and solar

Round 2 of the auction is expected to be later this year.

Solar18.5%

Onshore55.6%

Energy from waste7.4%

Gasifica-tion

11.1%

Offshore Wind7.4%

The first Feed-in Tariff Contracts for Difference (FiT CfD) auction taken place

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Solar3.3%

Onshore35.0%

Energy from waste4.4%

Gasifica-tion2.9%

Offshore Wind54.3%

Source: DECC

Project allocation

Capacity

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Newest charges on business electricity bills as part of FiT CfD

2015-16 2016-17 2017-18 2018-19 2019-20 2020-210

500

1,000

1,500

2,000

2,500

3,000

3,500

0

5

10

15

20

25

30

35FiT CfD cost snapshot

Forecast Budget Still Available Announced Projects Cost

Biomass Conversion Costs Contracted Generation£m

n

TW

h G

enera

tion

Early generation volumes are coming from big Biomass conversations

Big question around the timing of commissioning these projects

Expect unused budget to be released into future auction rounds

How will the cost be recovered through consumer bills?

Forecasted consumer rate/MWh 2016/17 - £1.66 2017/18 - £2.74 2018/19 - £5.20 2019/20 - £7.35

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Capacity Market

Payments made to generators to ensure there is capacity on the grid during peak times

No black outs New charge in winter peak times Recovered through consumer bills

First capacity auction secures 49.2GW for the winter of 2018/19

68% will be provided by existing plant 25% by refurbished plant Only 0.4% by DSR and the rest is new build

Expected costs £80-£100/MWh for 2018/19 onwards Some costs to begin in 2016/17 - demand response onlyCharged during the capacity market charging period

Nov-Feb, Weekdays, 4pm-7pm

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In summary…

Non-energy charges will continue to rise in the short-medium term

Existing schemes (i.e. RO) will continue to have an impact on bills whilst the schemes continue to operate

Continued growth of renewables will require support

Growth of intermittent generation and peak charging will mean increasing opportunity for responsive demand

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Questions…

Will competitive CfD auction drive better value for consumers?

Is peak charging enough to change behaviour in energy consumption?

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