The document describes independent power providers (IPPs) in the UK and their role in renewable energy generation. It defines IPPs as power generation businesses that are independent of large incumbent suppliers but interdependent through electricity sales. IPPs face obstacles like incentive uncertainty and lack of long-term financing options. However, they provide benefits such as developing local generation assets, responding quickly to market changes, and creating new jobs. The presentation argues IPPs can help enable community schemes and act as agents of change in the UK electricity market.

1. Independent
Power
Provision
in
the
UK
Presenta)on
to
4th
Annual
Smart
Grids
&
Cleanpower
2012
Conference
14
June
2012
Cambridge
www.cir-­‐strategy.com/events
Mark
Simon
mark.simon@farmpowergen.co.uk
Farm
Power
0796
816
4171

2. Objec9ve
• Describe
the
genesis
of
IPP
and
why
it
maOers
• What
is
an
IPP?
• Why
is
it
a
good
thing?
• What
obstacles
does
it
face?
• What
does
a
perfect
world
for
IPPs
look
like?
• Opportunity
arising
from
IPPs
• How
you
can
help
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference
2

3. Site
/Asset
What
is
an
IPP?
Owners
Investors
Energy
Suppliers
Genera)on
• Power
Genera)on
business
– Renewables:
wind;
solar
PV;
biomass;
micro-­‐hydro;
renewable
heat
– Demand-­‐led:
despatchable,
on
demand
Renewable
Energy
– Process-­‐led:
excess
provided
from
industrial
processes
Sales
• Independent
of
Big
Six
and
other
incumbents
– But
interdependent
with
them
as
suppliers
and
customers
• Management
– Entrepreneurial,
technology-­‐literate
– Project
management
skills
– Focus
on
environmental
policy
– investment
experience
– Low
overheads
• Economically
dependent
(in
2012)
on
tariff
incen)ves
and
long
term
electricity
price
trends
• Dependent
upon
UK
Electricity
Market
reforms
(exis)ng
and
future)
– Obliga)on
of
registered
FIT
licensed
suppliers
to
buy
electricity
and
offer
FIT
• Philosophy
:
partnership,
focus
on
efficiency,
spend,
best
prac)ce,
modular
approach
3
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference

4. IPP
Case
Study:
Farm
Power
• Renewable
distributed
power
company
–
“we
generate
green
electricity”
• Low-­‐risk
assets,
easy
to
explain
– Exploi)ng
regulated
marketplace
– Low
risk
technology,
low
risk
projects
• Local
UK-­‐based
business/close
to
community/landlords/suppliers
– Small
scale,
small
sites,
low
impact
• Annuity
return,
index-­‐linked,
guaranteed
• Close
to
investors
–
direct
link,
frequent
communica)on,
maximum
trust,
eliminate
fees,
project
scale
(£100K-­‐£1m)
• Commitment
to
investors
– All
money
goes
into
assets
– Each
project
to
deliver
strong
IRR
– No
project
undertaken
unless
it
can
be
completed
– Funds
commiOed
but
called
only
when
needed
– Cash
flow
posi)ve
on
commissioning
– No
salaries
or
overheads
at
company
level
(except
statutory
costs)
• Solid
and
proven
SME
model,
applies
broadly
to
genera9on
investment
4
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference

5. Why
IPPs
are
a
good
thing
• For
development
of
secure
and
local
electricity
genera)on
assets
– Pornolio
approach
–
best
sites
get
developed,
and
have
the
best
genera)on
capacity
deployed
– Range
of
power
sources
can
be
developed
with
different
characteris)cs
– Which
develops
the
electricity
genera)on
market,
resul)ng
in
more
niche
provision,
market
efficiency
.....
and
lower
prices
• For
market
responsiveness
– Changes
in
policy
and
technology
require
agile
decision
making
– Rapid
learning
results
in
improved
market
prac)ce
• For
development
of
new
jobs
– Rapidly
redeploy
capital
and
focus
in
new
sectors,
channel
capital
efficiently,
encouraging
new
skills
and
technologies
• For
investors
– Arms
length
from
contractors
–
allows
contractors
compete
and
improve,
while
providing
investor
security
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference

6. Obstacles
to
IPP
market
• Incen)ve
uncertainty
– Government
consulta)ons
cause
doubt
for
long
term
interests
of
IPPs
• DNO
network
reinforcement
costs
• Decision
making
data
on
grid
and
connec)vity
– Held
by
DNOs,
resistant
to
sharing
(unlike
government
data)
• Long-­‐term
finance
– Debt
periods
which
match
genera)on
/
incen)ve
life)mes
– Long-­‐dated
junior
debt
providers
• Electricity
market
illiquidity
– Would
like
to
be
able
to
bid
my
supply
compe))vely
online
(>800MWh
pa)
• Legals
– Unfamiliarity
(especially
regarding
Land
Registry)
by
landowners
and
solicitors
– Lack
of
standard
legal
structures
to
allow
permanent
genera)on
sites
to
be
established
NOT
Environment
Agency,
SNH,
Planning
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference
6

7. Opportunity
for
IPPs
Desired
environment
IPP
as
agents
for
change
• Incen)ve
/
FIT
certainty
• Specialist
providers
of
electricity
– over
project
delivery
period
(5,
20
yrs)
– Electricity
quality
of
supply
– or
pre-­‐cer)fica)on
– Origina)on
• Open
access
to
DNO
data
– Licensed
to
sell
to
corporates
and
others
• DNO
funding
responsibility
• Enablers
of
community
schemes
– Linked
to
consumers
loca)on
– Retail
corporate
bonds
– Marketplace
for
electricity
‘islands’
– Partnering
with
communi)es,
landowners,
companies
• Electronic
market
for
the
sale
of
long
• Partners
with
mul)ple
DNOs
and
term
electricity
provision
in
UK/
contractors
Europe
– Reflec)ng
nature
of
electricity
provided
• Working
with
companies
and
public
(intermiOency,
despatchability,
bodies
to
‘buy-­‐out’
heat
/
CHP
renewable)
provision
• Land
Registry
innova)on
– Schools,
MOD,
Health
– giving
telephone
mast
rights
to
generators
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference
7

8. What
you
can
do
to
help
• Keep
thinking
about
SME
and
non-­‐tradi)onal
power
genera)on
players
– Involve
– Invest
– Introduce
• Influence
policy-­‐makers
to
favour
innovators
– Link
back
to
informa)on
technology
analogy
Mark
Simon
mark.simon@farmpowergen.co.uk
Farm
Power
0796
816
4171
Farm
Power
for
Smart
Grids
&
Cleanpower
2012
Conference
8