UK poised for “exciting new chapter” of renewables activity, says LevelTen

LevelTen Energy, the leading provider of transaction infrastructure for the energy transition, today releases the findings of the report, How PPAs and Asset M&A are Helping the UK Unlock Its Clean Energy Future, compiled by its team of energy industry analysts, showcasing insights and data from the LevelTen Energy Platform. The comprehensive report also shares background on the current state of clean energy in the UK:

● The UK has become a global leader in offshore wind energy, with capacity increasing from just over 1 GW in 2010 to nearly 15 GW by 2024 — making it today the second-largest offshore wind market in the world.

● The UK solar market also expanded rapidly between 2010 to 2019, primarily driven by the Feed-in Tariff (FiT) scheme’s incentivisation of small-scale installations. After 2019, the UK solar market began a distinct shift towards utility-scale solar projects, opening up greater opportunities for corporate solar PPAs in the country.

● The storage market in the UK is poised to boom. With 8 GW of storage capacity today (the third most in Europe), the country will need at least 50 GW of energy storage capacity (just under 200 GWh) to meet its 2050 net-zero goals.

The report is broken into three sections: clean energy procurement, policy developments and renewable assets M&A.

Clean Energy Procurement In The UK Market

Clean energy procurement in the UK is accelerating. Corporate interest in PPAs continues to expand, particularly among energy-intensive sectors like manufacturing, retail, and technology. This demand is driven by corporate sustainability goals, as well as a desire to hedge against energy price volatility​.

LevelTen Energy, the market’s leading source of PPA pricing data produced from real PPA price offers uploaded by developers operating in the UK, finds:

● Renewable PPAs: There has been a steady increase in appetite for clean energy capacity as indicated by the RFPs issued by clean energy buyers on the LevelTen Platform since 2021. 2024’s healthy increase in demand is visible, with approximately two million MWh of UK-based production volume requested from clean energy buyers in the first nine months of 2024.

● Solar PPAs: While not quite as mature as the UK’s well-established wind market, solar projects — and solar PPAs — in the UK are growing fast. While capacity factors may be comparatively lower than those for solar projects in Europe’s sunniest southern regions, solar PPAs in the UK still present strong procurement opportunities for corporate buyers interested in the market.

● Wind PPAs: The UK’s wind industry is heavily invested in the government’s longstanding Contracts for Difference (CfD) schemes and the revenues they provide. However, as government auctions grow more saturated, a growing amount of wind capacity may become available to corporate offtakers. This dynamic is likely to be furthered by the recent removal of the “de facto ban” on onshore wind development. When onshore wind PPA offer prices in the UK are compared to those of France and Germany, they are higher on average, yet UK wind projects on average can produce stronger production economics for offtakers.

All in, appetite for clean energy procurements in the UK is positioned to grow substantially in the coming months and years, to the benefit of the country’s broader decarbonisation goals.

The Impact Of Policy Developments

In addition, policy developments including grid modernisation efforts and incentives for clean energy technologies, are improving the market's attractiveness by addressing some of the structural barriers that have slowed its growth, and through aligning the UK more closely with European energy transition goals. As is the new Labour government’s intention of putting forth policy initiatives that support the UK’s sustainability targets, such as the removal of the country’s “de facto ban” on new onshore wind farm development.

One critical ongoing issue related to policy is also the “Review of Electricity Market Arrangements” (REMA), the government’s review of its wholesale electricity market’s pricing zone configuration.

● A central theme of the REMA discussions has been how the UK’s grid can be split into smaller zones to create more granular pricing signals. This decision has largely revolved around two options: nodal prices (the most granular) or zonal pricing (larger pricing zones). In their March update, policymakers signalled that a nodal pricing arrangement is no longer under consideration.

● Shifting to a zonal setup would provide price-reducing effects for regions with high existing renewable penetration and lower demand than the UK’s southern population centres. Scottish pricing zones would likely have lower prices due to high amounts of wind, while a zone for England’s north could benefit from its connection to Norway via the North Sea Link.

● A zonal setup would create far more localised pricing dynamics that PPA counterparties would need to tailor their PPA contracts to. While such a shift may seem intimidating — and indeed, the transition would take time to fully understand and confidently contract within — zonal pricing arrangements are the norm in markets like Italy, Sweden, and the United States, which all host robust PPA markets.

The REMA process is ongoing, but a shift to any new arrangement would take as much as five years to put in place. With final REMA results expected in the summer of 2025, market participants should have until 2030 before any major changes come into effect.

Renewable Asset M&A in the UK: Picking Up Steam

The last few years have brought significant challenges for renewable energy asset M&A globally. As the lending environment continues to grow more friendly to debt-dependent renewable energy investments, M&A activity in the UK is expected to pick up steam and is poised to play an instrumental role in pushing forward investments in much-needed battery storage capacity.

● Several factors are contributing to this momentum, particularly for UK-based BESS (Battery Energy Storage System) facilities, but perhaps the most prominent is the clear need for greater flexibility in dispatching clean energy generation across a UK grid in which clean energy curtailments are on the rise.

● In June, EY ranked the UK as the world’s third-hottest BESS market, ranking it at number one in all of Europe — behind only the US and China. Storage systems can help buoy the financials of existing and planned utility-scale renewable assets in the country by being directly paired with these generating assets, and standalone BESS facilities are also increasingly viewed by the UK government and the investment community as key to creating a stable value picture for the clean energy sector moving forward.

● Battery storage players are also looking to leverage the value of energy arbitrage through a more straightforward merchant-focused approach to operation, pairing this approach with complementary frequency response contracts.

● The acceleration in UK development has already led to an increase in platform acquisitions over the last few years (examples include BP taking full ownership of developer Lightsource, RWE’s purchase of JBM Solar, and others). This type of M&A activity will almost certainly continue, as established players look to expand their development pipelines to deliver on bullish expectations for solar, wind, and BESS development in the country. The aim with such acquisitions is to create efficiencies that will expand the market as a whole and enable economies of scale in clean energy development across the UK. In general, before the year is over, the report concludes that 2024 is opening up an exciting new chapter in renewable asset M&A in the UK, as investor confidence is reigniting around the idea that investing in the nation’s clean energy future is a good financial bet. Energy industry players have an immense opportunity to play a synergistic role in unlocking the investments needed to reach the growing ESG-related requirements that have come into play over the previous years but were stalled by economic and regulatory headwinds.

“The UK has long been a leader in the energy transition,” said Frederico Carita, Global Director of Developer Engagement at LevelTen Energy. “With recent policy moves opening up new opportunities for development and the 2025 conclusion of the REMA process poised to bring greater regulatory certainty to the market, the country is ready to move into an exciting new chapter of renewable energy activity.”

“With a robust and growing pool of PPA buyers looking to procure in pursuit of ambitious decarbonisation goals, the coming years should provide exciting prospects for clean energy players of all kinds.”

To download the full report, please visit here.

Methodological note: The underlying LevelTen Energy data cited within this press release is composed of PPA price offers uploaded onto the LevelTen Energy Marketplace from projects in the UK, Germany and France between April 1, 2024 and the beginning of October 2, 2024. The price offers used include only pre-operational solar and onshore wind projects. This dataset includes both Standard Marketplace price offers and RFP price offers. Any offers received in euros were converted to GBP using a spot rate from the 30th of September.

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