Energy and Utilities

Time for UK asset managers to repower and optimise

Published on 17th Apr 2024

Keep an open mind when contracting for repowering projects as it is difficult to adopt a "one size fits all" approach 

Energy storage fields, with solar panels and wind turbines

It's hard to believe that the UK's solar boom started over a decade ago in the early 2010s.

Solar panels are typically designed to last for up to 25 years, but many of the other key components – such as inverters and transformers – tend to have shorter useful lives. Therefore, it is no surprise that project owners are looking to replace these components on their older sites. When combined with the great strides that have been made in technological efficiency in past decade, we can now answer the question we posed a year ago – whether it is time to repower  in the affirmative.

Procurement approaches

When it comes to contracting for repowering projects, asset managers should keep an open mind as to the most appropriate approach. As the scope of repowering works can vary significantly from site to site, it can be difficult to adopt a "one size fits all" approach. It can be tempting to instruct repowering works as additional services under the site operations and management (O&M) contract but this should be approached with caution. O&M contracts are not typically designed to accommodate significant replacement or refurbishment works and are unlikely to deal with construction-type issues such as design liability, time for completion, defects and works insurance. 

In all but the most straightforward of cases, a short standalone construction contract is likely to be more appropriate for low- to medium-complexity projects. At the other end of the scale, projects of larger capital value and those involving significant design changes will require a more bespoke approach. Separate confirmations may also be required from the O&M contractor to provide comfort that their services and any guarantees remain unaffected.

Whenever an asset owner is varying (or adding to) the existing suite of documents on debt-financed projects, consideration should also be given as to whether lender consent is required.

Grid connection

Repowering is likely to require updated grid connection arrangements. New arrangements will need to account for any capacity changes, any required network reinforcements and any updates to technology types (such as battery storage).

Asset owners should, therefore, allow sufficient time to engage with the local distribution network operator in advance of a repowering.

Land rights

Projects are often developed on the basis that project lifetimes and land rights are linked hand-in-hand. Insofar as a repowering project will extend the operating life of a project, land rights should be secured to match this so that asset owners can realise the full value of their repowering investments.

Where repowering involves changes to the project, compliance with planning permission should also be considered.

Ofgem accreditation

Repowering may affect existing accreditation under Ofgem schemes, including the Feed-in Tariff (FIT) and Renewables Obligation (RO) schemes.

Under the FIT Scheme, a generator must notify Ofgem of any modifications to accredited installations when a repowering occurs. Where all the generating equipment is replaced or capacity is affected, this can impact accreditation. Ofgem has the power to suspend FIT payments while it determines whether accreditation is affected. Provided all FIT scheme rules are complied with, the generator can continue to receive FIT payments up to the original accredited capacity of the installation after a repowering. With the recent decreasing trend in wholesale power prices, we are increasingly seeing FiT export tariffs being considered as an alternative route-to-market compared to standard power purchase arrangements.

Under the RO Scheme, a generator must notify Ofgem of any repowering within two weeks of it occurring. Ofgem will then reassess the asset to ensure it is still eligible for RO accreditation. RO certificates will not be issued while an amended RO application is under review. Generators are therefore encouraged to let Ofgem know in advance of repowering, so that the best time for the generator to update its RO application can be agreed.

Financing

If repowering a project subject to an existing financing and security package, asset managers should be aware that any changes to project documents (which will include O&M contracts, leases and grid documentation) will require lender consent.

Lenders will want to understand at the outset of a repowering process what additional risks the project will be assuming and how they may affect its revenue streams. Sharing a clear summary of modelled financial performance and risk mitigations with lenders at an initial stage will help to prevent any unexpected objections once contracting counterparties have already been engaged and expense has been incurred in doing so.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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