U.K. Wind Power

Abstract

An increasing amount of activity is taking place in the U.K. capital markets with respect to wind power financing, coinciding with an expected long-term shift out of growth stocks and into high-income securities. The market is now asking the question of how much risk is involved in the U.K. regulatory system for wind power. The U.K. system is market-based and is riskier and more complex than the fixed-price tariff regimes found elsewhere in Europe. However, it is also one of the only systems to offer upside potential to investors. Renewable Obligation Certificates (ROCs) are the tradable instruments that sit at the center of the system. Understanding the mechanics of the U.K. Renewables Obligation and the drivers of ROC prices is fundamental to the valuation and assessment of U.K. wind power investments. We introduce the ROC Price Map to simplify analysis and to establish reasonable price bands within which ROCs are likely to trade.