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UTILITY WEEK | 7Th - 13Th NovEmbEr 2014 | 21 Finance & Investment T he UK is now less than two months away from the first CfD (contracts for difference) auctions for new low-carbon generators and the first capacity market auctions for existing and potential new thermal plant. These interventions in the market are designed to deliver a sustainable sector and secure supplies – at reasonable cost to the consumer. As part of the pursuit of this trilemma, the policy interventions were also designed to attract more low-cost capital to the sector. We won't know whether these objectives will be met for several years, and we will never know what the outcome would have been without these intervention- ist measures. We can, however, speculate about how capacity payments might affect the perception of risk for potential investors, and whether we will see a transfor- mation in the capital structure underpinning assets. The UK has a long and successful track record in securing investment in thermal generation, where merchant risk is minimised and there is a clear route to market for the power. Unfor- tunately, these market conditions have not existed for several years. Although there are a number of mechanisms for generators to monetise the energy or flexibility value of their plant – either directly with grid or through bilateral agreements – the tenor of these mechanisms remains short-term. Many developers of new plant are banking on the capacity market to deliver the longer-term revenue certainty that enables signifi- cant leverage of the project to secure the equity returns to make the development viable. That the capacity mechanism brings greater clarity to earnings for a generator is not in question. But could we now see the emergence of thermal assets financed through more exotic debt and equity structures, with the differing forms of capital tied directly to specific compo- nents of a generator's earnings? Certainly, if we were to see pension funds, for exam- ple, investing against a 15-year capacity revenue stream, with higher cost developer capital secured against earn- ings from flexibility products within the same physical plant, it would be a resounding tick in the box for the objective of securing new forms of capital. Phil Grant, partner, Baringa's Energy Advisory "Could we now see the emergence of thermal assets financed through more exotic debt and equity structures?" Investor view Phil Grant "The policies were designed to attract low-cost capital" graphic information systems, used in this context for asset management and network planning, and building information models which maintain records of as-built buildings, substations, water treatment works, genera- tion plant and other sites. Building information models have per- haps been a solution in search of a problem to date – the investment needed to build a solid BIM is not necessarily to the advan- tage of the architect or designer. The con- struction business has perhaps seen greater benefit, capturing data as the construction project progresses to support project man- agement, data sharing among diverse teams and specific activities such as inspection or snagging. It is the operator of the building or facil- ity that gains greatest benefit and utility companies are ideally placed. They can take greatest advantage of a robust building infor- mation model, merging the as-build facility data in the building information manage- ment system with the as-build network data in the GIS and forming a data continuum to support operation and maintenance of the entire infrastructure. As new facilities are commissioned to deliver renewable energy and older facili- ties are decommissioned, utility companies will be faced with greater demands to ensure a return on investment is realised and sus- tained, and network operation is efficiently managed. We can therefore anticipate a significant increase in the growth rate for technical applications in utility industries as the continuing need to plan for the future of energy supply comes to the fore. Christine Easterfield, principal consultant, Cambashi Chart 2: glObal share Of spending On teChniCal appliCatiOns by utilities and teleCOms COmpanies Rest of world Germany France UK Japan US Source: Cambashi 2014