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UTILITY WEEK | 26TH MAY - 1ST JUNE 2017 | 19 Operations & Assets stresses the independence of its decision- making process, saying it has no hesitancy in going against the panel's recommendations and always conducts its own assessment before coming to a final decision on code changes. Developers with skin in the game do not buy this argument. They feel outgunned in a battle between large and small, old and new. "We really thought we were entering a place where we were very welcome. We were a key new entrant bringing new investment and a flexible solution to the UK's energy needs," says Draper. "The past year has been a hailstorm of significant headwinds – regulatory driven – because clearly the powers that be – whether the big six or the regulators – didn't like the plants that were turning up in the marketplace". Investors have added warnings that the rapid transition to a spartan triad avoidance arrangement will have a chilling effect on financing for peaking plants, and the energy industry as a whole. "It doesn't just hurt companies, it hurts lenders, the taxpayer and investors and we're in a situation now in the UK where we need over £100 billion invested in energy infrastructure in the next ten years", adds Shaw. "When Ofgem or politicians do some- thing like this, investors say 'life's too short, and it's too risky; I'm going to put my money in another country'." The end is nigh? So, does this mean the end of the peak- ing plant boom in the UK? Ofgem's impact assessment certainly suggests so. The independent analysis, conducted by consultancy firms LCP and Frontier Eco- nomics, predicts that the proposed changes will dramatically shi the market in favour of new CCGTs, which will secure the vast majority of the more than 25GW of new-build capacity contracts projected to be awarded between 2022 and 2034. By comparison, reciprocating engines are expected to secure less than a gigawatt of contracts over the same period. But, Hugo Batten, project manager at Aurora Energy Research, sees things rather differently. "Our broader analysis of the UK energy market shows there's essentially an oversupply of non-flexible baseload and that will continue and even get more marked over the next 30 years as more nuclear and renew- ables enter." Batten says the need for flexible genera- tion means lost revenues from triad avoid- ance will be recoverable through higher prices in the wholesale, capacity and ancil- lary services markets. Aurora estimates that between five and eight gigawatts of peaking plants will still secure contracts over the coming decade. Tom Edwards, senior consultant Corn- wall concurs: "Why would you invest in a big power station … when you could invest in a smaller plant which is more efficient when running at low load factors, …can react quicker and can stack revenues. "They've more flexibility to either earn money from ancillary services, the wholesale market or embedded benefits. Reciprocating engines aren't going to go away, even aer this change." The fierce response from peaking plant developers to Ofgem's decision on triad avoidance payments is not surprising. It will be painful for them and has clearly unset- tled investors. Both worry that the changes - along with the possibility of further reforms to embedded benefits - will add a risk pre- mium to the cost of future projects. Futhermore, it is hard not to feel that some of the grievances peaking plant devel- opers have expressed over the way these reforms are being enacted about are justified. The government called upon the industry to set about creating the flexible generation needed to fill in for intermittent renewable generation, and they responded by bidding into the capacity market with the technology favoured by the energy market at the time. The decision not to provide grandfather- ing arrangements has le some businesses facing large losses through little fault of their own, adding credence to their claim that they are the underdogs in a hostile world of big league incumbents. That said, the radical and disruptive transformation that is enveloping the energy industry is a complex beast. As the system adapts to accommodate more and more renewable generation, there are bound to be winners and losers. The ability to shi business models and stack revenues in this uncertain environment is a must. Peaking plant developers should take solace in the fact that the energy system still needs flexible capacity, which suits their plants. They may feel like they have got their figures burnt, but if they can draw a line under this saga and embrace fresh opportu- nities to build both peaking plants and other forms of flexible generation – such as energy storage – their future could yet be bright. INSTALLED CAPACITY – STATUS QUO INSTALLED CAPACITY – PROPOSED CHANGES 160 140 120 n Recip engine - gas n Recip engine - diesel n OCGT n CCGT n Other renewable n Solar n Wind n Nuclear n Interconnectors n Hydro and marine n Coal n CHP n Biomass n Storage 100 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 80 Installed capacity (GW) Year 60 40 20 0 160 140 120 n Recip engine - gas n Recip engine - diesel n OCGT n CCGT n Other renewable n Solar n Wind n Nuclear n Interconnectors n Hydro and marine n Coal n CHP n Biomass n Storage 100 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 80 Installed capacity (GW) Year 60 40 20 0 Source: LCP and Frontier Economics Ofgem Impact Assessments