Points of View

Optimising equity investment in a reformed power sector

04 Jun 2014

The GB power sector is currently undergoing a period of major change. The need to make investments in low carbon generation capacity and in other carbon abatement actions to meet legally binding targets, combined with the need to maintain security of supply during this transition, means that there is a requirement for significant sums of new capital to fund this investment. In recognition of this requirement, a programme of reform is currently underway, at the heart of which is Electricity Market Reform (EMR). These reforms are aiming to de-risk investment and bring greater certainty and transparency to different earnings streams for generators. 

For new investors, with less appetite to manage risk than the traditional utility, this helps to enable the structuring of transactions to deploy capital into low risk structures. This will increase the diversity of the sources of capital being invested in the sector, and increasingly lead to fragmented ownership across the value chain. In turn, the increasing diversity in sources of capital could lead to innovative capital allocation strategies being adopted for power generation investment, and a diverse range of organisations considering entry to the sector with energy supply and energy service propositions. This leads to opportunities for the traditional utilities to focus on core areas of expertise, rather than on the deployment of funds into capital intensive activities at a time when their balance sheets are constrained.

  Viewpoint: Optimising equity investment in a reformed power sector


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