Merchant finance alone ‘unlikely to spark new capacity’, Cornwall Insight finds 


Merchant finance on its own for green generation projects is very far from being a sure bet to boost capacity, researchers at Cornwall Insight have found.

Governments eager to promote carbon-free power without tax breaks and investment incentives are thus probably fooling themselves, the respected analysts imply.

Taking onshore wind as a proxy for all green generation, the confusingly Norwich-based firm quizzed 258 development-linked hot shots for their research paper, Merchant renewables still face challenges.  

Heading their quest was to find out what type of merchant-financed projects are most likely to succeed, and what this could mean for developers in all green power.

Among Cornwall Insight’s key findings on project financing:

  • Fully merchant projects are rarely considered viable.  Onshore wind projects without JV backing or other forms of external finance support are generally not considered financially viable, with only 7% of respondents saying they would invest.
  • Investment premiums are prohibitive to cover risks inherent in merchant-only-financed ventures
  • Hurdle rates are unlikely to be met
  • Volatility in external market prices and cannibalisation of capture prices cast long shadows. Price volatility (49% of respondents) and cannibalisation (35% of respondents) concern investors the most.

Cornwall Insight research partner Daniel Atzori said a background of low debt leverage, and high expectations of price volatility and capture price cannibalisation, made investors loth to take any leaps of faith on merchant renewables. 

Financing essentials aside, Atzori added, the sheer volume of decisions in policy and regulation, and medium to long term technological innovations, make it difficult for investors to be confident in these types of projects. 

“These factors create more uncertainty today about long-term power prices than ever before. This may explain why so few fully merchant onshore wind financings have actually taken place in Great Britain and Ireland, and in reality, may struggle to ever really take off at all”. 

“Based on Cornwall Insight’s survey findings, the “merchant” financing route is anything but a slam dunk”, Atzori added. 

“Governments hoping to see lots of “merchant” projects be developed through private capital are likely to be disappointed” he judged.  

“If, as the consensus analysis shows in both GB and Ireland that technologies like onshore wind will be required at scale to meet decarbonisation targets, then it will be vital that auctions are calibrated to buy as much of the target capacity as possible.”


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