Rising interest rates have hiked the cost of a new renewable energy supply for Network Rail by nearly 50%.
In 28 July 2022 Network Rail awarded a corporate power purchase agreement (CPPA) to EDF, under which the energy company would construct, operate and maintain a solar PV facility with an installed capacity of 60MWp ± 10%. EDF would supply Network Rail with a target volume of 63.8GWh per annum of renewable electricity for 15 years. The electricity will be used by Network Rail’s non-traction business (eg managed stations, offices and depots).
The cPPA was made conditional on the supplier achieving a final investment decision (FID) by 31 March 2023. However, in a contract update Network Rail says that a series of “successive, substantial and unforeseen” increases in the European Central Bank (ECB) interest rates which saw it rise from 0% in November 2021 to 3.75% in May 2023. As a result, “the underlying financial model supporting the original cPPA pricing could no longer produce a return on investment for the supplier to reach FID”.
Network Rail has now agreed to revise the total price of the cPPA from £53.32 million to £79.80 million, with a FID Milestone Delivery Date of 30 September 2023.
The tender update says the revision is permitted because it has been brought about by circumstances which a diligent utility could not have foreseen – the unprecedented rise in ECB interest rates impacting the supplier’s financing of the project to an unmanageable degree and the wider impact on the energy generation sector “which means there are no viable alternative solutions at the original cPPA pricing”.
Network Rail says the scale and speed of the interest rate rises could not have been forseen. Its overarching aim is delivering additionality, helping bring forward a new renewable energy site that would not otherwise have been developed. “The revision described in this notice is a proportionate response to the unforeseen circumstances and what is needed to deliver this new renewable energy project, set in the context of achieving that overarching aim.”