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News & insights

Date: August 2020 | Client: BEIS | Sector: Energy | Expertise: Regulation & competition

Peer review of study into the ‘hurdle rates’ for different electricity generation technologies

CEPA was contracted by BEIS to provide a concise peer review opinion of an update, commissioned to review ‘hurdle rate’ estimates calculated in 2015. The hurdle rates are the minimum internal rates of return required by investors over the life of a project, typically described in terms of the weighted average cost of capital (WACC).

CEPA’s role as peer reviewer was to scrutinise the core analysis, provide constructive methodological/technical challenge of the work and to suggest improvements or qualifications of the results. This included commenting on whether the results were reasonable and reflective of consistent application of a suitable methodology; and took, as far as practical, good account of all significant data and evidence, paying particular attention to:

  • Suitability and consistent application of the methodology and data sets employed.
  • Consistency with approaches taken by market participants and regulators.
  • Possibility and direction of bias inherent in the estimates (if any) and any qualifications or adjustments that may be necessary.
  • The extent to which the results support/concur with recent experiences such as outcomes of auctions for contracts for difference and in the capacity market.
  • The extent to which the set of estimates is internally consistent and accurately reflects the relativity of risks inherent in individual technologies.

The update and peer review were commissioned in 2018 to provide hurdle rate inputs for the BEIS Levelised Cost Model, which has been used in the recently published “BEIS Electricity Generation Costs (2020)” report.

To find out more, please contact our experts listed below.

Jonathan Mirrlees-Black
Managing Director – Asia Pacific Australia