September 25, 2015

UK Government Renewable Energy Policy Leaves “Investors And Consumers Baffled,” EY States

The most recent Renewable Energy Country Attractiveness Index put out by EY highlights the dangers of the UK Government’s current renewable energy policy.

EY published its quarterly Renewable Energy Country Attractiveness Index (RECAI) this week, which saw a major reshuffling of its top 10 most attractive countries in terms of their renewable energy potential and growth. One of the biggest losers in the RECAI was the United Kingdom, which dropped out of the top 10 for the first time since the RECAI was first established in 2003. Specifically, according to EY, “A wave of policy announcements reducing or removing various forms of support for renewable energy projects has left investors and consumers baffled.”

This, despite concerted efforts on the part of the national renewable energy industry, experts, and intelligence agencies the world over.

“We concluded in the previous issue of RECAI that post-election stability provided the new Conservative government with a unique window of opportunity to reconcile its somewhat contradictory energy objectives and address the conflict between its liberalized market rhetoric and policy that is clearly picking winners and losers, regardless of market signals. Based on developments over the past quarter, however, it seems the UK Government has decided to pass on that opportunity.”

Passed on the opportunity is has, as we have seen time and time again over the past few months. EY highlights the “plethora of policy-related announcements” that it believes has “sentenced the UK renewables sector to death by a thousand cuts:”
  • support for onshore wind under the Renewables Obligation (RO) scheme is now set to end on 1 April, 2016 — a year earlier than planned.
  • a proposal to close the RO for solar projects under 5 MW by 1 April, 2016, a year earlier than scheduled
  • a proposal to end the “grandfathering” to the RO for solar projects less than 5 MW
  • the proposed removal of pre-accreditation that guarantees a certain Feed-in Tariff level
  • Plans to impose an annual spending cap on the country’s Feed-in Tariff scheme
  • Energy supplied under renewable source contracts will no longer be exempt from the climate change levy with effect from 1 August, 2015

Road to Grid Parity
Projected overspend of the existing and past government subsidies is often cited as the reason renewable energy subsidies are being scrapped. A desire to keep “hard working” Britons from having to pay extra on the electricity bills and taxes — ignoring for the moment the massive spend taxpayers are forking out to subsidize the fossil fuel production and generation industry. As EY notes, “new Energy and Climate Change Secretary Amber Rudd maintains that the proposals are designed to minimize consumer energy bills, while simultaneously claiming that falling costs mean many renewables projects can survive without subsidies.”

The latter statement, ironically, is not one anyone is disagreeing with — many within the industry believe that onshore wind and solar PV are within three to five years of reaching grid parity. Only this month we’ve seen UK developer PS Renewables claim that they have reached grid parity on the development of large-scale solar projects.

However, the sticking point is the impact cutting renewables subsidies will have on the short-term growth of the industry. EY believes that “withdrawing support prematurely … arguably risks stalling or killing projects that would otherwise maintain the momentum to get the market” to its critical grid-parity moment.

A mixture of already-announced renewable energy subsidy cuts, mixed messages from those in charge, and rumors surrounding the future of vital renewable energy subsidy schemes like the Renewables Obligation and Feed-in Tariff schemes has severely dampened investor confidence in the UK’s onshore wind and solar industries. In a separate piece of research conducted by EY for Scottish Renewables and published earlier this month, the country’s renewable energy trade body, it was discovered that investors had been put off investing in onshore wind because of recently-announced and rumored cuts to onshore wind subsidies.

According to Scottish Renewables, the recent decisions by the UK Government to end financial subsidies to the UK’s renewable energy industry — including onshore wind development — is “having a significant impact on investor confidence and their ability to lend to onshore wind farm developers.”

Is Offshore the Single Silver Lining?
One of the only potential silver linings to come out of EY’s RECAI is the UK’s continued supremacy at the top of the offshore wind industry. According to EY, the UK Government “apparently intends to redirect the money saved by cutting support for onshore wind to less mature technologies such as offshore wind” — an industry that the UK is already dominating, ranking 1st in offshore wind in the RECAI for at least the last two reports. The UK is the world’s largest offshore wind market, with just over half of all globally installed capacity, and many believe that the UK can lead the way in reducing offshore wind costs.

But concern remains over the likelihood of investors hanging around in the UK solely for its offshore wind industry, or whether the existing uncertainty “will generate sufficient developer and investor uncertainty to trigger an exodus from the UK market,” having already prompted Forewind to scrap the 2.3 GW third phase of its huge Dogger Bank offshore wind complex.

EY is right to question the inconsistencies in the current UK system, and ask whether “the UK renewables sector continue to fight policy tinkering by a Government with unclear motivations, or is this an opportunity for it to throw off the shackles of policy dependency and establish itself at the forefront of unsubsidised renewables in Europe?”

In the end, the UK Government looks to be content in minimizing its financial involvement in its renewable energy industry, leaving “throwing off the shackles of policy dependency” as the only legitimate means of going forward. 

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