New research by a London-based consultancy shows that British Independence from the EU-block is likely to put the UK’s 2020 and 2030 renewables targets under threat, and with it further uncertainty on the future sustainability of the industry.
The offshore wind industry is currently estimated to contribute more than £1 billion to the UK economy – a figure hitherto predicted to grow significantly by 2020.
Whilst the full impact of Brexit is difficult to predict, it is well understood that energy and the environment are key pillars of EU legislation, and have, over time, intricately bolstered every facet of UK energy law and policy.
In their study, authors Dr. Lee Clarke and Dr. Steve Freeman, both Directors of the Renewables Consulting Group warn: “Brexit will have far reaching implications for the UK renewables sector in terms of investment and legislation.
“For most voters, energy and environmental policies were not a priority when considering which way to vote in the EU referendum.
“However, the consequences for the offshore wind industry and nascent marine renewables sector (wave and tidal power) could be considerable.
“Whilst estimates suggest UK level regulation is 2.5 times more cost effective than EU regulation, British Independence may leave the UK with little influence over EU energy regulation but still be largely regulated by it.
“The evidence predicts regulatory divergence will grow over time leaving the offshore wind supply chain less competitive against their European counterparts.”
The UK is increasingly reliant on power and gas imports and its energy market is deeply integrated our European neighbours. Going forward, as new interconnectors already under construction are completed, a growing share of the UK’s electricity will be exchanged with EU countries.
Participation in the EU energy union remains an option. EU member states currently trade electricity extensively with Norway and there is no reason to believe that existing commercial terms could not continue.
The UK Government estimates that over the six-year period to 2021, the total energy infrastructure requirement will be £274.9 billion. The Government’s National Infrastructure Commission has estimated around £14-19 billion of investment is required in the electricity sector each year in the period to 2020.
The authors added: “The result of the decision to leave the EU will result in a period of great uncertainty over the same period as the required investment is planned.Three key areas of risk relate to the renewables sector:
- Market risk, including uncertainty on the UK’s future access to the Internal Energy Market
- Financial risk, including borrowing costs and currency fluctuations, and:
- Political risk, including changes in the Government and energy policy.
“Investors will require higher returns to compensate for the risk of less favourable trading arrangements as part of the post-Brexit settlement. This in turn will increase the cost of raising finance for energy-sector investments.
“In an attempt to “reset” policy, a new CfD auction had been promised during the course of 2016. However, disruption to the UK Government, as a result of change of personnel, legislative overload, or even an early British general election could all delay the next round of offshore wind CfD contracts, which in turn will stifle offshore wind investment.
“Without long-term contracts it is impossible to invest the upfront capital needed to construct large-scale offshore wind projects.
“Meanwhile, commentators are already speculating that the vote to leave the EU will impact EDF’s decision to invest in the £18 billion Hinkley Point nuclear power project.”