The UK must seize the window of opportunity that post-election political stability is presenting, in order to reconcile its contradictory energy objectives and reboot the attractiveness of its renewable energy market.
The UK has remained in eighth place in the latest Renewable Energy Country Attractiveness Index (RECAI) published by EY – its lowest level in 12 years, despite an end to pre-election uncertainty.
The attractiveness of the UK’s renewables sector remains marred by conflicting messages around its role in the country’s future energy mix, according to the report.
Ben Warren, Power & Utilities Corporate Finance Leader, EY said: “The frustration of the renewables sector stems from a fundamental inconsistency between the Government’s rhetoric and its actions.
“Despite championing a market-driven energy sector, policy decisions are clearly picking winners and losers and ignoring signals from the market that onshore wind and solar PV can deliver affordable energy.
“The Government is chasing climate change targets, while favouring more expensive projects to the detriment of more cost-competitive renewable energy technologies that have the backing of the public.
“The current political stability as a result of the election outcome provides the Government with a unique opportunity to address this inconsistency and reconcile its contradictory energy objectives. Investors will not put money on the table without some clear signals that the Government intends to seize this opportunity.”
At the same time the proposed EU referendum is fuelling further uncertainty over the future UK energy policy that could hinder investment.
Warren added: “The new Government’s pledge to hold a referendum on UK membership of the EU within the next two years has also prompted nervousness around the UK’s commitment to long-term de-carbonisation targets if it is no longer bound by EU Directives, and could see energy companies developing contingency plans in the event on an ‘out’ vote.”
Many industry observers expect UK energy secretary Amber Rudd to honour the Tories’ pre-election vow and will announce the shutting down of the Renewable Obligation Certificate (ROC) subsidy system for wind farms a year earlier than expected, bringing forward the cut-off date for qualifying projects to be constructed from March 2017 to March 2016.
This would leave hundreds of megawatts of ‘consented’ Scottish renewable energy projects ‘stranded’ as the subsidy-floor moves beneath their feet under the less generous Contracts for Difference scheme – and thereby threatening to topple the entire financial architecture on which these projects have been founded.
This is also generating acute political anxiety at St. Andrew’s House because – although most of the pipeline wind power projects in the UK are in Scotland – tax and spend powers over energy generation are retained at Westminster.
Meanwhile, the EY report concludes that, so far, it has been difficult for investors to get a clear view of the opportunities, business models and most suitable markets when it comes to energy storage.
To change this, and increase funding for accelerated activity across the storage asset life cycle, the market must highlight the various entry points for investors and focus on creating an investable asset class for storage products that delivers the necessary returns.
Warren adds: “With a number of storage technologies already proven and costs falling fast, we must stop thinking about storage as something that will arrive tomorrow. It arrived yesterday and the game is already changing. It’s time to start viewing storage as just another energy asset that generates long-term predictable revenues and needs competitive and appropriate construction capital solutions.”