The UK offshore wind industry – already badly bruised by British govt. subsidy changes – is facing further uncertainty after the referendum vote in favour of British Independence from the EU-bloc, with investors worried about future government incentives, exchange rates and export duties.
Portugal’s Energias de Portugal-EDP said it could delay its Moray Firth offshore wind energy project in Scotland, while German engineering giant Siemens said it was reconsidering plans for an expansion of its planned manufacturing plant in the port of Hull in north east England.
Richard Slark, director at energy consultancy Poyry, told Reuters:”I believe we are looking at a two to three-year hiatus in those large-scale energy projects where financing would be international.”
Britain is the world’s biggest offshore wind market, expected to be worth 20 billion pounds from 2010-2020, according to RenewableUK, one of the industry trade associations.
It has more than 5 gigawatts (GW) of capacity which the government wants to double by 2020 in order to meet climate change targets for lower carbon emissions.
But Germany is quickly catching up with Britain with around 3.4 GW of capacity currently installed. Denmark is next in line at 1.3 GW, while France and the Netherlands have ambitious targets to build offshore wind turbines by the end of the decade.
The result of the vote has made it more difficult for offshore wind investors, who are mainly international consortia, to predict foreign exchange rates – an important factor as many of them buy equipment in Euros.
The pound fell to the lowest level in over two years against the Euro after the British Independence vote.
RWE Innogy, one of the partners in the Forewind consortium which is building up to 4.8 GW of new capacity, said a weak pound would mean its revenue, which is calculated in Euros, could fall.
It is also unclear what kind of access the UK will have to European markets once negotiations on an exit have been completed, a concern for companies building turbines for export.
Offshore wind farm developers are still reliant on government subsidies to make projects economically viable as installing turbines hundreds of kilometres off the coast is expensive.
For a British contract, offshore wind builders have to compete in an auction with other types of renewable energy technology suppliers, such as geothermal plants or projects generating power from waves and tidal streams.
With uncertainty about Britain’s political leadership following the resignation of Prime Minister David Cameron and warning signs from the UK chancellor about rising taxes and possible further austerity measures, investors are concerned the next auction, initially scheduled for the end of the year, will be delayed.
UK energy minister Andrea Leadsom, MP – who campaigned in favour of British Independence – said it was not possible to say when it would be carried out.
Portugal’s EDP Chief Executive Antonio Mexia said that a delay to the auction would have a knock-on effect for its Scottish project in the Moray Firth.
Other offshore wind investors, including Perth-based SSE and Sweden’s Vattenfall, have said the vote had increased uncertainty and therefore investment risks.
Some British offshore projects, such as the Galloper wind farm, have gained financial support from the European Investment Bank, which lends to projects which follow EU policies.
Meanwhile, RenewableUK Chief Executive Hugh McNeal said the economic uncertainty caused by Britain’s decision to leave the EU has strengthened the case for supporting onshore wind.
His intervention follows comments by the Prime Minister and the Chancellor about the effects of a period of prolonged economic adjustment and the need for a clear plan for immediate financial stability.
He said: “It is tempting in these unprecedented times, in the period of uncertainty and market volatility since the vote, to focus only on the challenges ahead. The fears are very real.
“The stakes very high, in terms of investment, jobs and consumer bills if we lose access to the European energy market.
“So it is precisely now, at this moment which is so unpredictable and uncertain, that I believe we should reflect on what we can offer; cheap, home-grown electricity able to deliver hundreds of millions of pounds of capital investment for our economy over the next few years
“There remains a pipeline of onshore wind plants that are ready to build now, ready to be financed; projects which can generate economic activity and capital investment, projects it makes sense to build given the benefits they will bring and the challenges we now face.“