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Renewable Energy Review: United Kingdom

Developers, manufacturers, investors and other renewable energy industry stakeholders need to know where the next big market is going to be so that they can adjust their business decisions accordingly.

Mixed Signals from Policy-makers

The biggest challenge faced by the UK’s energy sector still appears to be apparently inconsistent policy messages. The recent Cabinet reshuffle has also caused some concerns for the renewables sector, in particular the appointment of an Energy Minister and Environment Minister who, at times, have both been openly critical of certain clean energy technologies.

That energy remains a major battleground was recently highlighted in a particularly embarrassing display. Prime Minister, David Cameron announced that new legislation would force energy companies to give customers the lowest tariffs. However, the Government backed away from this pledge within days, claiming the legislation would simply force companies to inform consumers of lower tariffs.

Q3 also saw the Government acknowledge the lack of detail around its power market reforms. Energy Secretary, Ed Davey stated that the Government will seek powers in the Energy Bill, due a second reading in November, to give the market greater clarity on the Electricity Market Reform (EMR). While this will inevitably be welcomed by the sector, for many the biggest concern remains the lack of connection between UK support for renewable energy and legally binding carbon targets.

More than 50 companies wrote to Chancellor George Osborne in early October to make clear that the absence of a clear decarbonization goal undermines Britain’s low-carbon plans. This may have gone some way to spurring the Energy Secretary in early November to call on the Government to agree a 2030 emissions reduction target. However, some policy-makers, including the Chancellor, still see the expansion of gas plants as more critical to the country’s energy plans, leaving the prospect of a decarbonization target as uncertain as ever.

Funding Receives a Boost

More positively, Q3 saw the GIB receive critical approval from the EC after concluding that the £3b (€3.74b) fund did not constitute state aid. However, the revelation that the funds for offshore wind projects would be focused on operating assets as opposed to those under construction surprised many, as the original remit of the GIB was perceived by many to be funding for more risky phases of development.

Further, the inability of the GIB to use its capitalization to leverage private funds means its purpose has again, to some extent, been undermined. As such, the GIB is no longer expected to change the market fundamentally, but it is hoped it will go some way toward minimizing risk to private capital.

Scotland revealed in Q3 that increased subsidies for offshore wind projects will be funded by a 10% cut in tariffs for onshore wind farms and the removal of ROCs for non-CHP biomass projects. Meanwhile, hydropower will continue to receive 1ROC/MWh. The Scottish Government also intends to introduce a ROC banding for deepwater offshore projects.

Future of Onshore Wind Uncertain

Q3 proved to be a trying time for the UK’s onshore wind sector, with the Energy Secretary launching a call for evidence on the benefits of the technology to local communities and the appropriateness of subsidy levels from 2014. This coincided with the announcement that Siemens’ proposed £210m (€261.60m) turbine factory in Hull has been further delayed until 2013.

However, perhaps the greatest blow was the claim by a junior energy minister that there would be no further expansion of onshore wind, stating that the machines had been “peppered” across the countryside and that “enough is enough.” While this sentiment was quickly denied by the Government, the incident has highlighted yet further tensions between policy-makers.

Offshore wind, however, fared better in Q3. EDP Renovaveis has sought permission for a 1.5GW wind farm under round three of the UK’s offshore licensing process. The £4.5b project would be the world’s largest. In the same period, the Crown Estate awarded licenses for sites off Northern Ireland, including a 600-MW wind project to be developed by DONG Energy.

Solar Consultation on Support Levels

The Government has launched a consultation on reduced subsidies for solar projects that are currently eligible for FITs, and are particularly interested in the cost of installations over 5MW. Under the proposals, the rate would fall from the current 2ROCs/MWh to 1.5ROCs from April 2013, eventually reaching 0.9ROCs/MWh by 2016–17. The cuts are a response to higher than expected demand for large solar projects and signal the Government’s determination to prevent the solar boom seen in the small-scale solar market.

Biomass Capacity Cap Dropped

Consultation results released in July 2012 confirm the Government’s preference for particular types of biomass, causing many developers, including Centrica and Drax, to ditch plans to build or expand dedicated biomass plants in favor of biomass conversion. In the same period, the Government dropped plans that would have capped the number of power plants converting to biomass or using a mixture of feedstock and other fuels should too many companies apply for funding.

For more information on renewable energy development in the United Kingdom, contact the report's authors Ben Warren and Klair White.

Lead image: UK flag via Shutterstock

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