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UK Not Doing Enough To Win Renewable Investors, Says Report

The UK is continuing to keep renewable energy investors at arms’ length by publishing key legislation in a piecemeal manner and backing shale gas at the expense of developing biomass.

That is the verdict of analysts at consultancy Ernst & Young (EY), who warn that the British government “is now playing catch-up with investors who are not short of opportunities in other countries."

EY says that policy announcements over the summer “may have improved prospects and contributed to increased levels of activity in the UK renewables sector, but are not enough to attract investment in the long term."

Those announcements included details of the government’s proposed contracts for difference – the prices it will pay generators of electricity under its Electricity Market Reform package – an extra £800 million (€928 million) for the recently-launched Green Investment Bank and the Energy Bill securing its passage through to the House of Lords.

However, EY states that many of these announcements were long overdue and do not go far enough to sustain current high levels of investor activity.

Ben Warren, Environmental Finance Leader at EY, said: “The flurry of government announcements has been welcomed with a sigh of relief by the sector. But what we are witnessing is nothing more than basic, isolated measures that had been stalled for way too long.”

He added that “much work is still needed to convert this patchwork of measures into a complete, balanced and strategic plan that will sustain activity in the long term."

Examining the contracts-for-difference strike prices, EY said that they appear “relatively attractive, particularly for offshore wind," but it stressed that the proposed rates are still subject to consultation and state aid approval and as such “the market will need more detail to fully assess the risks and rewards."

EY also highlights that dedicated biomass power plants were conspicuously absent from the strike price package and notes that the government’s “controversial move toward shale gas appears to be at the expense of biomass power, which arguably still has a critical role to play in expanding the UK’s low carbon base-load power."

And EY also concludes that the government’s failure to set a 2030 decarbonisation target has “undermined confidence in its commitment to renewable energy."

Warren said that while the UK still had the potential for “a liquid and buoyant renewables market… global investors and developers need more than piecemeal policy details."

“The government must come up with a credible and consistent energy plan that offers in a timely manner the clarity and information required to make long-term investment decisions."

He warned that “the government is now playing catch-up with investors who are not short of opportunities in other countries. This is no time for complacency, as important pieces of the jigsaw are still missing if we want to produce an attractive framework.”

Warren was speaking as EY today released its Renewable Energy Country Attractiveness Indices (RECAI), which does what it says on the tin – ranks countries on how attractive they are to investors in terms of their political and regulatory landscape.

The US and China retain the number one and two slots respectively, and Germany remains in third place, despite a bleak outlook for the renewables market.

EY states that despite strong public support for a green economy, rising political tensions ahead of next month’s election “are paralysing investment in the sector."

“Calls to reform the feed-in tariff scheme ignore the relatively small impact of new renewable plants on the consumer surcharge, while rhetoric about the ‘affordability’ of Germany’s energy supply has not translated into policy statements.”

Australia drops from fourth place to sixth – replaced by the UK – because of Prime Minister Kevin Rudd’s plans to scrap the country’s fixed carbon price a year ahead of previous proposals – a move EY states “would cost A$3.8 billion (€2.5 billion) and take the price of carbon from A$25 (€17) to just A$6 (€4), potentially delaying investments."

The RECAI also states that last year, €9.6 billion of renewable energy assets were sold by major utilities, representing a third of total merger and acquisition activity globally in 2012, with European utilities accounting for 87 percent – or €8.2 billion – of this divestment value.

EY notes that in the first quarter of this year, a further €1.5 billion has already been divested and it expects this trend to continue.

The report states that utilities “are increasingly looking to divestment, particularly of renewable assets, as a way of creating sustainable capital flows for reinvestment. This is driven by a need to keep debt under control in order to protect credit ratings and fund capital expenditure programmes in emerging markets and technologies.”

It adds that renewable energy assets “are likely to be the first class of assets a utility chief financial officer considers when contemplating capital recycling and divestments, driven by debate around core and non-core assets, and valuations."

Lead image: 3d small person running to a pound sterling sign.Isolated on white background. via Shutterstock

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