Ben Warren, Ernst and Young
December 29, 2011 | 1 Comments
LONDON -- 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.
Since 2003, global consultancy Ernst & Young has released its Country Attractiveness Indices, which gives a numerical ranking to 30 global renewable energy markets by scoring renewable energy investment strategies and resource availability. The indices are updated on a quarterly basis and the most recent report can be found here.
Here is the firm’s assessment of the UK.
On 20 October, the Department of Energy and Climate Change (DECC) published its consultation document setting out the proposed support levels for large-scale renewable electricity from 2013-17 (2014-17 for offshore wind) under the renewables obligation (RO). The proposals were initially scheduled for release as early as July and the delay, along with the postponed launch of the renewable heat incentive (RHI), has undoubtedly fueled a mood of uncertainty across the UK renewables industry, with investors finding it difficult to commit to project plans without guaranteed support levels. It is possible this sentiment could continue through to 2014, when the Electricity Market Reform is expected to replace the RO with a contract-for-difference FIT.
However, despite mixed reactions to the ROC banding proposals, there is a general sense of relief that some clarity has been provided by the Government. Ernst & Young Director, Arnaud Bouille notes that, “The gradual step down in support can be debated; it does, however, confirm the UK Government’s mid-term commitment to renewables and sends a signal to the sector as a whole: the industry needs to become more competitive and costs need to come down.” According to the Government, the revised incentives will cut the cost of the subsidy program by up to £1.3b (€1.5b) and boost the deployment required to ensure the UK meets its EU 2020 target.
Onshore wind projects will receive 0.9 ROCs/MWh from April 2014 onward, down from 1 ROC currently. While there is some disappointment across the sector, this should still provide a suitable regime to ensure the development of windy sites across the UK. It is likely the reduction will mainly impact smaller projects and community schemes as opposed to large-scale infrastructure projects.
However, progress is still required in respect of the planning regime and grid access in order to unlock the country’s onshore wind potential. A recent report has revealed that planning approval rates for new wind farms have sunk to an all-time low of just 42%. Onshore wind developers are therefore being urged to deepen their engagement with local communities and ensure projects are economically viable before applying for consent.
Offshore wind appears to have emerged as the winner of the latest banding proposals, which extends current levels of state subsidies by one year to 2015 and reduces previously set cuts for subsequent years. For the tax year 2014-15, offshore wind generators will continue to receive 2 ROCs/MWh, reducing to 1.9 the following year, and 1.8 thereafter. Previously, the current 2-ROC allocation was expected to expire in April 2014, decreasing to 1.5 ROCs thereafter.
The 2-ROC regime should provide the continued stimulus required to support investments for these large-scale infrastructure projects. With an additional 10 GW+ of offshore wind capacity required to be commissioned over the next decade to meet the UK’s 2020 targets, Ernst & Young estimate an investment opportunity worth some £30 billion for large infrastructure funds and other institutional investors seeking toachieve long-term returns.
There has been a mixed response to the proposed revisions for biomass. Overall, the bands for different forms of biomass burning were largely unchanged, although a new category under consideration — enhanced biomass co-firing — would essentially double support to 1 ROC from 0.5. This positive outcome resulted in a record intraday trading gain for Drax Group Plc, owner of Europe’s largest coal-fired power plant, which will benefit from these higher subsidies.
However, failure to improve support for dedicated biomass, which will be held at 1.5 ROCs until 31 March 2016 before decreasing to 1.4 thereafter, has resulted in disappointment for many across the biomass sector. Several projects have been on hold because the current rates of subsidies make it uneconomic to continue. This includes Drax, which recently had two 299-MW projects approved by the Energy Minister but was candid in stating that these would only be built if subsidies for dedicated biomass were increased. It is likely, therefore, that tensions will begin to arise between the competing uses of dedicated biomass and co-firing.
Under the ROC banding review, solar power will continue to receive 2 ROCs/MWh until 2015, when it will be cut to 1.9 for a year, and 1.8 thereafter. However, recent policy activity has also seen the launch by DECC of a consultation on UK solar FIT tariffs. The consultation proposes a reduction in tariffs of up to 55.5%, depending upon installation size. Installations up to 4 kW will reduce to £0.21/kWh (€0.24/kWh) from £0.43/kWh (€0.49/kWh). It is also proposing reductions to the tariffs for solar PV installations 4-250 kW in size, some of which already saw cuts in August this year.
The proposed start date for the new FIT for solar PV is 1 April 2012 for all new solar PV installations that become eligible on or after 12 December 2011. The consultation also required public feedback on two new concepts; multi-installation tariff rates for aggregated solar PV schemes and the introduction of energy efficient requirements.
Editor's Note: To learn about the current UK tariff cuts, click here.
Wave and tidal
Wave and tidal have been recognized as emerging technologies by the Government and have been awarded 5 ROCs/MWh compared with the current 2, for the first 30 MW of capacity of any tidal stream or wave power project. Additional capacity will receive 2 ROCs. The Government has estimated the UK could install as much as 300 MW of wave and tidal power capacity, up from 4 MW of prototype projects currently.
For more information on renewable energy development in the UK, contact the report’s author Ben Warren.