Beleaguered UK dropped from global renewable energy league top 10

by Search Gate staff. Published Wed 16 Sep 2015 00:01, Last updated: 2015-09-16
EY report highlights damaging inconsistencies in UK energy policy
EY report highlights damaging inconsistencies in UK energy policy

The UK has been overtaken by Chile and the Netherlands to lose its place in the top 10 most attractive countries as an investment destination for renewable energy, according to the latest influential EY index.

EY analysts blamed the UK Government’s wave of recent policy announcements for triggering a string of green energy project cancellations and putting the future competitiveness of onshore wind at risk.

The highly regarded Renewable Energy Country Attractiveness Index (RECAI) found 23 large-scale projects representing around 2.7GW of energy have been publicly abandoned, putting a question mark over the long-term future for the UK’s renewable sector. The report also points to the inconsistencies of the latest policy revisions as contributing to the UK’s dramatic fall

For the first time since the report was first published 12 years ago, the UK has lost its top 10 spot in EY’s league table of the 40 most attractive renewable energy markets for investors, slipping to 11th place, slightly ahead of South Africa, Australia and Belgium.

According to the report, the Government’s latest policy revisions are expected to have a significant impact on onshore wind investment. A combination of the early expiry of support for projects under the Renewables Obligation (RO) and the unexpected loss of revenues from levy exemption certificates are likely to impact both existing and future projects.

As a recent EY survey carried out on behalf of Scottish Renewables showed, the early withdrawal of RO support is already hitting investor confidence and the willingness to lend to onshore wind farm developers, jeopardising the sector’s competitiveness.

Ben Warren, Energy Corporate Finance Leader at EY said: “Few in the renewables sector would disagree that falling costs mean many renewables projects, particularly onshore wind and solar PV, will be cost-competitive and subsidy-free within the next three to five years. However, by prematurely withdrawing support, the Government risks stalling or killing projects that would otherwise maintain the momentum to get the market to that critical point.

“Investors are currently trying to make sense of what seems to be policy-making in a vacuum, lacking any rationale or clear intent. Worryingly, this trend of inconsistent policy tinkering could also sour investor confidence in other areas, such as new nuclear, carbon capture and storage (CCS) and shale gas, as well as offshore wind.”

Warren added: “The UK renewables sector is at a crossroads. It can continue to fight this policy tinkering, or see this as an opportunity to throw off the shackles of policy dependency and establish itself at the forefront of unsubsidised renewables in Europe. The latter won’t be easy, but it may well be worth taking the risk.”

RenewableUK’s Deputy Chief Executive Maf Smith said: “This report shows that investor confidence is being hit. For the first time the UK has fallen out of the top 10 of investor attractiveness. Investors are saying that Government has not set out a clear energy policy and don’t see the UK delivering decarbonisation at lowest cost, based on actions taken so far.

"The biggest worry for investors is that of an investment hiatus. Industry is ahead of Government in the need to protect the consumer while keeping the lights on and tackling climate change. Onshore wind is already the lowest-cost low carbon option and offshore wind is ahead of target in its cost reduction efforts. But without long term clarity, projects will be delayed, investment will go elsewhere and consumer savings will be lost.

"Confidence in offshore wind and wave & tidal markets remains high though, and we hope to see Government backing these ambitious world-leading parts of the energy market.”

Elsewhere around the world, policy shifts have prompted a major shuffle of the RECAI, with the US replacing China at the top of the list after losing the position a year ago, today’s report reveals.

President Barack Obama’s much-awaited Clean Power Plan (CPP) in the US sends a strong message of accountability at the state-level for the shift to a low-carbon economy and is expected to galvanize a significant increase in renewable energy investment over the next 15 years.

Warren said: “The CPP is the most comprehensive, far-reaching and flexible emissions legislation in the US to date and gives a clear steer on the country’s long-term energy strategy. Targets alone will not construct new projects, but long-term visibility increases investor confidence that demand is there, and maintains momentum as we hurtle towards universal grid parity for renewables.”

India’s economic, political and energy market reforms, as well as ongoing significant foreign investment, moved the country into third position ahead of Germany, where a new auction regime is not expected to accelerate the pace of deployment in the coming years.

Latin America’s hottest markets have, meanwhile, cemented their position in the RECAI top 10. Government proactivity in addressing key challenges, such as low tariffs, and an increasing focus on its untapped solar market moved Brazil into eighth place. Chile also moved up the Index, into ninth position, following the success of renewables in the country’s technology-neutral energy auctions and a continuing flow of large-scale project approvals.

Warren concluded: “Policy changes still have an immense impact on renewable energy deployment and the RECAI movements reveal some policymakers are listening to market signals more than others. In today’s world, where the majority of the population is facing some form of energy crisis, public support for low-carbon energy solutions and the increasingly compelling economics, flexibility and scalability of renewables cannot be ignored.

“Policymakers must recognize the strategic imperative of a diverse energy mix to help address economic and societal goals, as well as environmental ones.”

In response to the EY report, a DECC spokesperson said: “Government support has driven down the cost of renewable energy significantly, making it more cost effective for investors. However, we are taking urgent action to get a grip of renewables spending in order to protect hard working families and businesses and keep their bills as low as possible.

“The UK still remains an attractive location for investment in energy and we have continued to be the global leader in offshore wind investment. Subsidies funded via bill-payers have contributed to renewables making a record contribution to our electricity generation in Q1 this year and have nearly trebled our renewable electricity capacity in the last parliament alone.”

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