Delays in UK's Energy Agenda Unsettles Investors
The Scottish transactions, coinciding with that country’s annual Low-Carbon Investment Conference in Edinburgh, saw its government start a GBP 35m (USD 54m) fund to back the “next generation of offshore wind turbines”, Spanish turbine maker Gamesa open a GBP 12.5m engineering centre near Glasgow, and investors led by ABB back wave energy company Aquamarine Power with a fresh GBP 7m funding round.
Down in London, there was a more circumspect mood among clean energy investors.
The industry continues to wait for a review into the new Renewables Obligation Certificate banding levels, initially slated to come out as early as July. At the end of last week, the Department for Energy and Climate Change (DECC) announced hours before its proposed launch that it was also delaying the start of the Renewable Heat Incentive, devised to spur generation from wood-chip burners and biogas. After the European Commission demanded lower tariffs for large biomass burners, the plan must be approved again by Parliament, DECC said.
These moves will dampen confidence levels in the UK renewables industry, since investors find it difficult to commit to project plans without guaranteed support levels.
In December last year, the UK government announced that the ROC banding review would be brought forward by a year, with plans for a consultation on ROCs to be carried out over the summer. Subsidy levels would then be confirmed in the autumn and the new bandings effective from April 2013, subject to state aid approval.
The government initially sped up the review, on concern over delayed early investment in certain technologies, as developers were reluctant to start projects with long construction periods without clarity on subsidy levels. This may hinder the UK’s ability to meet its European Union target for 15% of energy to come from renewable sources by 2020.
DECC said then that the industry could get indications as early as July 2011 on what their new ROC banding levels might be. These indications are yet to materialise and investors are now still waiting to learn how subsidies will be “banded”, or the price support for different forms of renewable energy.
This delay affects the biomass sector most, as the new bandings are expected to offer more targeted support for technologies such as burning biomass in power stations. Several projects are on hold because current rates of subsidies make it uneconomic to continue. Also, dedicated biomass generation plants take around three years to build, so developers are looking for reassurance about the support that will be available for new projects coming on stream in 2014-15.
Bloomberg New Energy Finance analysts say that delay – “although not necessarily a blow in the medium term” – has fuelled the mood of uncertainty. This sentiment is likely to continue into 2014, when the UK Electricity Market Reform is expected to come into force, replacing the Renewables Obligation with a contract-for-difference feed-in tariff.
As for the Renewable Heat Incentive, a last-minute delay to its introduction is likely to cause uncertainty in the sector. Just hours before its proposed launch, the European Commission objected – specifically to the incentive’s tariff for large biomass operation – grinding to a temporary halt the GBP 860m (USD 1.3bn) scheme.
“This last-minute announcement is desperately disappointing,” said Paul Thompson, head of policy at the Renewable Energy Association (REA) in a statement. “This further adds to low confidence levels in the renewable industry as a while, added to uncertainty around the feed-in tariffs, the renewable obligation and the renewable transport fuel obligation.”
The state aid intervention by the European Commission arose because DECC set the tariff for large-scale biomass in the non-domestic sector at a higher level than that for heat pumps and small- and medium-scale biomass, to reflect its assessment of the relative cost-effectiveness of these technologies, according to Bloomberg New Energy Finance European policy analyst Catherine Craig.
Although DECC said that it aims to start the plan “as soon as possible to minimise disruption,” even a two-month delay in starting the programme would be disruptive, said the Renewable Energy Association. “As heat demand is seasonal, delaying until the end of November will mean many customers will either put off a decision until next winter or buy a new fossil-fuel boiler now, locking them in to higher-carbon heat for years to come,” REA’s Thompson said.
In other news, France has approved the installation of smart power meters in 35m homes across the country, at an estimated cost of EUR 4.3bn, according to industry minister Eric Besson. He added that the plan will “benefit consumers, the electric grid and French industry”. Electricite de France’s ERDF distribution unit, which will invest in the meters and install them, will issue a tender for equipment suppliers.
In India, Goldman Sachs is acquiring a majority stake in India’s ReNew Wind Power for USD 200m, extending the US bank’s investments in emerging economies. This is the largest private equity investment in the Indian wind power generation segment. The US Bank may have been attracted by the track record of the management team and contracts with turbine suppliers. These combine to reduce the operational risks, say Bloomberg New Energy Finance analysts.