Govt ROCs policy threatens renewables investment

The UK has slipped down the league of top spots for renewable energy investment due to a combination of increased competition, soaring oil prices and Government policy.

The autumn Ernst & Young Renewable Energy Attractiveness Index places Britain as the third most attractive national environment for wind power – behind Spain (ranked first) and the US (second) – dropping two places from its former top spot.

The index shows booming markets in the US and India in particular, causing a global turbine shortage, leading to delays for some European projects.

“As countries such as India start climbing up the indices it is the emerging markets that will become the new hotspots for renewable investment, which could lead to a major shift in the industries dynamic,” said Johnathan Johns, head of renewable energy at Ernst & Young. “And with the US also flexing its muscle, the world is becoming an increasingly competitive place. Capital and investment – of which there is no shortage – is starting to move to the most attractive regimes with increasing speed.”

Soaring oil prices and a shortage of renewable obligation certificates (ROCs) have also impacted on the industry, forcing green electricity prices in excess of £90 per mega watt hour.

Additionally, Johns says, the government’s decision, in this summer’s RO review, not to extend the targets for renewables beyond the current 15% by 2015, has added to price woes as it is difficult for generators to obtain contracts to sell electricity for more than 10 years without providing large discounts on price. This then makes securing finance harder still.

“The impact of the non extension of ROCs for offshore wind projects in particular has been bad. Offshore wind already faces rising costs from manufacturers and high grid connection costs, but now the sector could struggle to secure project financing due to cash flow uncertainty beyond 2015. The industry is also awaiting the outcome of a consultation which will decide how grid connection charges for offshore projects will be levied.”

One of the side effects of delaying the momentum on renewables could well be a rise in carbon dioxide emissions as the proportion of power provided by coal and oil plants will increase as these fuels have become relatively cheap following the surge in oil prices.

Johns says that an increase of just 1% to 2020 would be enough to safeguard long-term investment and reassure the industry that ROCs are here to stay. Generators would also be in a position to accelerate development in order to meet the 20% by 2020 targets.

However, the government is unlikely to make any move to extend targets until the energy review completes in 2006. If as expected, the government uses this to announce a new nuclear program, the threats to the renewables industry could be greater still.

By David Hopkins

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