UK fast becoming less attractive to international clean energy investors, EY warns

Pictured: The Rampion offshore wind farm near Brighton, East Sussex. Image: Rampionoffshore

EY has published its Renewable Energy Country Attractiveness Index (RECAI) every six months since 2003, with the 62^nd edition out today (14 November).

The US has once again retained the top spot, with investor confidence buoyed by the multi-billion-dollar subsidy package on offer through the Inflation Reduction Act. This has proven particularly effective at stimulating investment in solar over the past year, EY notes.

Indeed, EY is warning that the demand for renewable energy components in the US could significantly exceed supply by 2025, as the US scales its capacity so significantly.

Germany has retained second place overall after overtaking China for the first time in this summer’s edition of the RECAI. It also continues to be regarded as the most attractive market for corporate power purchase agreements (PPAs).

Germany earns praise for the success of its first dynamic offshore wind auctions, which were held this July. The auctions attracted more than $13.4bn worth of bids. EY also notes that Germany installed more offshore wind in the first nine months of 2023 than it did during all of 2022.

China remains third but the fourth spot, which went to the UK in the last RECAI, is now held by France, which has climbed one place as it prepares to host an offshore wind auction in late 2024.

Australia has climbed two places to fifth while India has remained in sixth. The UK is behind these markets, in seventh.

EY has set out several reasons why investors are favouring other markets over the UK, including the Government’s continued reluctance to bring forward a comprehensive response to the Inflation Reduction Act and other similar packages in markets including the EU and Japan. Such an announcement is expected from the Chancellor at the Autumn Statement later this month.

Investors have also been deterred by the Government’s failure to update the design of its Contracts for Difference (CfD) auction scheme to reflect challenging economic conditions in offshore wind supply chains.

The most recent CfD round attracted successful bids from a record number of projects, but failed to attract any offshore wind bids. Developers including Vattenfall have hit pause on projects in British waters after supply chain costs soared by, in some cases, more than 40%.

EY’s chief editor for the RECAI, Ben Warren, noted that these issues are global – but that other governments, including those in Germany, Lithuania and the Netherlands, have been quicker to respond.

Warren said: “Considering moving away from cost-only auction formats and incorporating non-price factors, such as environmental considerations and job creation, may entice developer interest and a rise in bids.”

The UK is exploring reforms to the CfD process with non-price factors in mind. In April, it began consulting on which factors should be considered.

For now, it has lost its long-held RECAI top spot in terms of attractiveness to offshore wind investors to the US.

Grid connection delays

Warren additionally highlighted how investors fear that they would not benefit from a “viable, timely return on investment” if their projects are stuck in the grid connections queue for too long, unable to generate power and revenue.

This is a significant issue in the UK at the moment. The Government has recorded a  65% increase in the delivery timelines for Nationally Significant Infrastructure Projects (NSIPs) between 2012 and 2021. Developers of smaller projects have repeatedly told MPs that, in some cases, they face waiting times of ten years or more for a grid connection.

National Grid is working with Ofgem, the National Infrastructure Commission and the UK Government in a bid to tackle this issue, with more information expected in the coming weeks and months following the mention of readying the UK’s electricity grid for the net-zero transition in the King’s Speech last week.

National Grid is recommending “fundamental” reforms to end the ‘first come, first served’ grid connections model in order to prioritise projects more strategically.

In the meantime, it has begun assessing whether 29GW of projects with connection dates before the end of 2025 will be ready. If not, they face being delayed or removed from the queue.

Onshore wind challenges

The release of the RECAI comes in the same week that the Observer revealed that no new applications have been made for onshore wind farms in England since the Government eased planning rules in September.

Changes made two months ago included measures to stop one individual or household from blocking a project and changes to how onshore wind farms are accounted for in local plans from councils.

Green groups warned at the time that the changes were not wide-reaching enough to reverse a de facto ban in place for more than six years. Reports abound that there would be further changes in the coming months if initial interventions proved fruitless.

The Observer has now reported that new pricing frameworks could come before November is over.