Utility Week

Utility Week 6th December

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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Page 18 of 31

Finance & Investment Market view Crunch time for renewables The UK renewables sector should be sitting pretty with £29 billion of investment waiting in the wings, but much of that money will be lost unless politicians get their act together, says Ben Warren. Some of the £29 billion of investment announced in the past three years will undoubtedly be contingent on government policy decisions and may not materialise if a clear long-term energy strategy, preferably with the benefit of cross-party support, does not appear soon. Ongoing policy uncertainty is widening the time gap between investors announcing their intentions and taking action, jeopardising billions of pounds of investment and thousands of muchneeded jobs. With the country facing decommissioning of old plants and a challenging 2020 renewables target, cross-party collaboration is now needed more than ever to create a tangible, cohesive, long-term strategy for conventional and clean energy that will see vision translating into investment. Overall, the sector's positive reaction to announcements this year, including the publication of draft CfD strike prices and additional funding and borrowing powers for the GIB, as well as current high levels of activity, point to a liquid and buoyant renewables market. Global investors and developers, however, need more than piecemeal policy details. Otherwise, the UK will miss out on a unique opportunity to become the market of choice for investment in renewables in Europe, and retain its leading position in the global offshore wind sector. Ben Warren, environmental finance leader, EY over £5 billion, while primary funds secured for the construction of new renewable energy plants in the UK fell 45 per cent between 2009 and 2012. This is despite a 38 per cent increase in secondary market asset refinancing and acquisitions in the same period, which would otherwise suggest greater liquidity in the market from the recycling of capital. It is an indication that capital c onstraints are not behind a 45 per cent decline in the value of new-build asset finance deals. In 2012, a lack of clarity and confidence in the UK's renewable energy policy was cited as the reason for the loss of three major  investments in the offshore sector. General Electric put on hold its £90 million planned investment in a UK offshore manufacturing plant, Korean company Doosan Power Systems cancelled its planned investment and Vestas abandoned plans to employ up to 2,000 people in an offshore turbine factory. Looking ahead, there are already signs that the investment that should have been secured in the next decade has been delayed or lost. Offshore wind investment scenarios released by the government in mid-July indicate that it has dramatically downgraded its ambitions for the sector, shifting its 18GW target out by a decade to 2030. Think-tank the Institute for Public Policy Research has estimated that if the UK were to reach the initial 2020 target of 18GW, it could generate up to 15,000 additional jobs. 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 10,000 Recorded investment Jobs supported 8,000 6,000 4,000 2,000 nd la cot S t Eas re st shi We th ork Y Sou t s le Wa No rt as hE No rt est hW s Eas id tM NI t on d Lon Sou t as hE s id tM 0 Estimated number of jobs supported UK renewable investment and jobs, january 2010 - April 2013, by region Recorded investment, £m T he UK renewable energy sector has much to be grateful for. Between January 2010 and April 2013, £29 billion-worth of energy sector investment in renewables was announced, which is expected to support 30,000 jobs. During the same period, total installed renewable capacity has almost doubled to 17.5GW. The UK's potential is also reflected in its consistent performance in EY's Renewable Country Attractiveness Indices. Currently in 4th place in the overall ranking, the UK also tops the offshore wind index, making it number one globally. Initiatives such as the Green Investment Bank (GIB) are contributing to the current high levels of activity in the sector, while a staggering 18GW of applications were made for the government's "final investment decision" programme earlier this year, which sought to qualify some large-scale projects for contracts for differences (CfDs) ahead of the full codification of Electricity Market Reform. So if the foundations for a strong renewables sector are already there, what is stopping the UK from realising its potential and seizing the opportunity to become a European safe harbour for renewable investment? The big factor is uncertainty about policy. As long as the government comes to a decision, even if it is an unpopular one, the market adapts and life goes on. It is inconsistency and conflicting messages that cause the damage. When politics are in the driving seat, we see delayed investment, abandoned projects and market exits. One need only think of the delayed announcements of the details around EMR, or the lack of a 2020 decarbonisation target. More recently, there is a Labour pledge to freeze energy prices in 2015, while the Conservatives have announced plans to cut consumer bills by "reining in green levies" this week. This intense political point-scoring over energy policies has left renewables investors in a state of heightened uncertainty. There are already signs that investors have been holding back. New investment in clean energy fell 17 per cent in 2012 to just s We Source: Renewable Electricity Capacity and Generation 2013, Decc UTILITY WEEK | 6th - 12th December 2013 | 19

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