UK market climbs three spots to place seventh in latest EY renewables attractiveness index
The UK's attractiveness to renewable energy developers has improved considerably over the last six months, thanks to brightening prospects for renewables developers finally able to generate returns on subsidy-free projects.
According to the latest Renewable Energy Country Attractiveness Index (RECAI), released today by consultancy EY, the UK has moved up three places in the global rankings since October 2017 to hit seventh place - a ranking it last held in September 2014.
The ranking marks an encouraging revival in investor confidence for the UK renewables sector, after a series of subsidy cuts and policy overhauls saw the country's placing in the index slip.
Despite renewables investment in the UK more than halving in 2017, the country managed to improve its ranking in the EY league table thanks to the first wave of new projects getting underway without the support of the Renewables Obligation Certificates (ROCs), a subsidy regime that closed to all new generating capacity last year.
For example, in September Anesco cut the ribbon on the UK's first subsidy-free solar farm, a 10MW project hailed by its creators as "a landmark development [that] paves the way for a sustainable future, where subsidies are no longer needed or relied upon". Since then, other projects have gained traction, including plans for a 350MW subsidy-free solar farm in Kent.
Meanwhile, onshore wind is finding another route to market through merchant generation, and old wind farms are being upgraded with larger, more powerful turbines, driving inward investment into the UK. Only yesterday renewables developer Vattenfall announced plans to sell power from its proposed South Kyle wind farm in Scotland through corporate power purchase agreements (PPA).
Elsewhere in the rankings, China retained its top spot for the third edition running, and the US climbed from third to second place thanks in part to the Tax Reform Bill, which spared the wind and solar sector from feared subsidy cuts.
But other countries witnessed a downturn in fortunes. Most notably India, fell from second to fourth place. RECAI analysts say the country's 2022 target to install 100GW of solar capacity is looking "increasingly over-ambitious" as investor concern grows over the threat of a 70 per cent tariff on imported solar panels, and unsustainably low power bids in recent wind and solar auctions. Disputes between developers and distribution companies are also raising concerns for investors.
Meanwhile, Japan slipped from seventh to eighth place, after sharp cuts to its feed-in tariff regime and intense market competition sparked the bankruptcies of more than 80 solar firms in 2017, and Canadian wind installations dropped suddenly due to a slump in demand from the eastern provinces.
Other challenges also loom large. The latest edition of the RECAI warns that rising global interest rates could challenge access to cheap capital for renewables projects. In addition, governments around the world are expected to continue to curtail subsidies as technology costs fall, leading to a degree of policy uncertainty for developers and investors.
Many UK renewables developers maintain the sharp reductions in subsidies imposed in recent years has led to a hiatus in clean energy investment and undermined efforts to meet medium term carbon targets. They have also warned that locking onshore wind and solar out of clean energy auctions will lead to higher costs for consumers as the lowest cost projects are unable to secure price support contracts.
But Ben Warren, EY global power and utilities corporate finance leader and RECAI editor, said there are good reasons for investors to remain optimistic about renewables' prospects. "While the current economic climate has driven a relentless focus on costs, that focus is paying dividends with the global cost of electricity from renewable sources falling year-on-year," he said. "Combined with the plunging cost of battery technology, we anticipate further rapid growth of the evolving renewable energy sector in the coming years."
The latest issue of RECAI also spotlights the potential of blockchain technology to enable peer-to-peer renewable energy trading. The first UK energy trade using the technology took place last month in Hackney, under the guiding hand of UK-based machine learning start-up Verv, and the technology's influence looks set to expand. Utility Centrica yesterday rolled out a live trial of blockchain technology for energy trading across 200 homes and businesses in the UK.
"Companies need to start experimenting with blockchain, to start to understand its potential in their existing business and new applications," Warren added. "This understanding needs to take place at the highest level of the company, and not just be delegated to the IT department - blockchain has to be on the C-suite agenda."
There were always likely to be bumps in the road as the renewables market matures, but the resurgence of the UK, from its all-time low rating of 14th place in 2016, is a sign markets can recover even when the support offered by subsidies is diluted or even withdrawn. Headwinds may remain, but the future remains bright for the renewables sector.
Richer countries import products but not the emissions used to make them
Bolstered by batteries, the Barnet system will be powered solely by solar panels on people's roofs
Now is the time for the construction sector to invest in science and research, argues BRE's director of sustainability Martin Townsend
Chancellor claims new government—funded body will help make the UK a world leader in sustainable finance