UK buoyed by Offshore Wind Sector deal, but lack of clarity over onshore wind and nuclear suggests bleak outlook for renewables investment, analysts warn
The UK has clung on to its position as the eighth most attractive destination for renewable energy investment in the world, but leading analysts warn a lack of clarity over domestic clean energy policy could hamper the future flow of finance into sector.
Global analyst EY's latest annual Renewable Energy Country Attractiveness Index, published on Wednesday, shows the UK holding its position in eighth place, with China and the US retaining the top two positions respectively and France climbing two places to third.
But while the UK renewables sector has been buoyed by the launch of the Offshore Wind Sector Deal earlier this year, EY said growth in the sector has nevertheless been hampered by the lack of policy support for onshore wind, solar and tidal energy in recent years.
Unveiled in March, the Offshore Wind Sector Deal sets a target for offshore wind to supply 30 per cent of the UK's electricity by 2030, which EY said would require £250m of investment in exchange for £557m in subsidies.
Yet at the same time, last year just 598MW of onshore wind was installed in the UK according to trade body RenewableUK, down from 2.7GW in 2017, with the technology still effectively barred from taking part in Contracts for Difference auctions.
Moreover, the government's decision last year not to back the Swansea Bay Tidal Lagoon- arguing the project would be too expensive for taxpayers - coupled with changes to network charges so they are less favourable for decentralised renewables and energy storage than before, will "hamper investment in the sector going forward", according to EY.
"While the Offshore Wind Deal is extremely positive news for the UK renewables sector and will help to attract significant investment over the coming years, the announcement regrettably follows the withdrawal of support for onshore renewables in 2016 that has slowed UK sector growth," said Ben Warren, EY global power and utilities corporate finance leader and chief editor of the investment index.
It comes alongside warnings from UK energy analyst Cornwall Insight that "urgent policy direction is needed" in the UK with regards to energy policy - particularly with regards to nuclear power - in order to meet the UK's climate targets.
In new analysis, also published on Wednesday, Cornwall Insight said it was a "real possibility" that the UK could meet its fourth and fifth carbon budgets from the latter part of the next decade without commissioning any new nuclear power capacity.
And, it said these upcoming climate targets could be met at a lower cost compared to developing a new fleet of reactors, calling into question whether building new nuclear generation is a necessary step in the UK's decarbonisation plans.
The government has said it wants to build a fleet of new nuclear power stations in the coming years, but its plans have been thrown into disarray after Hitachi shelved its UK projects earlier this year and Toshiba pulled out of a nuclear project in Cumbria.
Ben Hall, head of new business at Cornwall Insight, said its latest forecast marked a "notable shift away from previous thinking" that new nuclear would be needed to meet climate targets in the UK.
Wind and solar are increasingly competitive on costs and could well negate the need for new nuclear capacity, he argued.
Hall also raised questions about the need for other traditional baseload forms of electricity, suggesting some of the scenarios in his analysis showed minimal need for additional gas power plants, with any new capacity likely only needed to replace older units in future.
However, Hall warned that despite the falling costs of solar, onshore wind, offshore wind and other renewables technologies, green energy deployment "may still need some form of support above and beyond power markets" in order to scale up in line with UK carbon budgets.
"Captured wholesale prices for renewable projects will fall relative to baseload prices, leading to lower revenues because of what is commonly termed power price cannibalisation," he explained. "From our modelling it is also evident that the combination of Capacity Market de-rating factors for renewables and projected clearing prices - even if they rise - is not going to be enough to encourage significant new-build merchant renewables."
It comes ahead of the government's launch of the latest CfD auction next week to support renewables projects totalling up to 6GW. Bidding will be open to less established technologies such as offshore wind, biomass, anaerobic digestion, geothermal, tidal and wave power, although offshore wind is expected to win the lion's share of contracts.
The government is also working on plans to enable households and small businesses can sell any excess renewable power they generate to the grid through a Smart Export Guarantee Mechanism - replacement for the Export Tariff scrapped earlier this year. BEIS said it hoped the new market-led mechanism "will encourage more households to become renewable electricity generators".
Speculation is mounting that the Prime Minister, Theresa May, is keen to shore up her legacy with strong climate policy before she departs Number 10. Securing the UK's position as an attractive market for green power appears a smart place to start.
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