Government action needed to keep renewables on target

Renewables industry calls for intervention to overcome impact of credit crunch

Launching its submission to the Treasury today ahead of the Budget on April 22, the BWEA – the UK ’s leading renewable energy trade body - called for targeted Government intervention to ensure that Britain can meet its ambitious renewable energy targets.

Maria McCaffery, BWEA Chief Executive said: - “Large scale wind deployment is vital to reaching the UK ’s goal of generating up to 40% of our electricity from renewables by 2020.
The current economic climate has caused a number of developers to put projects on hold, threatening the UK ’s targets, and leaving the country exposed to volatile fossil fuel prices. Building a clean energy sector in the UK is an important part of our economic recovery, and we need to maximize the opportunities to develop sustainable energy projects which would otherwise be delayed by the recession.
We are keen to work closely with Government to deliver solutions to this renewables crunch, and to secure the UK ’s long-term competitive advantage as a magnet for low carbon investment.”

Both onshore and offshore projects are affected by a rise in supply chain costs, driven in part by the depreciation of the Pound against the Euro, and by a tightening in availability of project finance.

A number of key projects which are currently seeking finance now face potential delays, and threaten the UK ’s ability to meet its 2010 and 2020 renewables targets. Independent onshore developers in particular are struggling to find finance, with projects being delayed and the rate of new applications falling. Offshore, the timescales for Round 2 projects are being stretched to avoid deteriorating finances. There are £10 billion worth of ‘shovel-ready’ schemes, which could be released to boost the economy if project finance and economics are improved.

Industry leaders are looking to work closely with Government to alleviate the impact of the economic downturn. The BWEA’s Budget Submission sets out a range of actions that could be taken to reduce risk in our sector and encourage bank lending. Specifically it calls for Government to:

Underwrite floor prices in Power Purchase Agreements: Government would essentially be taking the role of insurer of agreements signed between generators and suppliers, removing price risk and giving greater security to lenders.

This would assist both onshore and offshore schemes, but would be particularly helpful for the onshore sector which is heavily dependent on bank-led project finance. BWEA also proposes three of policy options specifically for offshore schemes from which Government should choose:

Socialising offshore grid costs: Relieving developers of the cost of the offshore grid would have significant cost benefits, and is done in other offshore markets, most notably Germany . This could be done without the use of Government funds by retaining the competitive offshore transmission regime but socialising the payment of transmission charges across all grid users, rather than just the project developers directly involved.

Direct Capital Relief: A programme of capital grants or carefully designed Enhanced Capital Allowances would effectively ‘buy down’ the recent cost increases and make projects cost effective.

Increasing the offshore ROC multiple: An emergency review of the ROC multiple for offshore wind to increase its value from the newly introduced 1.5 ROCs per MWh.
McCaffery said “The fundamental economics of wind remain sound, and in the longer term commodity prices are likely to continue to fall, while increased competition in the supply chain will also bear down on prices. However, today, assistance is needed to help overcome a once in a generation economic downturn affecting the wind and marine energy sectors.”

Source: BWEA