United Kingdom

United Kingdom

Ports money retained in UK spending review

UK: Renewable energy has emerged from the UK government's spending review as one of the sectors least affected by the savage cuts aimed at cutting the country's deficit.

Infrastructure funding for ports, such as Mostyn, Wales, appear to be secure
Infrastructure funding for ports, such as Mostyn, Wales, appear to be secure

Funding for ports infrastructure to create a domestic offshore wind manufacturing industry has been retained, as have current levels of support in the Renewables Obligation incentive mechanism, feed-in tariffs for smaller renewables and plans for a Green Investment Bank (GIB).

The industry has been lobbying hard for the coalition government to honour the previous Labour administration's commitment for ports funding.

Earlier this year, former energy minister Ed Miliband - now leader of the opposition - announced a £60 million competition for ports around the UK coast to bid to become manufacturing hubs. The aim is to develop the port-side facilities needed for the manufacture of offshore wind turbines in the UK - as well as boost local manufacture of other supply chain components.

Up to 50,000 jobs could be created, according to the industry.

Hard on the heels of the announcement, major turbine suppliers Siemens and GE revealed plans to set up shop in the UK.

Under finance minister George Osborne's review of government departmental spending, more than £200 million would be earmarked for low-carbon technologies, including offshore wind and manufacturing infrastructure at port sites.

However, as Windpower Monthly went to press, the wind industry was waiting to hear whether the government is to allocate the full £60 million promised by its predecessor. A spokesman from the Department of Energy and Climate Change (DECC) said that further details would be made available shortly.

Signals from government are positive that the £60 million will be retained in its entirety, comments RenewableUK chief executive Maria McCaffery. "Retaining the ports fund will give the industry a huge boost and establish the UK as a major force in renewable energy manufacturing," she says.

The review also commits £1 billion, together with proceeds from asset sales, to capitalise a GIB to help unlock private investment in renewable infrastructure projects, including offshore wind farms.

The £1 billion is half the figure expected. RenewableUK comments that it falls short of the amount needed to support the hundreds of billions of pounds of investment needed in UK energy infrastructure over the next two decades. "It is crucial that a stable policy framework is put in place to secure that investment from the private sector," says RenewableUK director of policy Gordon Edge.

Targeted support

The lower than expected capitalisation makes it all the more important to target GIB support carefully, rather than trying to be all things to all people, says John Gibbs, corporate finance partner at PwC.

"Over the past few months the key blockage around offshore wind and low-carbon technologies is not so much lack of liquidity in the funding market as the ability of counterparties to accept, absorb and/or mitigate risk," he says.

Targeted measures that can help parties manage risk by credit enhancement or insurance products at the construction stage will have a significant beneficial leveraging effect, he adds.

A more upbeat assessment comes from Andrew Raingold, deputy director of the Aldersgate Group, a business coalition.

"With the intention to build on the £1 billion of direct funding through other sources, the bank's capitalisation could reach the £4 to £6 billion recommended by business leaders and independent analysis," he comments. "If the institution has a remit to issue bonds and leverage capital at scale from the private sector, it can significantly reduce the massive financing gaps for green technologies over the next decade, stimulating growth and jobs."

The DECC is seen as one of the winners to emerge from the spending review. Budget cuts of 18% over the period to 2014/15 will mean an average annual reduction of 5%. But the department's capital spending is set to rise by 41% - driven largely by commitments on nuclear decommissioning. In addition, up to £1 billion is allocated to creating the world's first commercial-scale carbon capture and storage demonstration plants.

Overall, environment spending across government is to rise by 21% to ensure the UK meets its 2020 low carbon goals.

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