Darkening clouds gather over UK industry

UK: The UK's wind industry is bracing itself for more stormy weather as it tackles a volatile political environment with a general election looming, a new and unproven subsidy scheme, and a planning system that has been heavily criticised.

Changes ahead… New support system, hostile politicians and a looming election are creating uncertainty for wind

Anxiety over the future of wind power in the UK is growing. This was clearly reflected by RenewableUK's Wind and Marine Energy Business Barometer, an annual survey to gauge the confidence of the trade association's members. Just under half (49%) of respondents said last November that the UK's investment climate was less favourable than in the preceding 18 months, and 79% said the renewable-energy policy had become less favourable in the same period. Further evidence of a drop in optimism came with 45% of respondents believing the UK will fail to install 10GW of offshore wind by 2020, compared with only 25% the year before.

Substantial obstacle

Eric Pickles, secretary of state for the department of communities and local government (DCLG), has been singled out for particular criticism by wind developers. According to another RenewableUK report, Wind Energy in the UK, published in November, Pickles has personally intervened in 47 wind projects in England since June 2013, and has refused 86% of them. (Scotland, Wales and Northern Ireland have their own, separate permitting laws).

Holger Gassner, head of markets and political affairs at utility and developer RWE Innogy, expresses the growing frustration with the UK's permitting system. "One thing that bothers us is when you have a project, which is more or less consented and has all the approvals, and then it's not realised, for whatever reason," he says. "It is not clear to us why these permits at very good sites are being overturned. You have to ask yourself whether you're in the right market when it's a random decision that gives you a permit or you lose it."

Richard Mardon, CEO of developer Airvolution Energy, says government constraints mean the UK consenting situation is now a mess. He accuses Pickles of "over-stretching" his brief. Last November, developer Ecotricity said it would stop applying to build new wind projects in England because the government is moving the consenting goalposts every few months. Ecotricity has around 70MW in wind and solar capacity in the UK.

The offshore picture looks equally uncertain. Developers and investors are having to adapt to the government's electricity market reforms (EMR) and the new contracts for difference (CfD) subsidy scheme that starts this year and will be fully adopted by 2017. Their main issue is the amount of money the Department for Energy and Climate Change (Decc) has made available for the support programme.

In October, 2014 Decc confirmed the CfD budget for the less established technology pot - which includes offshore wind - would be £235 million (€297 million) a year. Although this figure is an increase over earlier proposals, the industry remains underwhelmed.

RenewableUK predicts that the funding will support up to 800MW of new capacity a year. Given that the average size of the upcoming round three offshore project in the current UK pipeline is 1.6GW, the new system is going to cause a few headaches.

Delays and cancellations

Some developers have already made tough decisions in the face of limited support and uncertain regulatory procedures. Last October, ScottishPower Renewables, developing the 1.2GW East Anglia One project, said it could be reduced in size so that its subsidy requirements fit within the CfD budget.

In the same month, RWE cancelled the 340MW Galloper project due to timeframe viability, as a result of the changing support programmes. RWE's Gassner says: "If you concentrate on one scheme, and the scheme is changing, you have to rearrange it. (Galloper) was pretty much designed to come under the outgoing renewables obligation (ROC) scheme and we faced a timeframe that did not give us enough certainty to say that we will be successful to apply under the ROC scheme, therefore we had to make the decision to step back." RWE has since revived the project and intends to bid for a CfD.

The biggest obstacle facing the offshore sector, according to 27% of respondents to the RenewableUK survey, is access to government support such as CfDs. These are awarded to projects that have reached final investment decisions (FIDs), but reaching this stage requires substantial investment in itself.

This could discourage investors, especially without the guarantee of state support, says Andy Kelly, principal consultant at Poyry consulting and engineering firm. "It might make it more difficult and (investors will be) less willing to spend the scale of pre-FID money that is necessary if the likelihood of getting support after that is a lot more uncertain," he says.

Dominic Brown, head of Grow:Offshore Wind, a government fund set up to support the UK's offshore supply chain, argues that the industry simply needs to learn to cope with uncertainty. "Point me to any manufacturing sector that has a higher degree of certainty? There is not one. It is about dealing with that uncertainty in the most appropriate way," he insists.

"At some stage in the future, the CfDs are going to fall away and the industry will have to stand on its own feet. If manufacturers can make themselves competitive with their overseas rivals, they will stand a better chance of securing opportunities in the UK," he says.

Election fever

The great unknown is what sort of government the UK will elect on 7 May to replace the current right-centre coalition, and the direction it will take over energy policy. "Obviously people have got their eye on what happens and the potential consequences of changes in government, particularly on different types of renewables," Brown says.

The Conservative Party, senior partner in the current coalition government, has already expressed enthusiasm for shale-gas extraction and pledged to cut subsidies for all new onshore wind projects. Labour, the leading opposition party, is more pro-renewables, promising a virtually zero-carbon electricity target for 2030.

But neither party looks likely to be able to form a majority government on their own after the election, which suggests that one or more of the minor parties will hold the balance of power. The potential partners include the pro-renewables Green Party, Liberal Democrats or Scottish Nationals, and the virulently anti-wind UK Independence Party.

The right wing's support for fracking and its opposition to wind power is hard to reconcile with the UK electorate's mood,however. A public attitudes tracker published by Decc in November showed support for fracking stood at only 26% against 67% for onshore wind, 74% for offshore wind, and 78% for renewables in general.

Long-term needs

What the industry most wants is consensus over the long-term direction of energy policy, rather than short-term political point-scoring. RenewableUK's Smith argues that government should recognise the need for long-term targets that span several parliaments. "The government needs to understand that if we are to hit our wider decarbonisation targets then renewable energy is absolutely vital," he says.

"A 2030 decarbonisation target is therefore crucial, because it allows investors to know what money is required and for what.

"The scale of what is left to do is huge, and so is the speed at which we need to do it," Smith adds. "That ought to mean the industry having confidence in its ability and in government's backing. We are increasingly finding that hard."

Heading into the second half of this decade, with 2020 targets looming, the industry has more questions than answers. Can the CfD budget continue to support a fledgling offshore industry? Is the UK's permitting system damaging investors' confidence? Will the sector continue to be used as a political football, at the expense of long-term certainty? By this time next year, many are hoping that these questions will have been answered.