Rebooting renewable energy

Paul Boughton

The UK must seize the window of opportunity that post-election political stability is presenting, in order to reconcile its contradictory energy objectives and reboot the attractiveness of its renewable energy market.

This is according to a report, Renewable Energy Country Attractiveness Index (RECAI), published by assurance, tax, transaction advisers EY.

The UK has remained at 8th place in this issue of the RECAI, its lowest level in 12 years, despite an end to pre-election uncertainty. The attractiveness of the UK’s renewables sector remains marred by conflicting messages around its role in the country’s future energy mix, according to the report. 

Ben Warren, Power & Utilities Corporate Finance Leader at EY said: “The frustration of the renewables sector stems from a fundamental inconsistency between the government’s rhetoric and its actions. Despite championing a market-driven energy sector, policy decisions are clearly picking winners and losers and ignoring signals from the market that onshore wind and solar PV can deliver affordable energy.

“The government is chasing climate change targets, while favouring more expensive projects to the detriment of more cost-competitive renewable energy technologies that have the backing of the public. The current political stability as a result of the election outcome provides the government with a unique opportunity to address this inconsistency and reconcile its contradictory energy objectives. Investors will not put money on the table without some clear signals that the government intends to seize this opportunity.”

At the same time the proposed EU referendum is fuelling further uncertainty over the future UK energy policy that could hinder investment.

Warren continues: “The new government’s pledge to hold a referendum on UK membership of the EU within the next two years has also prompted nervousness around the UK’s commitment to long-term decarbonisation targets if it is no longer bound by EU Directives, and could see energy companies developing contingency plans in the event on an ‘out’ vote. However, few in the market seem to foresee appetite to undo the current and ongoing reform program.”

Storage: Just another energy asset?

The report concludes that, so far, it’s been difficult for investors to get a clear view of the opportunities, business models and most suitable markets when it comes to energy storage. To change this, and increase funding for accelerated activity across the storage asset life cycle, the market must highlight the various entry points for investors and focus on creating an investable asset class for storage products that delivers the necessary returns.

Warren adds: “With a number of storage technologies already proven and costs falling fast, we must stop thinking about storage as something that will arrive tomorrow. It arrived yesterday and the game is already changing. It’s time to start viewing storage as just another energy asset that generates long-term predictable revenues and needs competitive and appropriate construction capital solutions.”

Empowering the Mediterranean

Energy storage technology will inevitably become a cornerstone of the energy transformation currently underway in the Mediterranean region. With unsustainably high unemployment and a lack of secure affordable energy a common theme across the entire region, the report highlights how a more strategic focus on energy security can be a catalyst for broader economic and societal benefits.

This view emerged from a group of high-profile energy experts speaking at the  recent EY Strategic Growth Forum in Rome, which convened more than 600 CEOs, policymakers, investors and entrepreneurs to explore how to unlock the potential of the Mediterranean region.

Warren says: “The Mediterranean region can use energy as a way of securing its own future. But to achieve this, policymakers must level the playing field, the industry must drive down cost and investors must be willing to innovate. Clear objectives to accelerate renewable energy capacity build-out — which is quickly becoming the most cost-effective way to tackle energy security issues — combined with the effective deployment of storage technologies, will undoubtedly shape the investment attractiveness of different markets in the months and years ahead.”

Feeling positive

While China, the US and Germany once again hold the top three index positions, increased government proactivity in setting renewables targets and auctioning generation capacity through competitive tenders is already impacting the rankings for several Mediterranean countries. Egypt jumped two places to 37th, after reentering the Index in March, following the auction of more than 4GW under the Government’s new renewables program. Turkey and Morocco saw similar positive movements to 17th and 25th place respectively following the announcement of a national renewable energy action plan in Turkey and the financial close of phase two of Morocco’s mega-scale concentrated solar power project.

Other notable Index movements include India replacing Japan in 4th place as a result of a growing project pipeline and proposed reforms to address currency risk and increase the renewables obligation on major energy users. Meanwhile, South Africa’s commitment to procure an additional 6.3GW of renewable energy capacity prompted a jump to 13th place.

In Europe, Poland and Romania experienced upward movement to 27th and 34th place respectively. Previously paralyzed by policy U-turns, Poland finally passed legislation to hold competitive auctions from 2016, while Romania’s Government is now talking to the market about how to catalyse renewables investment once again.

Warren concludes: “Survival in the energy market of tomorrow requires a more strategic approach that puts the economics and returns — both financial and societal — at the heart of policy and transaction decisions.”