UK renewables investment attractiveness ‘on a landslide’: EY

The attractiveness of the UK as a destination for renewable energy investment has plummeted yet again, as a “non-committal approach” to energy policy and uncertainty surrounding the role of renewables in the future energy mix undermine the sector’s appeal to investors, EY analysts have warned.

EY’s latest Renewable Energy Country Attractiveness Index (RECAI), published today, has revealed that the UK has slipped to an all-time low of 13th place among the 40 most attractive renewable energy markets globally – down from 12th in September 2015.

The report said the government’s decision to opt for gas and nuclear instead of renewable energy, to fill an anticipated energy supply gap, was the “key reason” for the fall.

It said the early closure of the Renewables Obligation regime and the end of Contracts for Difference after a single round have limited the routes to market for electricity generated by onshore wind and solar power, contributing to the UK’s decline in the rankings.

The report also warned that investment in new projects could decrease drastically from 2017, following current record levels of activity – which has been attributed to developers rushing to meet deadlines before support for renewables is withdrawn.

“Damning analysis”

EY energy corporate finance leader Ben Warren said: “A non-committal approach to energy policy is putting the attractiveness of the UK’s renewable energy sector on a landslide.

“The current approach is going against the grain of almost universal global support for renewables and is masking the UK’s advantages – a growing energy imperative as ageing power plants are retired, strong natural resources and efficient capital markets. 

“In the absence of real changes to the direction of policy support and greater demand for renewables in the energy generation mix post 2020, the only way for the UK in our Index seems to be down.”

Labour’s shadow energy secretary Lisa Nandy said: “This damning analysis shows how the Tories’ ideological crusade against green energy is destroying jobs, damaging investment, and making Britain’s power crunch worse.

“Only today Conservative MPs are voting to block wind farms that enjoy local support and that offer value for money whilst simultaneously defending generous handouts to fund more expensive alternatives.”

Greenpeace UK executive director John Sauven said: “The government’s unwavering and dogmatic financial and political support for Hinkley nuclear power station and gas to power the UK has devastated investment in renewable energy. But, with Hinkley hitting the rocks and fracking becoming increasingly unpopular, it’s time for another government U-turn.

“The UK’s fall down the global renewable energy rankings is increasingly putting our commitment to tackling climate change at risk. It’s time the UK government put its weight behind home grown, renewable energy. This would make both economic and environmental sense as it would generate new jobs and keep emissions down.”

INFOGRAPHIC: Renewable energy country attractiveness index for May 2016

Source: EY

Lucrative lure

Globally, nearly all European markets slipped down EY’s rankings, as the attractiveness of less mature markets across Latin America, Africa and Asia continued to rise. EY said emerging markets now represent half of the countries in the 40-strong index, including four African markets featuring in the top 30.

Chile is one of the first markets to enable economically viable renewables projects to compete directly with all other energy sources, it added.

Meanwhile, Brazil’s renewables sector is showing “surprising” resilience amid an economic downturn, and its underdeveloped solar market remains a potentially “lucrative lure”. And Mexico’s recent power auctions have opened the door to multi-billion dollar opportunities under a new liberalised energy market.

“Emerging markets are transforming their energy industries at an unprecedented pace,” said Warren. “Last year, renewable energy investments in the developing world overtook those in the developed world for the first time. Latin America, in particular, has become something of a litmus test for how quickly markets can grow.”

Meanwhile, EY said, European markets appear to be “scaling back” their ambitions as they address the challenges of marrying up increasingly mainstream renewables with a legacy of centralised conventional power generation.

Warren added: “Markets earlier in their renewables journey are benefiting from cheaper and more efficient technologies, lower cost of capital and more reliable resource forecasting. The increasingly global flow of capital proves that investors that are becoming more comfortable with new markets. We expect to see massive deployment of low carbon investment in developing markets.

“Ambitious targets and low pricing alone will not be enough to promise investment attractiveness, however. The ability of markets to climb, or stay in, the Index will depend on projects being built, and commercial viability enabling the supply of affordable energy in a competitive environment.”

GRAPH: New clean energy investment worldwide in Q1 2016

Source: Bloomberg New Energy Finance