UK retains its position as 8th most attractive destination for renewable energy globally, buoyed by the Offshore Wind Sector Deal

14 May 2019

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  • China and US retain top positions on renewables index
  • France moves up to 3rd position driven by floating offshore wind capacity ambitions and expanded onshore wind auctions
  • New companies and new markets are embracing PPAs with renewable developers

LONDON, 15 MAY 2019. The UK has retained its position as the eighth most attractive destination globally for investment in renewable energy, according to the 53rd EY Renewable energy country attractiveness index (RECAI).

Now in its 17th year, the bi-annual RECAI report ranks 40 countries on the attractiveness of their renewable energy investment and deployment opportunities.

Globally, mainland China and the US remain at 1st and 2nd positions respectively on the top 40 ranking, while France moves up two positions to 3rd position, led by a new focus on floating offshore wind and doubling of its annual targets for onshore wind capacity additions.

UK buoyed by unveiling of Offshore Wind Deal
The UK has unveiled plans for offshore wind to supply 30% of its electricity by 2030, up from just 6.2% in 2017. The Offshore Wind Sector Deal, unveiled in March, also aims to treble the number of people employed in the sector, to 27,000, by 2030. 

By that date, the Government is targeting 30GW of offshore wind, compared with 8.2GW by the end of last year. The sector deal involves participants in the industry investing £250m (US$330m) over the next 11 years, in exchange for the £557m (US$730m) in subsidies for renewables already announced.

Ben Warren, EY Global Power & Utilities Corporate Finance Leader and RECAI Chief Editor, says: “While the Offshore Wind Deal is extremely positive news for the UK renewables sector and will help to attract significant investment over the coming years, the announcement regrettably follows the withdrawal of support for onshore renewables in 2016 that has slowed UK sector growth.”

Last year, just 598MW of onshore wind was installed in the UK, according to trade body RenewableUK, down from 2.7GW in 2017. The lack of support for the Swansea Tidal Lagoon, and changes to network charges – which have been favouring decentralised renewables, energy storage and demand-side response – will hamper investment in the sector going forward.

Globally: New phase of subsidy free growth
The global picture sees the renewable energy sector entering a new phase of subsidy free growth.  As renewable energy grows into an increasingly unsubsidised sector where projects compete in the market on their economic and environmental merits, the latest edition of RECAI examines two related characteristics of this new landscape: how projects are grappling with new-found exposure to wholesale power prices and market imbalance – known as merchant risk – and the growing role of corporate energy buyers in underwriting clean energy projects.

Warren continues: “In this more complex subsidy-free environment, renewable developers must work harder and smarter to find the revenue certainty they need to finance or monetise their efforts. Europe has led the way with unsubsidised projects in areas with good renewable resources, and multiple projects across the Nordics, UK, and Spain are being developed – backed by private investment and corporate power purchase agreements (PPAs) to provide the required stability.

“For the renewable energy market overall, however, a future without government subsidy is one that will no longer be vulnerable to sudden shifts in policy, or to retroactive changes to promised tariffs. It will be one where market forces impose discipline, drive efficiencies and accelerate the cost reductions that have allowed the sector to stand on its own two feet.”

Power Purchase Agreements drive growth in renewables
Corporate purchases of clean energy rocketed last year with a number of new companies entering the market for the first time. According to data from Bloomberg, last year power purchase agreements (PPAs) supported 13.4GW of clean energy generation, more than double the 6.1GW of PPAs in 2017. The latest RECAI indicates that new companies and new countries are becoming more comfortable with a subsidy free renewable energy environment.
 
For many companies, the motivation to enter into a PPA is economic – contracts that run for ten years or more offer a long-term hedge in the face of rising or volatile power prices. Other companies are choosing to procure renewable energy for reputational reasons or to reduce their exposure to carbon emissions. 

The Index further highlights that in a number of jurisdictions such as Japan and Indonesia, it is difficult to enter into PPAs with developers due to regulatory barriers. However new countries are realising that the investment into energy infrastructure need not come from taxpayers. In markets such as Taiwan, corporate PPAs are now possible, while in other markets – such as France, Spain and Australia – changing conditions are resulting in PPA volumes taking off.

Renewables outlook
Warren concludes: “The outlook for the global renewables sector remains extremely exciting. As renewable generation continues to become more and more affordable; increased levels of penetration are beyond doubt. It is perhaps the integration of renewables into the wider energy ecosystem, the sector’s contribution to the emerging low carbon e-mobility market and the integration with storage technology that will ultimately define the future for renewables.”

For the complete top 40 ranking and insights on how offshore wind is setting sail for new waters as well as an analysis of latest developments across the world in renewable energy, visit ey.com/recai.