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Posted by on 2005-10-17 18:01:08
contributed by gfoat

The autumn Ernst & Young Renewable Energy Country Attractiveness Index has revealed that Britain is sliding down the ranks – from first place to third place - as the most attractive national environment for wind power, as the UK offshore wind industry nearing a make or break period.

  • UK wind market facing increasing competition from abroad
  • Emerging markets to become hot spots for the industry
  • Prospects for the UK in the short term may well be an increase in emissions
  • 1% increase in renewables obligations to 2020?

    Emerging markets become hot spots for the industry

    The UK wind industry faces increasing competition from other countries such as Spain (ranked first) the US (ranked second) and India, which are grabbing at market share. The US market in particular is booming, causing a global turbine shortage, leading to delays for some European projects and ultimately discouraging investment in more risky turnkey projects for offshore wind farms.

    In conversation with Gordon Foat of Future Energies Jonathan Johns , head of renewable energy at Ernst & Young warned, “As countries such as India start climbing up the Indices it is the emerging markets that will become the new hotspots for renewable investment, which could lead to a major shift in the industries dynamics. And with the US also flexing its muscle, the world is becoming an increasingly competitive place. Capital and investment – of which there is no shortage – is starting to move to the most attractive regimes with increasing speed.”

    Prospects for the UK in the short term could be an increase in emissions Soaring oil prices and a shortage of Renewable Obligation Certificates (ROCs) – needed by UK electricity companies to help them to meet their renewables obligations (RO) – have also impacted on the industry, causing green electricity auction prices to rise to in excess of £90 per Mega Watt hour.

    Ironically the government’s recent decision not to, as yet, increase and extend the targets for renewables beyond the current 15% by 2015 – when it reviewed ROCs this summer – has only added to price woes for green electricity, according to Johns. “Consequently it is difficult for generators to obtain contracts to sell electricity for more than 10 years, without providing large discounts on prices, which makes securing finance harder,” he says.

    “The impact of the non extension of ROCs for offshore wind projects in particular has been bad. Offshore wind already faces rising costs from manufacturers and high grid connection costs, but now the sector could struggle to secure project financing due to cash flow uncertainty beyond 2015. The industry is also awaiting the outcome of a consultation which will decide how grid connection charges for offshore projects will be levied.

    The challenge for the UK renewables industry is that Government may feel that further extension to the ROC is unjustified given the cost to the consumer and the need for more installed megawatts. “Nevertheless renewables capacity is likely to arrive well before nuclear, with planning horizons of ten to fifteen years. Where as renewables has only two to three years,” Johns says.

    He adds, “ Ironically, one of the side effects of delaying the momentum on renewables may well be to increase the proportion of power output provided by legacy coal and oil plants, which have become more economic following the surge in power prices; so that the prospects for the UK in the short term may well be an increase in emissions. The potential shortfall could make the purchase of Russian hot air credits attractive if targets are to be met.”

    1% increase in renewables obligations to 2020?

    As Malcolm Wicks prepares to address the British Wind Energy Association (Tuesday 18 October 2005) Johns says that an increase of just 1% to 2020 would benefit the industry and safeguard long term investment. Johns believes this would reassure the industry that ROCs are here to stay and that prices do not need to reflect political risk. Generators would also be in a position to accelerate development in order to meet the 20% by 2020 targets. This measure could well reduce the costs to consumers.

    However, the reality is that the government may resist extending the targets until the energy review completes in 2006, which would have worrying short term implications for the UK wind industry. Dealing with grid issues is perhaps the most effective way Government can accelerate developments. But the big question is will any measures announced on Tuesday be enough to keep momentum going until the 2006 energy review?

    Long-term wind index at Autumn 2005

    RPS*) This indicates US states with a Renewable Portfolio Standards and favourable wind regimes** Ranking in the Summer 2005 Wind Index in brackets.

    About the Index

    The Ernst & Young Country Attractiveness Indices provide scores for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies. The indices provide scores out of 100 and are updated on a regular basis.

    The main indices are referred to as the 'Long-Term Index'. The Near-Term Index takes a two-year view with slightly different parameters and weightings. The Country Attractiveness Indices take a generic view and different sponsor/financier requirements will clearly effect how countries are rated.

    20 countries are monitored in the indices: Australia, Austria, Belgium, Canada, China, Denmark, Finland, France, Germany, Greece, India, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, UK and USA.

    Observation:- The regulatory regimes ie. Europe and the USA are not in sink, and the message for G8 is to try and harmonise policies to avoid economic distortions and thereby reduce the cost of renewables. g.foat Download the full pdf Renewable Energy Country Attractiveness Indices report here.



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