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Government action needed to keep renewables on target

Renewables industry calls for intervention to overcome impact of credit crunch

Launching its submission to the Treasury today ahead of the Budget on April 22, the BWEA - the UK's leading renewable energy trade body - called for targeted Government intervention to ensure that Britain can meet its ambitious renewable energy targets.

Maria McCaffery, BWEA Chief Executive said:

"Large scale wind deployment is vital to reaching the UK's goal of generating up to 40% of our electricity from renewables by 2020.

The current economic climate has caused a number of developers to put projects on hold, threatening the UK's targets, and leaving the country exposed to volatile fossil fuel prices. Building a clean energy sector in the UK is an important part of our economic recovery, and we need to maximize the opportunities to develop sustainable energy projects which would otherwise be delayed by the recession.

We are keen to work closely with Government to deliver solutions to this renewables crunch, and to secure the UK's long-term competitive advantage as a magnet for low carbon investment."

Both onshore and offshore projects are affected by a rise in supply chain costs, driven in part by the depreciation of the £ against the â,¬, and by a tightening in availability of project finance.

A number of key projects which are currently seeking finance now face potential delays, and threaten the UK's ability to meet its 2010 and 2020 renewables targets. Independent onshore developers in particular are struggling to find finance, with projects being delayed and the rate of new applications falling. Offshore, the timescales for Round 2 projects are being stretched to avoid deteriorating finances. There are £10 billion worth of 'shovel-ready' schemes, which could be released to boost the economy if project finance and economics are improved.

Industry leaders are looking to work closely with Government to alleviate the impact of the economic downturn. The BWEA's Budget Submission sets out a range of actions that could be taken to reduce risk in our sector and encourage bank lending. Specifically it calls for Government to:

• Underwrite floor prices in Power Purchase Agreements: Government would essentially be taking the role of insurer of agreements signed between generators and suppliers, removing price risk and giving greater security to lenders.

• Socialising offshore grid costs: Relieving developers of the cost of the offshore grid would have significant cost benefits, and is done in other offshore markets, most notably Germany. This could be done without the use of Government funds by retaining the competitive offshore transmission regime but socialising the payment of transmission charges across all grid users, rather than just the project developers directly involved.
• Direct Capital Relief: A programme of capital grants or carefully designed Enhanced Capital Allowances would effectively 'buy down' the recent cost increases and make projects cost effective.
• Increasing the offshore ROC multiple: An emergency review of the ROC multiple for offshore wind to increase its value from the newly introduced 1.5 ROCs per MWh.

Charles Anglin - Director of Communications (020 7901 3010) c.anglin@renewable-uk.com
Nick Medic - Communications Manager (020 7901 3013) n.medic@renewable-uk.com
Dr Gordon Edge - Director of Economics & Markets (020 7901 3027) g.edge@renewable-uk.com

Notes to Editors:

The British Wind Energy Association is the trade body for the UK wind and marine renewables industries. Formed in 1978, and with 478 corporate members, BWEA is the leading renewable energy trade association in the UK. Wind has been the world's fastest growing renewable energy source for the last seven years, and this trend is expected to continue with falling costs of wind energy and the urgent international need to tackle CO2 emissions to prevent climate change.

BWEA has conducted a survey of onshore wind farm developers. The survey reveals that although the utility companies are generally managing to maintain the timescales for their portfolio of projects, independent developers, who are dependent on bank-led financing are struggling. A number of marginal schemes are being dropped due to the devaluation of the £ against the â,¬, while others are being delayed until next year because of the lack of credit. The rate of submissions of new planning applications has also significantly dropped in the last 6 months.

Amount of wind farm capacity according to status, rounded to the nearest gigawatt (GW), in the UK currently: operational - 3GW; consented or under construction - 9GW; in the planning system - 8GW. Overall, this adds to over 20GW of wind capacity in the system, which if all delivered would take the UK, nearly 2/3 of the way to delivering the wind's portion - estimated at 33GW - of the EU 2020 target.

Power Purchase Agreements are the contracts signed between developers and the consumer supply companies to buy renewable electricity at an agreed price for a fixed period of time. These agreements are used by the developers to underpin the repayment of their bank loans.

PPAs are based on a 'bundle' of the electricity price, Renewable Obligation Certificates and Levy Exemption Certificates. Supply companies often offer a floor price for this bundle though this is done at some cost to the developer. Govern­ment could perform the same role for a lower cost, reducing risks and thus allowing more banks to lend, and each bank to lend more. This could be an insurance-type product, with Government taking a premium in return for stepping in to make up the difference in revenue between the bundle price paid by the supplier and the floor price, should the bundle drop below the floor.

The UK's offshore wind sector has been developed through a series of tender rounds. Round 1 took place in 2001, Round 2 in 2003, while Round 3 is currently underway. Together Rounds 1 & 2 identified 8GW worth of potential sites. Round 3 is expected to deliver up to a further 25GW of sites.

Because of the long lead-in time for developing onshore wind most Round 2 sites have only recently received planning permission and are now currently seeking financial close. For many of these the financial figures they are considering have changed significantly since the projects were first considered.

Round 2 offshore projects likely to reach a financial close in the near future include:

The BWEA Budget submission also contains a number of policy recommendations on other issues, including:

• measures to tackle the non financial obstacles faced by wind energy, such as the delays in the planning system and finding a technical solution to aviation objections.
• a co-ordinated effort to take ad­vantage of the manufacturing opportunities presented by the growth of offshore wind. Growing a UK based supply chain by attracting both foreign based manufacturers here and existing UK companies into the wind market. Tackling the skills gap through streamlined funding for colleges, uni­versities and research institutions.
• filling the gap between current support for demonstration wave & tidal schemes and 2ROCs per MWh com­mercial support with an interim capital support mechanism, such as ECAs.
• providing match funding sup­port for small wind systems through the standards testing proc­ess, possibly by using unspent funds from the LCBP.