The latest Ernst & Young Country Attractiveness Index, which tracks and scores global investment in renewable energy, ranks the UK fourth equal with Spain in its league of countries attracting investment in renewable energy.
The top three spots are taken by the US, Germany and India. However, Europe as a whole is gaining ground on the US after the industry was given a major boost following the announcement of the European Union’s binding targets in January which require 20% of its energy to come from renewable energy sources by 2020.
The EU’s 2020 emissions and energy generation targets present an enormous shift in emphasis and importance for renewables as part of the energy mix.
Renewable energy is now seen as a vital component of the energy mix as a whole, rather than simply a source of electricity. Paradoxically, this means that, in many countries, renewable electricity generation will need to be increased in the order of 30% of capacity to meet the likely shortfalls in heat and biofuels. Significantly, this sets the scene for sustained growth and investment throughout the next decade.
The UK further strengthened its financial attractiveness for investment as a result of high ROC (Renewables Obligation Certificates) prices and the Government’s reaffirmation of the proposed new Renewables Obligation scheme.
In January, 2008, the Government provided its response to the Renewables Obligation Consultation. The publication reaffirmed a differentiated support system with five bands for different types of technology which is expected to come into force in April, 2009.
The Government also launched a Strategic Environmental Assessment of the UK’s seas in December, 2007, which opens the possibility of a “third round” of offshore wind-energy development. The potential for growth in the UK’s offshore sector was further bolstered by the announcement that the Government will run a competitive tender process to connect at least £2billion of investment in offshore generation projects to the national grid.
With opportunities come challenges.
It is clear that the binding EU targets present huge opportunities and play a big part in the UK and Europe moving up the investment league. However, fulfilling the targets will be a challenge for many EU countries.
In a relatively short timeframe, governments need to develop clear and workable regimes that will attract the necessary investment into the development of new projects, grid infrastructure and the supply chain.
The UK’s challenge, for instance, is implementing further legislative changes over and above the recent Energy Bill, in particular to deal with the lack of clear legislative drivers for the renewable heat industry.
A lack of viable heat support mechanisms is a problem the UK shares with much of the rest of Europe. A number of countries also lack sufficient legislation around biofuels.
The Scottish Government has already introduced a target to provide 50% of Scottish electricity demand from renewables by 2020, supported by a new milestone of 31% to be achieved by 2011 – equivalent to about 5,000 megawatts of installed capacity.
In order to achieve these challenging targets, it is essential that the UK and Scotland, in particular, continue to be seen as attractive locations for investment in the renewables sector as they compete for financial and technical resources with other countries, both in Europe and around the world.
In addition, the Scottish Government’s non-nuclear policy means that Scotland will need to develop its renewables sector at a greater rate than the rest of the UK.
Scotland is site to some of the largest investments in the UK. The UK’s largest dedicated biomass power station, E.ON’s £90million Steven’s Croft plant in Lockerbie, has been commissioned, while in the marine energy sector, planning permission has been granted to Scottish Power subsidiary CRE Energy for the world’s largest wave farm.
The £10million project involves four of Ocean Power Delivery’s 0.75MW floating “sea snake” Pelamis devices positioned off the coast of Orkney, which is expected to generate 3MW of power in total.
A grid connection offer for the 22.5MW Stromness wave farm near Kirkwall has been secured, ready for connection to the island network in 2016.
The Scottish Government has demonstrated its continued commitment to the development of renewable energy in Scotland with the announcement of the Saltire Prize, the world’s largest yet single prize for innovation in marine renewable energy.
Against this backdrop, however, it is still a tale of two halves for the Scottish renewables industry. While 2007 can be highlighted as a year of substantial growth for deals activity, supported by growing evidence of the investment in the sector by the Scottish Government, the twin issues of a slow planning process and the shortage of grid connections continue to be a key challenge over potential development of the sector.
There is the danger that any further delays or objections to windfarms could result in the region becoming less attractive as a result, hindering Scotland’s ambition to become a leader in wind and renewable energy sources.
Looking forward, despite economic difficulty and uncertainty, 2008 has the potential to be another record-breaking year for investment in the industry. But for Scotland and the UK to continue to be attractive destinations for investment in renewable energy, it will take a quicker, more effective planning process and greatly enhanced grid connections.
Neville Cobb is on Ernst & Young’s Scotland Renewables Board