So now we wait. Having arrested its freefall down the RECAI rankings, the UK renewables landscape has settled for the time being. Investors will now look to the new UK Government to provide a clear vision for the future. Whether they will get it remains to be seen; politics seldom provides the clarity that businesses crave. This state of flux is becoming very familiar.
We all hope that at some point not too long after June 8, we will finally get a sense of a clear direction of travel for the UK’s renewables sector. But it’s likely that the questions around targets, subsidies and connections with mainland power markets will rumble on throughout the period in which the UK untangles itself from the EU. And it’s for that reason that the UK’s climb back into the RECAI top 10 shouldn’t lead to complacency. The sector may have settled but the jump can be attributed more to other countries dropping the ball than the UK making any great strides. Indeed, the UK is still not on course to meet its 2020 EU renewables target.
That said, it’s not all doom and gloom. Advancing technology combined with a dramatic drop in cost mean that the offshore wind industry is likely to emerge triumphant from the current round of Contracts for Difference (CfD) subsidy auctions, which opened on 3 April. The UK remains offshore wind’s largest market. It will be further boosted by Statoil’s Hywind project – which will be the world’s largest floating wind farm – due to go online offshore Peterhead later this year. Costs will continue to fall over the coming years thanks to the early adoption of larger turbines lowering costs, increased competition and the lower cost of capital. Developers are hopeful that the next generation of offshore turbines will be able to pay their way in a subsidy free environment. In fact, recent offshore auctions in Germany have already reached zero subsidy by 2025.
And wind technology looks set to be complemented by a developing battery storage market that could represent the energy market’s biggest game changer since the first power plants were built in the 1880s. For decades, the industry has grappled with the problem of how to store surplus power created by intermittent wind and solar technologies. Solar output is relatively predictable but obviously dips in cloudy conditions while local wind speeds are difficult to forecast more than a few days in advance. Both technologies are playing increasingly prominent roles on electricity grids around the globe.
Not only will battery storage ultimately enable the decarbonisation of the world’s electricity supply, it will also empower energy consumers. Legacy business models are likely to face a struggle to integrate the rapid spread of technology. Utility companies will have to act fast and capitalise on their established network knowledge and customer databases to ensure they are not left behind by the younger, more nimble players in the field.
Ben Warren is Global Power and Utilities Corporate Finance Leader at EY
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