REA comments on Ed Miliband climate and energy speech

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Bloomberg analysis shows renewable power needs 'the greatest care' under Energy Bill.

Analysis by Bloomberg New Energy Finance, announced today by Ed Miliband, confirms anecdotal evidence from REA members that prolonged uncertainty in renewable power policy has slowed the investment pipeline [1]. This follows a recent report from Ernst & Young which showed that the wider power sector is now seeing its pipeline slow [2].

The BNEF analysis looks at when final investment decisions are taken. Activity reached a peak in 2009 and has dropped drastically since then. Projects typically start construction a couple of years later, meaning that fewer projects are due to come on-stream in coming years.

The REA has warned about the dangers of a serious investment hiatus given the prolonged EMR/Energy Bill process, where key details on the mechanism for supporting renewable power have yet to be determined. The proposal to close the RO to new entrants in 2017 is unhelpful as many projects and developers require time horizons beyond five years. The widely reported recent political disagreements have also unnerved investors.

REA Chairman Martin Wright comments:

“These figures illustrate that capital is voting with its feet. The last few years has seen renewables emerge as a serious contender. Costs are falling, supply chains are gearing up and renewable energy is no longer a cottage industry.

“The UK must capitalise on this, and can’t afford to lose momentum. It is essential that swift, clear decisions are implemented by a Government united in the objective of keeping the lights on whilst sticking to its climate change objectives. That’s what it said it would do and what the Energy Bill must deliver.”

The REA is particularly concerned about generators’ ability to sell their electricity under the new regime. In order to be financially viable under the new “Contracts for Difference”, generators must achieve the “reference price” for their power sales. Evidence suggests this is unlikely to be achieved in the UK’s illiquid power market. Unless the route to market is clear and assured, it will be difficult to see how projects can proceed.

Gaynor Hartnell, Chief Executive of the REA said:

“The renewable power industry has shown real willingness to work with DECC on the complex agenda of reorienting our electricity system towards low-carbon generation. Bloomberg’s analysis shows DECC now needs to listen very carefully to what the renewable power industry is saying and not take final EMR decisions that expose renewable power to excessive risk and uncertainty.

“It is essential that there are enabling powers in the Energy Bill for a solution which guarantees renewables generators can sell their power at the reference price and that the details are worked up in order that a mechanism can be implemented if, as we anticipate, it proves necessary.

“We also want to see an increase to the maximum size threshold for small scale feed in tariffs. It is also important that smaller investors have an appropriate and accessible support mechanism.”

A group of independent generators have worked up a proposal which guarantees that generators will be able to achieve the full strike price for their power, and this will be demonstrated to REA members shortly.

Posted by REA