Carter Jonas
Carter Jonas

Financial gale rocks wind turbines

The Government seems determined to knock the wind out of the sails of the alternative energy sector.

It has brought forward the closure of the Renewable Obligation support for onshore wind to March 31 next year instead of the original 2017. Simultaneously, it has declared that local opinion will be a significant deciding factor over wind farm planning applications. Almost certainly it will lead to more schemes, even those that until recently seemed viable, being turned down purely on aesthetic grounds, with successful wind farms becoming a rare feature of the English landscape, effectively stopping the march of turbines.

It will now be difficult for Government to argue against the recent decisions by Lancashire County Council to turn down applications for shale gas exploration after vociferous opposition. It’s illogical to argue strongly in favour of a planning direction that favours wind farm objectors and then withhold the same ability from the armoury of anti-shale gas (anti-fracking) campaigners. Perhaps the Budget promise by George Osborne of a sovereign wealth fund for communities that host shale gas development may buy off some opposition but driving through future applications could be tough.

Energy secretary Amber Rudd has also told the Commons Energy and Climate Committee that while she could not confirm when the next Contract for Difference (CfD)* auction round would take place she has already ruled out any future for onshore wind in these subsidies.

She said failing to do so with such a fast-developing technology would lead to a £2 billion overspend on the Levy Control Framework, through which subsidies are funded.

In the Budget, Mr Osborne also announced the withdrawal of Climate Change Levy exemption for renewable electricity to prevent overseas generation of renewable benefiting from taxpayer funds. He sees this measure as also helping garner support for low carbon generation bringing better value for UK taxpayers.

Both on-shore wind and solar had shown that they out competed other technology options, including nuclear, on cost in the last round of the CfD auction. The upshotp

is that we, as consumers, will ultimately end up paying a higher price for energy as the Government focuses its support towards currently less advanced offshore wind, wave, and tidal or new nuclear facilities.

This has been emphasised by National Grid’s recent announcement that the UK’s spare generation capacity over the forthcoming winter was forecast to fall to as little as 1.2% before they implemented their contingency measures, at a cost of £36m to the taxpayer, to increase capacity.

Whether this signals the end of the onshore wind industry in the UK is questionable as, for some years, most developers have been bracing themselves for the removal of support. This will now occur over a shorter period than previously anticipated. These early cuts will simply drive developers to be more selective in deciding which sites to progress and necessitate the need for more rigorous upfront due diligence and power price modelling.

Whilst power prices have fallen recently on the back of reduced oil prices, given the declining infrastructure and shortage of supply in the market they are forecast to rise and significantly outstrip inflation as has been the case over the last five to 10 years.

Turbine pricing will have to reduce and this has been, and still is, influenced by the strength of Sterling versus the Euro. As a consequence, viable opportunities will still arise where developers can secure the most affordable grid connections, typically as extensions to existing operational sites, and combine these with higher wind speed sites.

*A Contract for Difference (CfD) is a private law contract between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC), a government-owned company. A generator party to a CFD is paid the difference between the ‘strike price’ – a price for electricity reflecting the cost of investing in a particular low carbon technology – and the ‘reference price’– a measure of the average market price for electricity in the GB market. It gives greater certainty and stability of revenues to electricity generators by reducing their exposure to volatile wholesale prices, whilst protecting consumers from paying for higher support costs when electricity prices are high.

Charles HardcastleMRICS, FAAV

Partner - Head of Energy and Marine

Charles is a Partner, based in Yorkshire but who operates on a National basis across the country. He heads the Carter Jonas Energy and Marine Team which deals with a wide range of energy projects incl...

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