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“Good to receive thoughts and guidance in what can be a very complicated process.”
Mike Radlett, Carville Switchgear, Burgess Hill
Renewable Energy: What Next?
Whilst 2015 was the highest year on record for investment in renewable energy, in the UK recent high profile changes to government policy and subsidies have left many wondering what next for renewable energy?
Delegates including community energy groups, renewable energy installers and property owners met in Brighton to hear the views of Michael Ware, a Partner at BDO LLP’s Corporate Finance practice. The seminar was part of the Green Growth Platform events programme.
Michael specialises in raising capital for power generation and renewable energy projects; to date his team have worked on over £500 million of closed renewable energy transactions in the UK and Western Europe.
He said that whilst £230 billion was invested in renewable energy worldwide in 2015 (with this figure expected to rise year on year) the UK currently produces less than 8% of energy from renewable sources. It is worryingly short of its EU target of 15% by 2020 and significantly behind European counterparts such as Sweden who currently produce 49% of their energy from renewables.
Michael asked delegates whether they though the UK government was undermining investment in renewables. He listed policies that have been scrapped and subsidies reduced since the last election, such as Feed-in-Tariff.
He then explained however that whilst it seems certain industries are being ‘picked-on’ the government are right in highlighting that technology costs have considerably dropped and ‘loop-holes’ in subsidies can often be exploited, to the detriment of the tax payer (although cuts to such as the Feed-in-Tariff have been poorly handled).
Michael then explained how Contracts for Difference (CfD) work, a new support mechanism for large scale renewable energy projects. In an auction style process, projects have to bid for a CfD, telling the government at what price they can profitably generate energy (known as the strike price). Those offering the lowest strike prices are awarded contracts, until the total subsidy pot available has been allocated.
Once in operation, if market energy prices are below the agreed strike price, the government pays the project owner the difference so they don’t make a loss. If market prices are above the strike price however, the project owner must pay the government the extra income they are generating. CfD’s are hence designed to reduce the risk to the tax payer of heavily subsidising already vastly profitable projects.
Policy aside, Michael moved on to what developers need to consider when seeking investment for a renewable energy project, suggesting they should think from the investor’s point of view. He discussed a list of 9 fundamental building blocks, without which a project is unlikely to attract funding. These were:
- Site with planning
- Low counter-party credit risk
- >£5 million project size
- Engineering, procurement and construction (EPC) contract
- Operation and maintenance (O&M) contract
- Available, convertible energy resource
- Proven technology
- End user of the energy produced
- Long term subsidy support
Michael said that there are many investors with funds ready to invest in renewable energy projects, but they are risk averse and will only consider projects from which returns can almost be guaranteed. He also explained that it is a global market and just because a project is local, if it can’t generate the same return as a ‘wind farm in Denmark’ for example, the latter will secure the investment.
Michael’s presentation can be downloaded here.
The Sustainable Business Network is running an exciting programme of business seminars and networking events on behalf of the University of Brighton’s Green Growth Platform. Funded by HEFCE, the Green Growth Platform offers a range of free and subsidised services to business aiming to help develop a local, low-carbon economy. For more details visit: www.greengrowthplatform.co.uk
For upcoming events see: www.sustainablebusiness.org.uk/events