comment David Foxwell “ P
CfD budget needs more funds for early projects
olicy uncertainty threatens to slow renewable energy momentum,” read a recent statement from the International Energy Agency (IEA). Ironically, it was issued at about the same time that the Department of Energy and Climate Change (DECC) in the UK issued a draft budget for the first allocation round of Contracts for Difference (CfDs) in which the funds made available for renewable energy projects – including offshore wind – can only be described as extremely disappointing. Time and again senior figures in government in the UK have made clear their support for offshore wind, only for policy to disappoint. That has to change. The IEA said it sees renewable power as a cost-competitive option in an increasing number of cases, but believes that the expansion of renewable energy will slow over the next five years unless policy uncertainty is reduced. So said the agency in its third annual medium-term renewable energy market report. According to the report, power generation from renewable sources grew strongly in 2013, reaching almost 22 per cent of global generation, and was on par with electricity from gas, whose generation remained relatively stable. Global renewable generation is seen rising by 45 per cent and making up nearly 26 per cent of global electricity generation by 2020. Yet annual growth in new renewable power is seen slowing and stabilising after 2014, putting renewables at risk of falling short of the absolute generation levels needed to meet global climate change objectives. “Renewables are a necessary part of energy security.
However, just when they are becoming a cost-competitive option in an increasing number of cases, policy and regulatory uncertainty is rising in some key markets. This stems from concerns about the costs of deploying renewables,” said IEA Executive Director Maria van der Hoeven. “Governments must distinguish more clearly between the past, present and future, as costs are falling over time,” she added. “Many renewables no longer need high incentive levels. Rather, given their capital-intensive nature, renewables require a market context that assures a reasonable and predictable return for investors. This calls for a serious reflection on market design needed to achieve a more sustainable world energy mix.” In the European Union (EU), said the IEA, uncertainties remain over the precise nature of the post-2020 renewable policy framework and the build-out of a pan-European grid to facilitate the integration of variable renewables.
Returning to the UK, and UK policy, uncertainties also
remain about the level of funding to be made available for offshore wind in the near-term. Publication of the DECC’s
www.owjonline.com
draft budget for the first allocation round of CfDs brought a greater level of clarity on the future level of financial support for renewable energy projects, but there was disappointment that insufficient funding is being made available to ensure the UK’s successful transition from fossil fuels to clean energy sources. The long-awaited publication of the indicative budget available for new renewable energy projects in the first allocation round of CfDs provides information which is critical for developers and the supply chain to support future investment in the clean energy sector but a note of caution needs to be sounded.
“ W
hilst the industry understands the pressures facing government when setting this budget, we are disappointed with the overly cautious approach
used,” said Dr Gordon Edge, RenewableUK’s director of policy. “Although we appreciate that it’s necessary to hold back budget for future years in order to allow potentially cheaper projects to come forward later, this initial release of the draft budget risks being insufficient to drive industrialisation, competition and cost reduction. A successful launch of the first CfD allocation round is fundamental to building investment and industrial momentum. An excessively cautious approach affects the UK’s offshore wind industry in particular. The sector needs long term visibility to give the UK the best chance of securing a strong local supply chain to drive down the cost of offshore wind energy. Failure to set even an indicative budget for the second allocation round at this crucial stage means that visibility is now extremely limited.” Dr Edge said the announcement was “clear evidence” that the next government will need to act quickly and decisively to set out its ambition beyond 2020. As he noted, in May 2015 it will need to set out a clear framework for the sector beyond 2019, including longer term budgets for CfD allocation. Investors need confidence, now, in order to bring forward the much-needed investment that will reduce costs and capture the maximum possible economic benefits. Ironically, new data shows that August 2014 was an exceptional month for wind energy in the UK, with new records set and generation levels exceeding both nuclear and coal, according to official National Grid statistics. On five separate occasions, wind overtook coal-fired plants for generation over a single day, this being the first time this has ever happened. Wind energy is surely taking its rightful place as a key part of the UK’s power sector, even overtaking coal and nuclear at times as one of the most important sources of power, but policy certainty – and a sufficient level of funding – remains essential if the sector is to continue to develop. OWJ
Offshore Wind Journal I 3rd Quarter 2014 I 5
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