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1. EXECUTIVE SUMMARY In order to meet 2020 carbon reduction targets, all EU member countries have been set targets for the level of renewable energy as a proportion of total energy consumption. The UK target of 15% of final energy consumption is binding, as is the 10% contribution from transport, however electricity and heating targets are a matter of UK policy. The UK Government has enacted a series of policies to support the development of a portfolio of renewable technologies, provided a regulatory framework and a support mechanism that encourages investment. As the renewable energy industry matures, Government has sought to adjust policy so that the overarching targets are met in the most affordable way, which in practice may see the policy for individual sectors (electricity, transport and heating) change as technology costs and deployment rates change. This report explores the recent (2014/15)
State of the Renewable Industry
developments in the renewable energy industry and their impact on the level of investment, recognising the interactions between policy, targets and level of investment. We also present an updated estimate of capital expenditure required to reach UK 2020 targets, following on from the first REview in 2014. The analysis estimates £40bn has been spent between since 2010 across the three sectors1
and a further £48bn is required to deliver against targets.2
Renewable electricity 2014 saw the greatest investment in renewable electricity generation to date, at
£10bn. This level of investment exceeded expectations for the year, which were forecast to lie at £8.7bn, based on 2013 projections. Offshore wind and solar PV attracted the largest share of this record investment in a year that witnessed a number of important developments in the renewable electricity sector.
One of the most notable investments 1. Executive summary
In order tomeet 2020 carbon reduction targets, all EUmember countries have been set targets for the level of renewable energy as a proportion of total energy consumption. The UK target of 15%of final energy consumption is binding, as is the 10% contribution fromtransport, however electricity and heating targets are a matter of UK policy.
during 2014 was the Green Investment Bank (GIB) investment in the 210MW Westermost Rough offshore wind project. This marks the first time GIB has taken construction risk in offshore wind, and the bank’s involvement facilitated additional investment from Marubeni Corporation, also sharing construction risk. It is expected that through facilitating further such deals involving new types of investors, GIB will help both developers to recycle their capital more effectively and bridge the funding gap for construction stage projects. Alongside record levels of investment, the
The UK Government has enacted a series of policies to support the development of a portfolio of renewable technologies, provided a regulatory framework and a supportmechanismthat encourages investment. As the renewable energy industrymatures, Government has sought to adjust policy so that the overarching targets are met in themost affordable way, which in practicemay see the policy for individual sectors (electricity, transport and heating) change as technology costs and deployment rates change.
This report explores the recent (2014/15) developments in the renewable energy industry and their impact on the level of investment, recognising the interactions between policy, targets and level of investment.We also present an updated estimate of capital expenditure required to reach UK 2020 targets, following on from the first REview in 2014.
The analysis estimates £40bn has been spent between since 2010 across the three sectors1 and a further £48bn is required to deliver against targets.2
industry also witnessed the first competitive CfD auction which concluded in February 2015. With the exception of energy from waste, all technologies cleared below their respective administrative strike prices. This was seen by Government as testament to the benefits of competitive allocation and a positive outcome for consumers. Two solar projects drew particular attention by clearing at £50/MWh for delivery in 2015/16 and subsequently withdrawing, highlighting some of the flaws in the allocation process. Three further solar PV projects cleared at £79/MWh in 2016/17 together with one onshore wind project. Mainstream’s Naert offshore wind
Figure 1:Historical and forecast investment in renewables (2010-20)
10 12
2 4 6 8
- 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F 2019F 2020F Renewable electricity
www.r-e-a.net
2014 saw the greatest investment in renewable electricity generation to date, at £10bn. This level of investment exceeded expectations for the year, which were forecast to lie at £8.7bn, based on 2013 projections. Offshore wind and solar PV attracted the largest share of this record investment in a year that witnessed a number of important developments in the renewable electricity sector.
REview Renewable Energy View 2015 77 7.9 7.7 6.8 5.8 4.2
Renewable electricity
6.6
Renewable transport fuels
Renewable heat 10.6 10.7 10.6 8.8 8.7 FIGURE 1 HISTORICAL AND FORECAST INVESTMENT IN RENEWABLES (2010-20)
RENEWABLE ENERGY VIEW 2015 PwC
State of the renewables industry Investments in renewable electricity, heat and transport
development, which cleared at £114/MWh in 2017/18, demonstrated good progress towards the target LCOE of £100/MWh in 2020.
While lower than expected CfD clearing
prices will allow more capacity to be delivered within the Levy Control Framework (LCF) envelope, higher than expected investment in solar PV seen since 2013 has led DECC to announce the closure of the RO to large (>5MW) solar PV from 1st April 2015 in a bid to protect the LCF budget. The announcement led to a push from developers to commission ahead of April 2015 under the more favourable RO regime, to avoid having to bid for CfD support against other ‘well- established’ technologies in Pot 1, including onshore wind.
Investment in Renewables
Renewable heat The renewable heat sector saw an estimated £1.1bn of investment during 2013, delivering a capacity addition of 1.5GW. The majority of investment was in bioenergy technologies (£1bn, 1.4GW net additions), followed by heat pumps (£70m, 57MW) and solar thermal (£37m, 24MW).
Renewable transport No capacity additions were identified in 2014. The primary regulatory instrument for biofuels, the Renewable Transport Fuel Obligation (RTFO), has reached the maximum obligation level of 4.75%. Without a clear trajectory towards the target of 10% by 2020 there is a weak business case for investment in additional capacity in the UK. Evidence from DECC shows that the majority (77%) of
£bn
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