| State of the Renewable Industry
Figure 4: Relationship between power, heat and transport targets4 Surface Transport
10% 9% 8% 7% 6% 5% 12% 30% 32% 33% 34% 36% 37% 11% 32% 33% 35% 36% 37% 38% 10% 34% 35% 36% 37% 39% 40% 35% 36% 38% 39% 40% 41% 37% 38% 39% 40% 42% 43% 38% 39% 41% 42% 43% 45% 40% 41% 42% 44% 45% 46% 41% 43% 44% 45% 46% 48% 43% 44% 45% 47% 48% 49% 44%
9% 8% 7% 6% 5% 4% 3% 2%
46% 47% 48% 50%
RENEWABLE ENERGY VIEW 2015
Investment in Renewables
FIGURE 4 RELATIONSHIP BETWEEN POWER, HEAT AND TRANSPORT TARGETS5
51%
4% 3% 2% 38% 39% 41% 40% 41% 42% 41% 42% 44% 43% 44% 45% 44% 46% 47% 46% 47% 48% 47% 49% 50% 49% 50% 51% 50% 52% 53% 52% 53% 55%
46% 47% 49% 50% 51% 52% 54% 55% 56%
generation. What this shows is that a shortfall against heat or transport targets requires a significant increase in renewable power contribution. Current investment and capacity
Policy clarity
deployments suggest that power is the only area in which an outperformance of the existing DECC targets for renewable energy generation is likely, even if only marginally.
Policy clarity
Current investment and capacity deployments suggest that power is the only area in which an outperformance of the existing DECC targets for renewable energy generation is likely, even if onlymarginally.
The challenge ofmeeting targets across power, heat and transport highlights the need for a coordinated approach that is not obvious fromcurrent policy.
The challenge of meeting targets across power, heat and transport highlights the need for a coordinated approach that is not obvious from current policy. • Renewable electricity developers are facing a challenge to appropriately manage their development pipeline in the absence of clear guidance about volume requirements beyond the end of the LCF in March 2021. • RHI funding needs to be confirmed
beyond 2016 or overall generation targets are put at risk.
• Progress in renewable transport is
Renewable electricity developers are facing a challenge to appropriatelymanage their development pipeline in the absence of clear guidance about volume requirements beyond the end of the LCF in March 2021.
The renewable heat sector is seeing considerablymore investment flow into low load factor technologies than expected. If this trend continues, overall generation targets are put at risk.
Progress in renewable transport is particularly concerning, where the lack of a clear trajectory to reaching the 2020 target is seeing the sector fall short of even themoremodest targets currently in place (4.75%), with little expectation of reaching 10%.
particularly concerning, where the lack of a clear trajectory to reaching the 2020 target is seeing the sector fall short of even the more modest targets currently in place (4.75%), with little expectation of reaching 10%. Without a baseline level of certainty across all sectors, investment decisions and therefore progress towards meeting targets in 2020 and beyond are in jeopardy. Policymakers must be mindful of industry’s need for sufficient long term certainty to support the investment decisions necessary to maintain an appropriate balance between security of supply, decarbonisation and affordability.
Without a baseline level of certainty across all sectors, investment decisions and therefore progress towards meeting targets in 2020 and beyond are in jeopardy. Policymakersmust bemindful of industry’s need for sufficient long termcertainty to support the investment decisions necessary tomaintain an appropriate balance between security of supply, decarbonisation and affordability.
2. MEETING THE UK’S RENEWABLE TARGETS With just five years remaining for the EU to deliver on its 2020 renewable energy targets, designed to take carbon emissions to 20% below the 1990 levels, it is useful to reflect on how the UK’s contribution to their target of 15% of final energy consumption from renewable sources is likely to be reached. Although the UK 2020 target of 15% of final energy consumption is a binding target, the mix of renewable energy used to deliver this target has been devolved to UK Government (except in transport, where a 10% minimum is binding). Existing policy has indicated that this would be achieved through 10% of transport energy, 12% heat of energy and 30% power from renewable sources; progress however, has not been balanced across these three areas. It follows that progress above the base case assumptions in one area may allow a relaxation of targets in another area, or vice versa, while still delivering the requisite 15% across the three sectors.
The most recent data available indicates renewables share of power generation reached 19.2% in 2014 (2013: 14.9%), heat 2.8% in 2013 (2012: 2.3%) and transport 4.4% in 2013 (2012: 3.7%).6
Based on 4 Renewable Energy Strategy, PwC analysis
current deployment rates, power is the only sector in which an outperformance of the existing DECC targets for renewable energy generation is likely, and even here, any outperformance may only be marginal. So what might this trade-off look like in practice? The figure (next page) illustrates the impact of increasing the proportion of renewable power from DECC’s base case assumption of 30% (i.e. 12% renewable heat and 10%
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renewable transport). The values shown in the table indicate the proportion of power that must be generated from renewable sources, at a given contribution from both transport and heat. What this shows is that a shortfall against either the heat or transport targets requires a significant increase in renewable power contribution. Under the 2015 forecasts prepared by DECC, renewable electricity is expected to reach a 34% share of demand by 2020. This would allow for a 3% reduction in transport targets, providing heat reached 10%. This highlights the need for a coordinated approach to targets that is not obvious from current policy.
3. INVESTMENTS IN RENEWABLE ELECTRICITY In our analysis, the absolute amount of investment in renewable electricity in any year is measured by the technology specific investment cost and the amount of additional capacity deployed in that year. The relative attractiveness of one technology over another is driven by a number of factors, but particularly by the support mechanisms put in place by Government to enact climate change policy (in order to meet renewable energy targets). The primary support mechanisms for power generation are the Renewables Obligation (RO), Contracts for Difference (CfDs) and, in the case of small scale generation, Feed in Tariffs (FiTs).
3.1. Investment costs Calculating the investment required to deliver the DECC capacity build targets relies on robust assumptions about the cost of individual technologies. Our approach to 2015
This report is solely for the use and benefit of Renewable Energy Association and should not be relied upon by any other party. State of the renewable industry - Investments in renewable electricity, heat and transport PwC
REview Renewable Energy View 2015 79 6
Heat
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