Key issues for renewables in 2015
A new year often prompts reflection and predictions. According to the statistics released by the Department of Energy & Climate Change (DECC) on 8 January 2015, the trend for renewables continued to be positive in 2014. The proportion of electricity generated by renewable sources of energy increased from 13.9% for the first three-quarters of 2014 to 18.1% for the corresponding period of 2014. Specifically when comparing Q3 2013 to Q3 2014 electricity generated as follows:
- Onshore wind increased from 2.7 TWh to 2.9 TWh
- Offshore wind increased from 2.0 TWh to 2.2 TWh
- Hydro increased from 744 GWh to 787 GWh
- Bioenergy increased from 4.6 TWh to 6.0 TWh
- Solar PV increased from 0.8 TWh to 1.5 TWh
The key question for 2015 is will this upward trend continue? Below are three issues that we consider relevant to the market in answering this question.
1. Implementation of Contracts for Difference (CfD)
With all bids for the first round of CfDs now in, the switch to CfDs is closing in on completion. However, it remains to be seen whether (i) this transition will be smooth, (ii) a single subsidy for all technologies is appropriate (especially when comparing mature technologies such as onshore wind and solar and less mature technologies such as offshore wind, biomass with CHP and geothermal power) and (ii) the budget for subsidies is sufficient given demand or whether there is a risk that bids will be too aggressive. The budget for CfDs awarded in this auction ratchets up to an overall amount of $325 million per delivery year from 2017/2018 with £65 million of this allocated to established technologies (including solar, onshore wind hydro, energy from waste with CHP, landfill gas and sewage gas) and £260 to less established technologies (including offshore wind, wave, tidal stream, advanced conversion technologies, anaerobic digestion, dedicated biomass with CHP and geothermal).
2. General Election
As with any election, a key concern is will there be continuity or will the result bring about a different policy to the industry.
3. Oil Prices
A year ago, the Brent Crude oil price was at least double what it is today. The effect of this on the renewable energy industry appears to fall into two opposite camps.
On one side, there are those who see it is a concern and that cheaper oil will result in a lower demand for renewable energy. However, given small proportion of electricity generated by oil, there are many who think that the fall in oil price will have minimal impact on the renewable industry.
Below are some key dates for the renewables industry for the first half of 2015:
- 26 February – Applicants notified of CFD award
- 27 February – 12 March CFD contracts sent to successful participants
- 27 March – Last day for CFD contracts to be signed
- 30 March – Parliament dissolved and government in caretaker mode
- 29 April – Earliest possible date for first CFD payments made to generators
- 7 May – Election
- 5 June 2015 – OPEC meeting
Despite all of the above, the current market sentiment towards the renewables industry appears to be positive. Recently, BLP hosted the Infra Finance Breakfast Club (INFIN) with over 150 attendees and when asked which sector they anticipated to have the most activity in terms of infrastructure in 2015, the answer was renewable/low carbon electricity generation.