Investment in UK renewable energy is back on track – now let’s secure its future
While the UK’s recent clean energy auction secured a record amount of offshore wind projects, there’s more to be done to sustain this investment momentum, says Samuel Pachoud
The results of the recent clean energy auction – Contracts for Difference Allocation Round 7, or AR7 – were heralded by the government as a “monumental step” towards ending the UK’s reliance on volatile fossil fuels. And understandably so.
The auction secured a record-breaking 8.4 gigawatts of offshore wind projects, marking the biggest single procurement of the renewable energy source in UK and European history. To put this into wider context, recent EY analysis showed that around six gigawatts would have been enough to keep the UK on track for its Clean Power 2030 target of 95 per cent low-carbon electricity by the end of the decade.
But, while this is clearly a step in the right direction, success isn’t guaranteed.
Momentum must be maintained in both progressing these projects and attracting new ones. The high cost of capital, exacerbated bygeopolitical uncertainty, rising supply chain costs and elevated gilt prices, is impacting what prospective investors are willing to pay – particularly in projects involving capital-intensive technologies like offshore wind. It’s important that the public and private sectors work together to ensure that UK energy infrastructure continues to offer viable, timely returns on investment for global developers.
Accelerate delivery
Planning process delays have long been a bugbear of investors and energy asset operators alike. A combination of under-resourced local planning authorities, complex, often outdated regulatory frameworks and variable volumes of speculative grid connection applications has contributed to this sluggishness.
The government has made progress in accelerating energy projects through the planning and connectivity phase. But more could still be done, including reforming consultation to reduce duplicative necessary steps, introducing fast-track routes based on strategic energy plans, and improving grid connection coordination by aligning planning and scheduled grid upgrades. Improving the speed of project delivery would benefit the UK’s power mix and reinforce the UK’s attractiveness to potential investors by demonstrating a swift return on capital.
Embrace proven alternative financing models
EY recently analysed the UK’s pipeline of national infrastructure and capital projects scheduled to commence or complete by 2040 and concluded that government funding could realistically only cover half the bill. Based on the analysis, the UK needs up to £817bn in additional capital to meet its confirmed infrastructure targets – including those related to energy – over the next 15 years.
The contracts for difference auctions, which have seen the record-breaking offshore wind allocation round swiftly followed by a new wave of onshore wind and solar energy projects, already provide a framework for private sector capital to contribute to UK infrastructure priorities. But it’s clear that further routes should be opened to turn the UK’s steady stream of energy investment into a strong pipeline.
The government could look to some of the alternative financing and investment models that have worked successfully on individual projects worldwide for inspiration, from value capture models in Japan to charging models in Austria.
Emphasise policy stability
Cementing domestic stability, particularly as the turbulent global economy and geopolitical landscape continue to evolve, will also be crucial to securing the future of renewables investment.
While the government has made strides through the formation of the Modern Industrial Strategy and initiatives such as the Corporate Tax Roadmap, there’s an opportunity to build on this further within the energy sector specifically. This could be achieved by ensuring there is cross-party alignment, providing greater transparency and consistency with energy and technology contracts for difference allocation rounds, and providing regular visibility of progress against the Government’s objectives.
CP30 is an ambitious and impressive target. But all is far from lost if it is missed by a few gigawatts, or more. What matters most is maintaining a bold, credible timeline and trajectory. Positive momentum has the potential to buoy investor confidence and supercharge successful energy projects for years to come.
Samuel Pachoud is energy transformation partner at EY