Just 2GW of new UK onshore wind set for renewables obligation

Only 2GW of onshore wind projects in the UK are likely to obtain government support through the soon-to-expire renewables obligation (RO) subsidy scheme, senior industry sources said at RenewableUK’s annual conference in Liverpool on Tuesday.

The figure would mean 3.6GW of capacity that had been expected to qualify for support under the UK’s subsidy network would fail to make it.

This is because the Conservative Party pledged in its election manifesto to apply any overhaul in subsidies for onshore wind projects only to projects that had yet to secure planning consent (see EDEM 8 May 2015).

And at the time of the Conservative election victory, 5.6GW of onshore wind capacity was listed by RenewableUK in possession of planning consent.

Should this 3.6GW not get built, which seems likely given signals from the investment community, the 3.6GW shortfall would be spread over a time of historically tight capacity margins, casting a mildly bullish influence over the power market’s forward curve.

Access through the RO is effectively the last avenue to subsidy support for onshore wind projects above 5MW. Energy secretary Amber Rudd confessed in a parliamentary meeting this summer that the technology is likely to be prevented from competing in future contracts for difference (CfD) auctions (see EDEM 21 July 2015).

On top of this blow, the UK government’s decision to move forward the closure of the RO to onshore wind from April 2017 to next April is likely to result in only 2GW of consented capacity progressing under the subsidy mechanism.

“A couple of gigawatts will get built [under the RO],” said ScottishPower Renewables’ offshore managing director Jonathan Cole.

“But some projects will struggle to make the deadline. Not everyone can react to that acceleration of the RO closure,” he added, citing difficulties with securing grid connections in time.

‘Die-hards’

The UK government confirmed the earlier-than-expected withdrawal of RO support for onshore wind in June (see EDEM 18 June 2015).

The steady flow of policy moves aimed at stemming the development of onshore wind since the Conservative party assumed government, under a stated goal of capping subsidy costs, led RenewableUK chairman Julian Brown to refer to this year’s conference attendees as “the die-hards”.

At the time of the RO support withdrawl date conformation, the Department of Energy and Climate Change (DECC) indicated that projects with proof of consent, a grid connection and evidence of land rights could qualify for a grace period extension until April 2017. DECC said it was “minded to” offer access to grace periods to over 5.2GW of capacity.

However, investor reluctance to commit financing to projects in the context of current climate of political uncertainty could mean developers are unable to take final investment decisions on projects in time.

“You have this issue where some projects can only reach financial close after royal assent [is granted to the energy bill],” RenewableUK policy director Gordon Edge said.

Last month, an investor community survey published by financial services giant Ernst & Young revealed half of UK financial institutions that have provided debt funding to the UK’s onshore wind sector in the last two years would not lend to projects until the new parliament’s energy bill passes into law (see EDEM 14 September 2015). This is not likely until next year.

Edge added that only the 2.3GW of onshore wind under construction, according to statistics from the trade body’s wind energy database, would be guaranteed funding under the RO. henry.evans@icis.com