While rising inflation rates and the depreciated Pound are causing a slowing of economic growth, the UK wind energy sector offers a bright spot in the Brexit-induced gloom. However, although projects are now on the cusp of viability even without government subsidies, political support remains vital to ensuring the continued prosperity of this booming industry.
This is according to the latest findings outlined by industry intelligence service A Word About Wind in its Finance Quarterly Q1 report. The report forms the latest analysis published exclusively for its rapidly expanding international membership of energy developers, financiers and investors.
This financially focused, quarterly investor report series provides an exclusive insight into key M&A transactions, data on the most notable deals of the past three months, economic country forecasts and unrivalled investment analysis, four times a year.
A key focus of this edition is the UK market, and its future direction in a post-Brexit world. The EU referendum, and then the vote for Brexit, caused enormous uncertainty in the wind sector, and the changes to the economic climate affected internal investors and global players looking to expand in the UK.
The immediate consequence of the referendum vote was the depreciation of the pound, which has lost 22% of its value against a basket of currencies since the vote. This – aside from hiking the cost for Britons of holidaying abroad – has led to a raft of other consequences. While exports, including those in the wind sector, have been boosted, consumer-price inflation has risen to its highest level since 2012, causing interest rates to rise accordingly. This is attested by the Bank of England’s move, in November, to raise its benchmark interest rate from 0.25% to 0.5%, the first rise in ten years.
The International Monetary Fund predicts that the UK economy will grow by only 1.5% in 2018, as compared to an average annual GDP growth of 2.1% over the last 5 years.
However, the wind industry is defying the odds – and the economics – to flourish. For example, despite the Brexit vote in June 2016, the UK ended that year with over 14GW of wind power, putting it in third place Europe-wide for total wind capacity installed.
A major contributor to this success is the political support shown for renewables by the UK government. While the Conservative government was widely criticised for cutting onshore wind subsidies in 2015, and although UK Chancellor Philip Hammond has ruled out new subsidies for renewables until after 2025 in the most recent Autumn Budget, support for offshore wind from the government remains intact.
The Clean Growth Energy Strategy confirmed plans to give £557m support for renewables in upcoming Contract for Difference (CfD) auctions, which could support around 10GW of new offshore wind capacity. The future for onshore wind also looks hopeful, with ministers Greg Clark and Claire Perry implying that projects in Scotland and Wales could feature in a subsidy-free CfD auction this spring.
“The support for renewables projects by the UK government over the years has been integral to the industry’s success,” said Richard Heap, Editor, A Word About Wind.
“We are increasingly seeing that projects can thrive without subsidies, but backing from politicians is still key. Their support will be important if the UK government is serious about making wind, particularly offshore wind, a Brexit success story.” he added.
However, there is more the Government could do. A significant obstacle to the progression of wind energy projects is currently posed by the UK planning system, which currently gives local councils the power to veto wind farms larger than 50MW.
Adam Barber, Managing Director, The Tamarindo Group, of which A Word About Wind forms a key part, commented, “While economic factors caused by the fallout from Brexit have the power to affect the health of UK wind projects, it is ultimately regulatory policy that will make or break the industry,”
“The suggestions of future support in the form of CfD auctions are promising, but the planning system introduces a real obstacle, which must be addressed if the sector is to continue to flourish,” he added.
The investor report contains interviews with RES chief executive Ivor Catto, and CEO at Boralex Patrick Lemaire, as well as in-depth analysis and a breakdown of the largest M&A deals completed this quarter. This edition also launches a new deals tracker for wind project finance deals.
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