The Blog - Wind energy market analysis

Posted 02/03/2018

Frances Salter

    

What does Brexit mean for the UK wind market?

The UK’s planned exit from the European Union has thrown up serious questions for all parts of the economy, and the wind industry is no exception. Frances Salter looks at some of the upcoming policy hurdles


pexels-photo-113885

 

It’s become a truism to remark on the lack of clarity surrounding the future relationship between the UK and the European Union. However, as we move closer to the likely beginning of the transition period, we’ve outlined some key policy questions for UK wind – and some potential answers – in the run-up to Brexit.

Once we leave the EU, is the UK still bound by the Renewable Energy Directive?

 In 2009, the UK signed up to the EU’s Renewable Energy Directive, which requires that the UK generate 15% of its energy from renewables by 2020. The RED has arguably been one of the most important policies behind the UK’s government-backed expansion of wind farms and other renewable energy sources in the last decade. This pushed the UK government to find new ways to incentivise the deployment of schemes including wind farms.

However, the impact of leaving the RED is unlikely to do much damage. For one thing, Britain is already obliged to hit its 2020 target, and is also on track to hit it, because most of the required projects have either been given planning permission or are already under construction.

More importantly, commitments to cutting carbon emissions are already enshrined in UK law, as a result of the Climate Change Act of 2008. The CCA is stricter than the RED, and so the prospect of leaving the RED is, in itself, not a huge concern. And as turbine technology develops, the financial case for wind farms – both onshore and offshore – becomes stronger, and means that politically-sensitive subsidy support would not be required.

Will the UK continue to be part of the Energy Union project?

The European Commission’s Energy Union project, launched in 2015, is a scheme that aims to achieve greater integration of member states’ energy markets. 

It would make sense for the UK to remain a part of the project, given that it is already very involved: the country has committed billions of pounds, for example, to a series of underwater interconnecting cables currently being built to trade power with Ireland, France, Belgium, Denmark and Norway.

However, remaining in the project would require a negotiation of a new partnership with the EU and compliance with the relevant legislation – and, as the UK is unlikely to remain part of the groups that co-ordinate EU energy regulation, the country would have little say in developing in those regulations. Again, such an agreement could be politically unpalatable for Theresa May’s government as they attempt to keep Hard Brexiters happy.

For others, though, that type of collaboration would make sense and is an indication of the type of relationship that the UK and EU should look to maintain after Brexit. For example, as Alistair Phillips-Davies of SSE recently remarked, the key principle of the new EU-UK energy relationship needs to be collaboration. We are yet to see how viable this would be in practice. 

What will happen to EU funding for renewable energy projects in the UK?

At present, the UK receives significant sums for energy infrastructure projects from the EU, including billions of euros a year from the European Investment Bank. The EIB has warned repeatedly of the risk of Brexit over the last 18 months, and it is no surprise that the Luxembourg-based bank’s new contracts with the UK totalled just £1.89bn last year, down from £5.54bn in 2016. Of that £1.89bn figure last year, £377m came in the nine months after Theresa May triggered the Article 50 process that set in motion the UK’s exit from the EU.

Exactly how individual projects will be affected depends on the terms of their investment agreements: projects that have already been granted funding may need to be repaid, if it becomes unlawful for the EU to fund them.

For projects that have been proposed but not yet funded, the impact will depend on the timing of changes to investment criteria, and how desirable the EU funding bodies deem them to be. There will be uncertainty, too, for energy research: funding from the European Research Council and Eight Framework Programme may also be withheld.

In terms of private investment in wind projects in the UK, credit agencies in member states won’t necessarily be put off backing investments – including in the UK’s offshore wind sector – but it does entail extra risk.

What about the Emissions Trading Scheme?

The European Union Emissions Trading Scheme, launched in 2005, is the world’s biggest system for trading greenhouse gas emissions allowances. EU member states recently agreed to protect the carbon market if the UK leaves the ETS, as the country is currently one of the biggest buyers of carbon permits. 

However, having been a major player in the formation of the ETS, it would seem to be advantageous for the UK to aim to remain in the scheme. By doing this is would follow a similar path to Norway, which has companies in the scheme despite the country not being an EU member.

As with so many areas of Brexit policy, the overarching question for companies in renewables is whether the greater freedoms the UK will gain will be worth the loss of our position of influence at the negotiating table.

Nonetheless, Brexit needn’t spell disaster for renewables: as long as the government remains committed to the transition towards a greener economy, renewable energy will remain a solid prospect for investors.

Click to download our new Emerging Markets report

You might also like...

 

New call-to-action

 

Our top 10 blog posts from the last month