David Foxwell reflects on the need for the government in the UK to create the right framework to encourage investment in offshore wind
Amid the elation about the UK’s Sector Deal for offshore wind there was one piece of the puzzle missing. That rather important piece of the puzzle is finance.
The deal set a target for offshore wind to provide more than 30% of British electricity by 2030, and will mean for the first time in UK history there will be more electricity from renewables than fossil fuels. As Alun Roberts at BVG Associates noted, the government will feel that it succeeded in getting the industry to put its hand in its pocket to support cost reduction and local jobs. For its part, industry wanted more than the 30 GW by 2030 that it got, but knows this is probably the minimum the government needs. It also knows further cost reduction will render other sectors uncompetitive, with the exception of onshore wind. With the UK’s plans for nuclear power in disarray, if the industry does what is expected, we might see that 30 GW target increase. If it did, the right financial environment will be even more important.
Offshore wind has become a highly investable sector. However, with the need to build so much new capacity and the uncertainty surrounding the UK economy post-Brexit, the country needs a fiscal environment that will enable this large-scale transition in the energy market to take place.
To be fair, the government has made a reasonable fist of it to date, and the UK has long been regarded as a leading global financial centre. It has a world leading stock market with 80 green bonds listed on it, but it needs to take steps to consolidate that reputation.
Late last year it committed to building on the recent Green Finance Taskforce report by publishing the UK’s first Green Finance Strategy in Q2 2019. This will set out the steps the government is taking to attract the investment the UK needs in the clean economy and cement the UK’s position as a global leader. I have asked, but haven’t been able to get out of Department of Business, Energy & Industrial Strategy (BEIS) exactly when it will be published. It must be soon, unless of course Brexit has delayed it.
A helicopter view of green finance in the UK and the picture for offshore wind might emerge from a House of Commons Select Committee inquiry into finance and investment in the UK’s future energy infrastructure. This was announced in late February by the Business, Energy & Industrial Strategy Committee. The aim of the inquiry is to look into whether the government needs a new approach to bring forward investment. The inquiry will examine the government’s approach to creating the conditions for investment in new energy capacity and what it needs to do to attract greater investment to finance future energy capacity, including renewables.
Despite the uncertainty surrounding Brexit, there is still significant potential investor appetite for renewable energy projects in the UK, but the government needs to be pro-active to ensure that appetite grows in line with the scale of projects and anticipated capacity.
The market’s appetite for investment will undoubtedly be stimulated by just how big the scale of the opportunity is, but that appetite could also be influenced by the mood in the markets, and by the mood music. Unless you believe in the idea of a post-Brexit boom, the mood music in the UK at the moment is uniformly uncertain. The inquiry might want to look at regulatory constraints on lenders that hinder their potential involvement in the market and take evidence on whether existing financing mechanisms are fit for purpose.
If you want to have your say about what steps the government should take to boost investor confidence in the energy sector, you can have you say here. The deadline for written submissions is 3 April 2019.