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Following Election, U.K. Renewables Policy Plans Come to Light

— June 2, 2015

A couple of weeks after a surprising result in the United Kingdom’s parliamentary election, in which the Conservative Party won a majority, plans for the government’s renewable energy policies are becoming clearer. Although the Conservative Party has governed for the last 5 years, it was part of a coalition, so there is a possibility that significant policy changes will occur.

Amber Rudd Takes the Lead

On May 11, Prime Minister David Cameron appointed Amber Rudd as the United Kingdom’s new Secretary of State for Energy and Climate Change, which was well-received by the renewable energy industry. The renewable energy trade bodies in the United Kingdom (Renewable Energy Association, RenewableUK, and the Solar Trade Association) appeared to have good comments about Rudd, and Nina Skorupska, the chief executive of the Renewable Energy Association, had the following comments on Rudd’s appointment.

“Amber Rudd has been a champion of renewables and the low-carbon economy in the past year, and her appointment will do much to allay the fears some may have after the general election … ensuring we meet our targets in the most efficient way … and making sure the UK is leading the way in green jobs and cost effective renewables.”

While RenewableUK, which mainly represents the wind industry, criticized the Conservatives’ manifesto when it was launched, its chief executive, Maria McCaffery, was also pleased by the appointment of Rudd. In a note released to the press, McCaffery said:

“We welcome the positive commitments which she has made on reducing emissions, tackling climate change and protecting the environment. We are looking forward to working with her and showing how all the technologies we represent: onshore wind, offshore wind and wave & tidal energy, can help achieve these aims.”

Onshore Wind on the Chopping Block

The Conservatives’ manifesto included a promise to stop incentives for onshore wind farms and to give local residents more influence in planning approval of the projects. In an interview with the Sunday Times this week, Rudd reiterated the Tories’ manifesto pledge to effectively end the development of new wind farms on U.K. land, outlining her hopes for the new measures to come into force by May 2016. While onshore wind in the United Kingdom can be competitive with fossil generation, the additional requirements to develop a project, like signing a power-purchase agreement, and survive what would be a gruesome planning application process, carry extra risks that few investors would like to face. This is expected to impact Navigant Research’s U.K. wind energy forecast, which is part of the World Wind Energy Market Update 2015 report.

Currently, there are about 7 GW of onshore wind capacity under development. While the onshore wind utility-scale installations are expected to decline, there will be room for companies willing to participate in community-scale projects. Community projects have the double advantage of a guaranteed buyer for the electricity produced while getting local support for the project by sharing the benefits of the wind farm.

A Solar Revolution Underway

While at first look this looks like a step back for the renewable industry, in reality, the winners if this policy is implemented would be all other sectors within the industry. In another interview, Rudd said she hopes to “unleash a new solar revolution” as a government cabinet minister. This seems feasible given that solar PV would become the cheapest source of renewable energy that can be deployed at scale. Other sectors will benefit as well. Some biomass projects would become competitive, and even offshore wind would benefit if the bids in the Contract for Difference (CfD) increase.

 

Surprises in U.K. Renewables Bidding Round

— April 15, 2015

The U.K. Department of Energy & Climate Change (DECC) has announced the results of the first competitive Contracts for Difference (CfD) allocation round. CfDs are designed to give investors the confidence and certainty they need to invest in low-carbon electricity generation. The government does this by paying the generator the difference between the cost of investing in a particular low-carbon technology, known as the strike price, and the reference price, or the average market price for electricity. Generators participate in the electricity market, including selling their power, as usual. This means that if the reference price is higher than the strike price, generators must refund the difference.

The DECC assigned 27 contracts, totaling 2.1 GW of capacity, in round one; the government estimates its total spend will be £315 billion ($470 billion in 2012 prices). Wind projects will supply 1,910 MW of capacity, of which 750 MW will be onshore and 1,160 MW will be offshore. These projects, along with the five offshore projects (3,184 MW) that were allocated CfDs in the so-called round zero, underpin Navigant Research’s forecast in our World Wind Energy Market Update 2015 report that the United Kingdom will install 10.6 GW of wind capacity in the next 5 years.

Low-Balling

In addition to the wind capacity, round one winners include two energy-from-waste projects, with associated combined heat and power systems, that total almost 95 MW of capacity. Three additional projects that use biomass gasification technologies have a combined capacity of 62 MW. Finally—and perhaps surprisingly, given the well-known cloudy and windy British weather—five solar plants, with a total capacity of 71 MW, are also included.

The winning strike prices also brought some surprises. On the one hand, low-bidding solar projects outbid onshore wind projects—which are usually considered the cheapest source of renewable energy. The solar projects offered £50 per MWh, or roughly $0.075 per kWh—very close to the current U.K. wholesale electricity price.

On the other hand, the offshore wind winning bids offered £114.39 ($0.169/kWh) and £119.89 ($0.178/kWh). Interestingly, the Danish Energy Agency announced the winner of its 400 MW Horns Rev. 3 offshore wind farm on the same day. The winning bid was 52% lower than those in the United Kingdom were and will run for 3 fewer years.

Storm Clouds 

If these solar projects actually get built, they will put solar costs in the United Kingdom at a similar level to winning bids in regions with excellent solar resources, such as Dubai and Texas. But there are some clouds on the horizon. James Rowe, director with Hadstone Energy (the developer of one of the lowest bidding projects), put this construction in doubt in a pair of LinkedIn posts (“We Got Our CfD … Oh Dear” and “What Went Wrong with the CfD Auction for Solar?”) in which he explored the reasons why the players (including Hadstone) bid so low.

At this point, it’s difficult to measure the level of success or failure of this allocation round. The solar bids at £50 per MWh are unlikely to ever be built. If others, which bid £79.23/MWh, do come online before the end of 2017, it will be the first time that solar in a resource-poor country has outbid onshore wind in a country with good wind resources.

 

Signposts Along California’s Distributed Generation Corridor

— March 24, 2015

Driving south on the Interstate 5 corridor from the Oregon border to the San Francisco Bay Area, you can see numerous renewable energy projects off I-5. These projects stand as modern signposts to the maturity of—and transition in—the U.S. clean tech industry. Five years ago, renewable installations were mostly limited to remote, utility-scale wind farms in Tehachapi and along the Altamont Pass. While utility-scale installations continue to grow, there is now also a strong focus on distributed generation: solar, wind, fuel cells, and generator sets located directly onsite or on the distribution grid.

The United States is expected to be a leading market for distributed generation, with more than 250 GW installed cumulatively between 2015 and 2023, according to Navigant Research’s report Global Distributed Energy Deployment Forecast. The sites discussed below are some of the most visible installations along the drive down to the Bay Area. They represent the focus on distributed generation today and in the years to come.

Signposts

As you drive through the city of Red Bluff, you see a 1-MW General Electric (GE) wind turbine installed at the Wal-mart distribution center. Wal-mart is the leading consumer of solar PV among U.S. retailers, with 105 MW of installed capacity, twice as much as the second-leading company, Kohl’s, with 51 MW. Big box retailers have installed more renewable energy than tech companies have and are a coveted prize for installers looking for big customers.

If you take the shortcut from I-5 to 505 South, toward San Francisco, it connects to 80 West in Fairfield/Vacaville, where a 1.1 MW solar PV installation at the North Bay Regional Water Treatment Plant is installed. With large energy consumption, water treatment facilities are costly for cities to operate, leading to attractive payback rates.

Renewa-Beer

When you drive further, the Budweiser plant catches your eye right off the freeway, with 3 MW of wind power located onsite. The plant also uses solar and bio-energy recovery systems. These systems combined produce approximately 30% of the plant’s power onsite. Belgium’s InBev may have offended the cultural sensibilities of some Americans when it acquired Anheuser Busch in 2008, but it used American turbines–GE 1.6-MW units.

One of the other noticeable aspects of the drive through California, particularly in Davis and Sacramento, is tract housing developments, where residential solar PV is increasingly prevalent. The residential solar PV market in California has nearly doubled in each of the last 3 years thanks to growth in the solar lease model.

California is expected to continue to lead the way in distributed generation, with systems increasingly utilizing energy storage. Though these storage systems won’t all be visible along the road, they will help more renewables capacity to come online, making the drive more scenic each year.

 

Spanish Wind Industry Faces Subsidy Cuts

— March 24, 2015

In early 2014, the Spanish government reformed the electricity market by discontinuing the feed-in tariff (FIT) program entirely for all wind plants going forward. The government has also attempted to lower purchase prices retroactively for production from existing wind plants, which essentially means that wind producers who built wind plants counting on tariff-subsidized prices for the next 20 years now abruptly face major revenue shortfalls. A direct result of Europe’s ongoing fiscal crisis in the wake of the 2008 crash, this move is widely considered the most damaging change to renewable incentives in any country globally, and it could result in a permanent wind market collapse across the European Union (EU).

For Spanish wind plant developers, such as Iberdrola or Acciona (ranked as the No. 1 and No. 5 wind operators globally in 2013, respectively), 2014 was a rough year. In its 2014 annual report, Iberdrola announced that it installed only 157.7 MW during 2014. To put that into perspective, the No. 2 company on the list of top 15 global wind operators, Longyuan Power Group in China, installed 1632.7 MW in 2014, and is now likely to surpass Iberdrola as the leading global wind operator. Acciona added 98 MW in 2014, but was forced to sell off 150 MW—thus ending up with less net wind capacity in 2014 than in 2013.

Cash Crunch

The FIT cancellation affected the cash flow of these Spanish companies, as well. Iberdrola’s 2014 profits took a major hit, falling by almost 10% compared to 2013, to hit €2.33 billion ($2.65 billion). In its 2014 annual report, Acciona asserted that, despite the regulatory setback, the company is profitable again and has managed to reduce its debt by €746 million to a still-heavy €5.2 billion ($5.64 billion).

Even if the companies survive this hit, the prospects for domestic development of wind energy in Spain are dire. Companies like Iberdrola and Acciona have the option to go abroad to markets in the United Kingdom, the United States, and Brazil to install wind energy; but for wind development in Spain, there is nothing attractive to investors about joining a market where regulation is uncertain and government support withering. In 2014, Spain installed just 28 MW of wind power, far below the 175 MW installed in 2013. The tariff cut has imperiled the future of clean energy in Spain, unless the government can bring back wind incentives and restart the market.

For a more detailed analysis of Spain’s wind market, as well as the broader global market for wind power, see Navigant Research’s forthcoming World Market Update.

 

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