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UK Government must help renewables during credit crunch

Targeted Government intervention is needed if the UK is to meet its renewable energy targets, according to the British Wind Energy Association (BWEA).

Maria McCaffery, BWEA Chief Executive, says: “Large scale wind deployment is vital to reaching the UK’s goal of generating up to 40% of our electricity from renewables by 2020.”

The current economic climate has caused a number of renewable energy developers to put projects on hold. Both onshore and offshore wind energy projects are affected by a rise in supply chain costs, driven in part by the depreciation of the British Pound against the Euro, and by a tightening in availability of project finance.

A number of key wind energy projects which are currently seeking finance now face potential delays. Independent onshore developers in particular are struggling to find finance, with projects being delayed and the rate of new applications falling, according to the BWEA.

For offshore wind, the timescales for Round 2 projects are being stretched to avoid deteriorating finances. BWEA says there are £10 billion worth of ‘shovel-ready’ schemes, which could be released to boost the economy if project finance and economics are improved.

The BWEA’s Budget Submission sets out a range of actions that could be taken to reduce risk in our sector and encourage bank lending.

Specifically it calls for Government to:

  • Underwrite floor prices in Power Purchase Agreements: Government would essentially be taking the role of insurer of agreements signed between generators and suppliers, removing price risk and giving greater security to lenders. This would assist both onshore and offshore wind power schemes, but would be particularly helpful for the onshore sector which is heavily dependent on bank-led project finance. BWEA also proposes three of policy options specifically for offshore schemes from which Government should choose:
  • Socialising offshore grid costs: Relieving developers of the cost of the offshore grid would have significant cost benefits, and is done in other offshore markets, most notably Germany. This could be done without the use of Government funds by retaining the competitive offshore transmission regime but socialising the payment of transmission charges across all grid users, rather than just the project developers directly involved.
  • Direct Capital Relief: A programme of capital grants or carefully designed Enhanced Capital Allowances would effectively ‘buy down’ the recent cost increases and make projects cost effective.
  • Increasing the offshore ROC multiple: An emergency review of the ROC multiple for offshore wind to increase its value from the newly introduced 1.5 ROCs per MWh.

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