Interview: is there still too much uncertainty for investors?

Gail Rajgor

Part 3. Having vented his frustration on the politics of UK renewables policy on the Renewable Energy Focus website, Altium's Adrian Reed gets more off his chest, talking in depth to Gail Rajgor.

This article was first published in Renewable Energy Focus magazine. For a free subscription, click here. This is the online version, and will be published in 3 parts.

For part 1, click here. For part 2, click here.

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Communicating costs

For that, there needs to be better communication to the public about the real costs of renewables support, he stresses. “There are lots of assessments by the government, by power utilities, about how much the incentives cost,” he says, and all too often these have then been poorly reported or misinterpreted.

Many “would have you think this is costing hundreds of extra pounds per annum on people's bills, whereas actually the cost of the ROCs, particularly for onshore wind in the UK, of which we've got the most generating capacity, is in the pounds – £10, £20, £30 – and no more than that,” Reed says.

This fact, and the intent of the support system as a mechanism to try to encourage the development of new technologies, needs to be better communicated and understood by policy makers and the public alike.

He adds that “the one thing people forget” is while the infrastructure for coal, gas and nuclear power stations is already in place, it isn't for renewables. Comparing the cost of non-renewables with renewables at this point without factoring that in is therefore moot.

Meantime, the power source (fuel) for renewables is predominantly free (biomass and energy from waste being the obvious exception). “But you've got to assume that prices for commodities – oil, gas or otherwise, are going to continue to go up in excess of inflation,” he notes. Indeed, “they're the things generally driving inflation now, that we're all struggling with”.

He points out: “At the moment, all the increases in power that we've seen have not been because of renewables. They've been because of oil and gas prices fluctuating all over the place, because of Fukushima, or the Iran/Iraq conflict and everything else.”

Furthermore, most of these non-renewables are heavily subsidised, another fact that seems to get forgotten, he adds: “The subsidy of fossil fuels is largely through the cost of global policing. That just gets washed away in all those other [cost] calulations and not included.”

Those non-included costs are substantial. According to data published by the OECD and IEA in November 2011, of the $771bn in estimated annual subsidies directed towards fossil fuels (oil, coal and gas), a staggering $364bn relates to US defence of oil shipping lanes in the Persian Gulf. Annual subsidies for nuclear, meanwhile, total around $70bn, while renewables trail behind with global subsidies totaling around $66bn.

“Annual subsidies paid to renewables, including biofuels, are less than 1/6th of the subsidies provided to fossil fuels and 1/12th of the cost required, including defence,” pointed out Rory Quinlan from Capital Dynamics Clean Energy Infrastructure at June's Pensions: Infrastructure Investment Conference.

A word for developers

Of course, there are still renewable energy project developers looking for backing, and there are still some investors eyeing the field, whether tentatively for the future or hard and fast with cash to spend now. Institutional investors, like pension funds, will be critical for the future and there's certainly a growing trend of renewable energy infrastructure becoming a mainstream financial asset for a pension or life fund.

“Pension and life funds are the ones with the most money,” Reed notes, “They want good, long, stable, cash-generative assets, so renewable energy assets like onshore wind really should be hugely attractive to them.” He adds: “We need to get to a stage whereby more assets, other than wind, are being treated in that way.”

They, like most investors these days, are more discerning that ever. “Alignment of interest is the thing that makes projects work,” Reed says. Those involved along the project chain need to have proven experience, quality products and credit worthiness. Plus, “the key counterparties need to be locked in, and have a long-term commitment to the project”.

Costs for project finance have risen slightly simply due to the global restriction on finance at present, but mostly due to the mounting hurdles to achieve financial backing in the first place, he says. “It's the quality of the projects, how far advanced it is, and the quality of the counterparties that counts”.

Of course, for new projects going forward which have yet to secure long term power purchase agreements where necessary or which are planned beyond the current ROC regime timescale, “money won't be committed and recycled until there's certainty on incentives and legislation”.

And so you come full circle: “It is not complicated; the market is relatively efficient. It needs strategic planning from governments. It needs incentives that, even if set wrong, are set for a known period of development that people can work to,” he says.

Governments need “to encourage people and not be scared of informing the public, the electorate, that power is going to cost”.

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