Recent political messaging risks undermining the new jobs and investments the renewable energy industry stands poised to deliver, the Renewable Energy Association (REA) warned this week. 

The REA’s latest twice-yearly members’ business confidence survey reveals that businesses are more confident now that they will boost turnover, new business and employment over the next six to twelve months than at the start of the year. 

Researchers believe this is a result of greater clarity in the Government’s Electricity Market Reform programme, relative stability in key support schemes and the scale of the market opportunity of the 2020 renewable energy target.

However, this data pre-dates the Prime Minister’s pledge to “roll back green regulations”. Notwithstanding reassurances from Government that renewables policies are not at risk, recent moves putting energy policy at the centre of party political electioneering are increasing the perceived risk for investors. 

This increases the cost of capital, and threatens the jobs and investments we need to ensure near-term energy security and deliver long-term climate change objectives.

REA Chief Executive Dr Nina Skorupska said: “The renewables industry is poised to significantly grow its contribution to employment and economic recovery. The growing confidence in the power sector and the Electricity Market Reform programme is good news as the UK urgently needs new wind, solar and biomass to keep capacity margins healthy. New nuclear, CCS and shale gas will not be on-stream until the 2020s at the earliest.

“However, these green shoots are still fragile, and the UK’s chances of meeting the binding 2020 targets appear remote. Although Government has confirmed that funding for renewables is not at risk in the ‘green taxes’ review, consistent messaging on Number 10’s commitment to the green agenda is absolutely vital.

“The Government currently opposes a 2030 EU renewables target and is proposing to repeal the Planning & Energy Act. Reversing those stated positions would inject a huge boost into the sector and unlock much needed new jobs and investments.”

The second edition of the Renewables Industry Confidence Survey was completed by 95 members of the Renewable Energy Association and the affiliated Solar Trade Association – up from 68 responses in March.

Overall confidence, as measured by the REA’s Renewables Industry Confidence Index, stands at 48.5% - an increase of 1.3% compared with six months ago. The improvement, while welcome, falls short of the 75% score which would indicate a properly healthy and optimistic renewables industry.

Key findings

Jobs

* 42% of companies expect to increase employment over next 6-12 months, vs 25% in Q1.

* Similarly, 33% of companies report an increase to employment over the last six months, vs 26% in Q1.

Access to finance

* 20% of companies report good or excellent access to finance, compared with 14% in Q1.

* 38% still have poor or very poor access to finance, but this stood at 45% in Q1.

Electricity Market Reform

* Confidence is growing that Contracts for Difference (CfDs) will be effective in bringing forward new capacity. Six months ago 20% and 36% respectively had poor or very poor confidence in CfDs. This has fallen to 13% and 27% respectively. 27% of respondents have a fair degree of confidence and 4% rate their confidence as good or excellent.

* This improved confidence is likely to be a consequence of the publication of draft strike prices and more information about the contracts. 

Political commitment to renewables

* 52% think the Government’s preference for a 2030 carbon-only target at European level, with no specific target for renewables, sends a poor or very poor signal to investors. 29% of respondents are unsure about what signal this sends. If the don’t know responses are removed from the analysis the proportion expressing concern rises to 73%.

* 40% think the Government’s proposal to repeal the Planning & Energy Act 2008 sends a poor or very poor signal to investors. This would take away the tools for local authorities to set their own energy efficiency and renewable energy targets for new buildings, and so only affects REA member companies active in on-site renewable heating and electricity. Confining the analysis to those who expressed an opinion, the proportion expressing concern rises to 73%.

2020 renewable energy targets

* 73% of respondents have poor or very poor confidence that the UK will achieve its 15% renewable energy target by 2020, whilst only 2% thought prospects of meeting the target were good and 0% excellent.

* 63% of those active in the renewable transport sector rate the UK’s chances of achieving the transport sub-target as poor or very poor. Only 2% rate the chances as good, and 0% as excellent.

Existing Government policy

* Confidence in the financial incentives for renewable electricity generation is highest with the Renewables Obligation scoring an average of 3.35 (out of 5) and the Feed-in Tariff scoring 3.17.

* Confidence is lower in the regulatory regimes for heat and transport, which together account for 75% of UK carbon emissions. The Renewable Transport Fuel Obligation scores a confidence rating of 2.67 while the Renewable Heat Incentive scores 2.60.

REA Chief Executive Dr Nina Skorupska said: “As the arrangements for Electricity Market Reform have become clearer, confidence in the power sector has increased. The picture is not as encouraging though for heat and transport, which together account for three quarters of UK carbon emissions. 

“The problem for the Government with having a world-first Renewable Heat Incentive is having to learn as they go along, and there have been major teething problems. These are not insurmountable, and the springtime launch of the domestic RHI will help raise awareness and drive sales. In transport though, the Government is yet to develop a credible plan for boosting biofuels and cutting carbon.

“Confidence is growing, but there is still a long way to go. We cannot afford for energy policy to become a political football in the run up to the election. We need investment now to bridge the generation gap and realise the potential for 400,000 renewable energy jobs by 2020.”

Respondents were also asked to offer comments on Government policy. The overriding theme in the comments offered was the need for certainty and consistency from Government.

* Peter Dixon, Director, Kepler Energy, said: “Government needs to be consistent and stop giving out contradictory messages (George Osborne, please note). This rattles investors.”

* Andrew Goddard, technical manager for organics, Viridor, said: “Stability and clear direction are needed from Government. Constant changes destroy market confidence.”

* Ben Donaldson, National sales manager, Mt-energie UK ltd, said: “Stop changing the goalposts, stick to deadlines and keep promises.”

* James Scruby, MD, Envirocapital Ltd, said: “Establish a policy that can be relied upon for the long term. This will need to be affordable. The problem at the moment is that policy changes frequently, making medium term investment and planning very risky. There have also been a number of policy implementation mistakes and Government's performance must improve.”

Despite improvements over six months ago, several respondents remained critical of the Government’s Electricity Market Reform programme.

* David Handley, Chief Economist, Renewable Energy Systems Ltd, said: “Policy remains uncertain. The Electricity Market Reform proposals could work in the industry’s favour but fixes are needed to ensure that independent generators are able to sell their electricity. 2030 targets are essential, as is clear and unequivocal support from Government.”

* Peter Conway, Director, Gaia Power Ltd, said: “Government must understand that in order to encourage investment, a stable framework is required. A backdrop of change to the Renewable Energy Directive for biofuels at European level and the unnecessary phasing out of the Renewables Obligation and the introduction of the Contracts for Difference within the UK undermines such stability.”

The proposed repeal of the Planning & Energy Act 2008 and the Government’s opposition to 2030 renewable energy targets called into question the Coalition’s political will for the green agenda.

* A senior project engineer from a major UK renewable energy organisation said: “The Government's confusion over the Feed-in Tariff and Renewable Heat Incentive, its opposition to new European renewable energy targets and its desire to repeal the Planning and Energy Act 2008, suggests it has very little interest in renewable energy. On this basis, it is hard to understand the claims to be the ‘the greenest government ever’.”

* Bruce Cross, Managing Director, GB-Sol Ltd, said: “Keep the link for on-site renewables with planning. It should have to be justified why a new roof does not generate energy.”

* Matthew Rhodes, Managing Director, Encraft, said: “Local, long-term finance would be most helpful. The regulations need to be decentralised and simplified. Support for on-site and small scale renewables is vital and is being destroyed by unintended consequences of actions in planning and building regulation.”

Respondents in the bioenergy sector also warned that policies are leading to perverse outcomes for British jobs and businesses.

* Frank Boyles, MD, Candela Consult, said: “The recycling industry currently exports more than half its recycled wood, simply because there are not enough wood-fired power stations to take this valuable material. Most goes to Sweden. New biomass power capacity is capped at 400 MWe, yet we keep hearing about the lights going out. We need joined up thinking from Government.”

* Richard Gueterbock, Director, Clearfleau Ltd, said: “Smaller scale, on-site anaerobic digestion is likely to be wiped out unless DECC backs industry proposals for changes to its plans for degressing the Feed-in Tariff. The companies working in the non-merchant AD sectors are mostly British companies which can create more jobs and boost UK growth.”

* Edward Billington, MD, Billington Bioenergy, said: “The Government’s handling of the Renewable Heat Incentive has been absolutely shocking, and has made it almost impossible to invest in and run a business in this field. There have been too many delays and too much continual tinkering. All their micro-interference could wreck the market before it has had a chance to develop and normalise.”