By Daniel Hunter

Political miscommunication and lack of consistency over key energy reforms have damaged the UK’s position as an attractive place to invest in renewable energy, according to Ernst & Young’s latest quarterly global Renewable Energy Country Attractiveness Indices (CAI) published today (Thursday).

The indices score 40 countries on the attractiveness of their renewable energy markets, energy infrastructure and suitability for individual technologies.

During Q3 2012, China remained at the top of the All Renewable Index (ARI), but the US dropped 1.5 points, resulting in Germany moving into second place ahead of the US.

“Political and regulatory uncertainty, working in tandem with constrained capital markets, continue to put the brakes on investment and deal volumes," Ben Warren, Ernst & Young’s Energy and Environment Partner said.

"Looking forward, market restructuring and the emerging secondary infrastructure financing market are likely to provide the momentum for future investment.

“The UK renewable energy market has been hit by mixed and inconsistent messages by policy makers. While investors are looking for ways to invest in renewables to secure future supply and predictably priced energy, political limbo has left them very cautious before committing further capital into the UK renewable energy sector.

“We are now looking at the Government’s new Energy Bill to restore the necessary environment of stability and trust that will attract further investment. The significant increase in the Levy Control Framework (LCF) budget to £7.6bn is a step in the right direction. However, in order to satisfy investors looking to commit significant levels of capital to the UK energy sector, further questions around the implementation of the LCF need to be addressed.

“The inability to commit to decarbonisation targets before 2016, on the other hand, is a let-down, and perhaps a sign of the continuing tensions within Government. With some policy-makers still seeing the expansion of gas plants as more critical to the country’s energy strategy, the prospect of a decarbonisation target is as uncertain as ever”.

The onshore wind sector, in particular, seems to be bearing the brunt of stormy politics as conflicting messages about the level of government support continue to weaken investor confidence. The less than expected reduction in the number of Renewable Obligation Certificates (ROCs) for onshore wind has been undermined by ongoing consultations into the benefits of onshore wind farms, while destabilising statements from some ministerial quarters have added to the confusion.

Q3 also proved to be a trying time for the UK’s onshore wind manufacturing sector, with the announcement that a proposed £210m turbine factory in Hull will be further delayed until 2013.

Ben Warren added: “If the Government does want the UK to compete successfully and secure the increasingly scarce capital required to drag the UK energy market into the 21st century, it cannot afford the personal agendas of Ministers to get in the way.”

Offshore wind, however, fared better in Q3. Permission was sought for the world’s largest wind project, totalling 1.5GW of offshore wind capacity in the Moray Firth off the Scottish coast, under Round Three of the UK’s offshore licensing process. In the same period, the Crown Estate awarded licenses for sites off Northern Ireland, including a 600MW wind project.

Despite encouraging signs in the offshore wind sector, ongoing uncertainty over the future of onshore wind, combined with wider policy uncertainty over the future of renewables in the UK, has resulted in a two point drop in the wind index, taking it to 5th place in the technology-specific ranking.
Solar consultation on support levels

While the UK’s solar index score remains unchanged pending the results of a consultation, which recommends cutting support for large solar projects, the proposed reductions published by the Government are expected to galvanise solar developers. A rush to complete projects before the phased subsidy cuts begin is expected, as developers seek to escape the proposed reduction to 1.5ROCs/MWh from April 2013 with further cuts thereafter, down from the current 2ROCs/MWh. The cuts are a response to higher than expected demand for large solar projects, signalling the Government’s determination to prevent an unsustainable solar boom.

The latest indices include Saudi Arabia and United Arab Emirates (UAE) for the first time, reflecting the growing presence of the Middle East within the clean energy market, with the UAE ranked 35th in the index, two places above Saudi Arabia. The roll-out of solar initiatives has already started in the UAE, placing it over Saudi Arabia in the solar index, while in the longer term Saudi Arabia may overtake — based on the sheer scale of ambition and the abundance of natural resource.

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