The UK is on a path of transformational change in its energy supply, distribution and demand management. The 2020 government target to provide 15% of the UK’s energy from renewable sources has provided a measure of progress for a rapidly growing industry. While it appears that the UK will fail to meet that target, significant progress looks set to continue.
Last year more than half of Europe’s offshore wind was built in UK waters and the country is a clear world leader. RPS has worked in all three development rounds of the UK’s wind power expansion programme, witnessing rapid technical and commercial evolution. Thirteen projects from the first round, which opened in 2001, are now operational with a combined capacity of around 1GW. To date, applications have been submitted for more than 26GW of projects in the third round, which opened in 2010. That is formidable growth in a decade.
As scale increases, costs are falling. In the last contracts for difference auction last September, the lowest strike price for offshore wind power was £57.50 per megawatt hour, dramatically below the 2014 average of £150/MWh. A subsidy-free point cannot be far away. The upcoming further leasing round by the Crown Estate can facilitate further UK growth and opportunities to apply the expert knowledge built up by UK consultancies.
It is tempting to speculate that had policy changes in 2015 not halted development of onshore wind, this would have been the first major renewable technology to reach the subsidy-free ‘sweet spot’. It had shown great potential and as a result the market matured quickly. But the likelihood of seeing onshore wind at scale in England seems unlikely, given the continued emphasis on the need for community backing and the 2016 removal of onshore wind from the Planning Act 2008 regime.
There is a glimmer of hope – mature operational projects are looking to repower using more efficient turbines on sites already tested through planning.
Five years ago solar energy looked like a gold rush, and many parts of the UK saw large-scale solar being developed. Initially high construction costs were balanced by subsidies and the returns attracted huge interest from developers and investors. RPS was involved in more than 400MW of solar between 2012 and 2016, before the reduction of subsidies stymied growth.
Unlike onshore wind, subsidy removals were not coupled with policy barriers. The cost of solar fell more rapidly than expected and we are seeing enquiries regarding large-scale solar, including projects needing a development consent order. At this scale the market seems confident, with developers working to be ‘shovel ready’ on large projects when costs fall further still. What is interesting is whether the intention of removing subsidies was to create solar ‘mega-schemes’ or whether this was an unintended consequence.
Since 2016 we have seen schemes designed to better manage generation, such as battery storage and diesel- and gas-fired peaking plants providing resilience to the national grid during high demand. Broadly, these schemes come under the banner of ‘decentralised energy’, a market involving the ‘big 6’ utilities as well as many smaller players. This activity is clearly market-instrument driven, alongside the regulated shutdown of coal generation, the failure of a market for baseload or two-shift gas-fired generation, and demand management.
Consents can be straightforward but competition for grid capacity and the need for network upgrades presents challenges.
RPS expects to see continued growth in the renewables sector in the next ten years. The achievements to date and rapid growth of UK renewable energy stands us in excellent stead. Consistent and supportive policy at national level will be key to this, along with transparent and reliable timelines for subsidies and phased withdrawal as technology matures. With the right policy framework, subsidy-free generation could become a more common reality in the post 2020 world.
This article is from the ENDS environmental consultancy market review 2018, a special report sponsored by RPS. Download the full report here or read other articles from the report online: