The UK’s renewable energy sector faces a critical challenge as rising global competition, especially from the US and EU, threatens to divert essential investments away from the country.
This concern, highlighted in Cornwall Insight’s recent report ‘Race to net zero: Rebuilding Investor confidence in the UK,’ points to the potential jeopardy of the nation’s net zero ambitions.
The report emphasises the impact of robust subsidy and policy schemes in other regions, notably the USA’s Inflation Reduction Act (IRA) and the EU’s Green Deal Industrial Plan (GDIP). These initiatives are making these areas more appealing for renewable energy investments, while the UK has done little to respond.
The IRA, for example, has already triggered a surge in green investments in the US, committing $369 billion to net zero technologies and infrastructure over a 10-year period.
This growing global competition for renewable investments could significantly impact the UK, which is already contending with economic challenges like inflation, supply chain issues, and labour shortages.
The UK Government has attempted to respond to this looming threat, such as announcing changes to the Contracts for Difference (CfD) scheme, although it is small fry in comparison to what’s on offer from the EU and USA, and could be argued as ‘too little too late’.
Changes to the CfD scheme were called for prior to the mixed results from the fifth Allocation Round (AR5), which saw decreased investment levels. In fact, the results from AR5 were disastrous for the Government’s offshore wind hopes, as it secured no new offshore wind at all.
Responding to AR5’s results, the Government plans to raise Administrative Strike Prices for AR6 in 2024. This move is intended to reinvigorate interest and competition in renewable energy projects.
However, uncertainties regarding the CfD scheme’s long-term viability and broader policy reforms remain. The government’s Review of Electricity Market Arrangements (REMA) aims to establish sustainable market structures for a decarbonised and cost-effective electricity system by 2035. Upcoming CfD rounds may feature modifications like separate pots for specific technology types and the inclusion of non-price factors such as Sustainable Industry Rewards (SIRs) in future allocations.
Jamie Maule, Research Analyst at Cornwall Insight, highlights the urgency of the situation. “The UK risks losing its edge as a desirable destination for renewable investment, facing significant setbacks in achieving net zero targets. The CfD scheme, once a beacon in global renewable energy investment, is now challenged by high capital costs and intense global competition. The UK must act decisively to rebuild investor confidence and maintain its progress towards net zero,” he asserts.
This analysis by Cornwall Insight serves as a wake-up call for the UK to take proactive and timely policy measures to bolster investor confidence in its renewable energy sector amidst fierce global competition.