The last few weeks have seen considerable action in the UK renewables sector, ranging from strong encouragement from the country’s coalition Government to deliver new renewables generation – especially offshore wind farms – to various announcements affecting the future of individual companies.
The long-awaited Comprehensive Spending Review (CSR) contained relatively few items relating specifically to renewables generation. The commitment remains, although there are some doubts about future subsidy levels and specifically the recently announced feed-in tariffs.
There was some disappointment about the progress made in establishing the long-promised Green Bank that had formed a key element of the incoming Government’s environmental policy. It is an open secret that there is serious disagreement within Whitehall about the role of the planned Green Bank, its capital arrangements and its lending structure. Furthermore, the definition of green investment is far from clear.
In the event, the Government has postponed any further decisions on the Green Bank until next spring – a decision that has not been welcomed by a sector keen to invest.
Furthermore, the modest £1 billion of capital that has been proposed looks pretty puny when set alongside the £200 billion energy investment programme identified by UK energy regulator Ofgem, much of which is renewables related.
Aside from these issues, most of the other action in the renewables sector has happened away from Westminster.
The pioneer of wind turbine manufacturing, Denmark-based Vestas, has announced that up to 3,000 jobs are to be lost, many of them in Denmark itself. Vestas is undoubtedly suffering from comparatively high costs when set against the cost of turbines produced in Asia, and especially in China.
At a time when there is a strong political drive to deliver more renewables generation, it seems curious that a company of Vestas’ status is actually cutting back – and closing factories in both Denmark and Sweden.
Perhaps not surprisingly, Vestas highlighted the difficulties of raising finance for investment in renewables generation as being a major concern. Clearly, post the credit crunch of 2008, obtaining the necessary finance is very challenging unless you are one of the leading European Union energy companies.
Rather oddly, the bad news from Vestas has been offset by other, far more positive, developments from other wind turbine manufacturers.
Two of the world’s leading turbine manufacturers, the US-based General Electric (GE) and Germany’s Siemens, have both announced plans to expand their production facilities in the UK.
GE is planning to build an offshore wind manufacturing plant which would create around 2,000 jobs. The Siemens’ investment is less expensive: it plans to build an £80 million turbine manufacturing plant on the UK’s east coast, which would bring some 700 jobs to this hard-pressed area.
Encouragingly, too, Spain’s Gamesa, which is a major supplier to Iberdrola Renovables, has confirmed that it will establish its global offshore wind headquarters in London. It plans to invest $210 million in the UK by 2014.
Nevertheless, even these three companies recognise that the investment environment is now less positive than it was at the peak of the enthusiasm for renewables generation.
It should be added that the renewables generation sector has also faced considerable problems in overseas markets. In particular, concerns about future subsidy levels have deterred potential investors. This trend has been especially difficult in Spain, where that country’s cash-strapped Government is planning substantial cuts in some payments, notably in the solar sector.
It has certainly been an eventful few weeks in terms of announcements, some of which have been very positive; others, like the Vestas decision to cut back its wind turbine production facilities, are undoubtedly negative.
Clearly, the next 18 months will be key.
Nigel Hawkins is a Director of Nigel Hawkins Associates, which specialises in investment and policy research.
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