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Energy policy uncertainty drives UK out of top five destinations for renewables projects

The UK has fallen out of the top five of Ernst and Young's influential quarterly renewable energy index for the first time.29 May 2012

The global analysts, who doubled the importance they allocated to current investment proportions and installed capacity for solar technology in their most recent report, ranked the UK in sixth place behind China, the US, Germany, India and Italy. The readjustment also affected the UK's position on the February index, reducing it from fifth to sixth place.

"The UK's solar sector received a blow following the Department of Energy and Climate Change's (DECC) proposals for another round of [feed-in tariff] cuts in the coming months," the report (44-page / 2.2MB PDF) explained. "However, the renewable energy sector as a whole, and offshore in particular, received a boost from plans to implement significant spending programs to improve the country's transmission infrastructure for renewable energy source (RES) projects."

The Government will introduce further cuts to the feed-in tariffs (FiTs) available to homeowners and businesses which generate their own electricity through small-scale solar photovoltaic (PV) equipment from 1 August. After this date, the tariffs for new installations will decrease on a three-month basis with pauses if the market slows down.

Energy law expert Nick Shenken of Pinsent Masons, the law firm behind, was not surprised by the report.

"There hasn't been much in the way of positive coverage since the Energy Bill was published and this is no exception," he said. "It is worth noting though that, aside from policy reasons, there are other potential contributing factors to the fall in the UK's position on the index - the re-weighting of the index to account for solar power's importance in the mix, for instance. Indices aside, however, the headlines we've been seeing more recently aren't going to go away until the Government is able to put more flesh on the bones of its electricity market reform (EMR) proposals."

Published last week, the Government's draft Energy Bill introduces a package of reforms which it has claimed will bring about the widest reforms of the electricity market since privatisation. The Bill proposes a new system of financial incentives designed to ensure that low-carbon forms of electricity generation can compete fairly in the marketplace, backed with a capacity market aimed to ensure that consumers continue to benefit from reliable electricity supplies at an affordable cost.

"There is a detectable sullenness in the tone of industry reports after each milestone in the EMR process, probably due to the fact that the industry expects much more clarity from each stage and is then largely disappointed," Shenken added.

Ernst and Young's Energy and Environmental Finance Leader Ben Warren said that "significant concern" that the Government was switching its focus towards natural gas as an alternative to renewables had been reflected in the report.

"The Electricity Market Reform needs to deliver the right framework to stimulate investment across all forms of energy generation, including renewables," he said. "The recently published draft Energy Bill is a welcomed step in the right direction and signals clear progress, however it is important we clarify certain aspects of the new regime ... in order to avoid uncertainty for investors."

The new Emissions Performance Standard (EPS) included in the Energy Bill will prevent the construction of any new coal-fired plants without the use of carbon capture and storage (CCS) technology, however at 450g of emissions per kilowatt hour (kWh) generated is above the amount typically emitted by new gas-fired power stations. DECC is currently running a competition to award a share of £1 billion funding to support the upfront costs of early CCS projects. Unlike a previous competition, which attracted no bids, entries are open to designs for power stations which burn gas as well as those which burn coal.

The report was, however, positive about future prospects for offshore wind in the UK following the opening of "the world's largest offshore wind farm" off the coast of Cumbria earlier this year. In addition, the country was "continuing to lead the way" in developing a commercial market for marine technology.

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