Out-Law Analysis | 30 Nov 2015 | 1:18 pm | 7 min. read
Currently, the US and China are the world’s top producers of renewable energy, with China’s five-year outlook for additional wind and solar installation set to double that of the US. India and Brazil have also been rising up the global ranks, with abundant natural resources and supportive governments. India’s government in particular has been strongly behind a transition to renewable energy production, with ambitious targets and large inflows of foreign investment.
In Europe, the market for renewables slowed last year as governments faced the challenges of a maturing market and the impact of austerity measures. Germany remains the strongest European player with the world’s largest installed solar capacity, but it has recently experienced a drop in new installed capacity and issues with a new auction regime. Italy and Spain, along with the UK, are facing more challenging conditions for new development due to regulatory intervention.
France, after a few years of uncertainty as long-awaited legislation stalled, is now catching up with its neighbours and seeing strong transactional and financial activity. Turkey is also starting to capitalise on its geographic location as a hub between Chinese producers and European consumers and its need for energy security.
In this special series of forward-looking articles, renewable energy experts at Pinsent Masons, the law firm behind Out-Law.com, outline the current status of, and challenges and opportunities for, the development of renewable energy resources in Europe. You can also find out about developments in Asia Pacific, the Middle East and Australia in this companion piece.
What is the current status of the UK’s renewables market?
The UK renewables market experienced rapid growth over the last 10 years with a strong pipeline of onshore wind projects, together with a developing offshore wind market which now ranks as number one on EY's Renewable Energy Country Attractiveness Index. There has also been rapid growth in solar, due to various subsidy and support mechanisms which have encouraged domestic and ground-mount solar developments in such scale that the UK has been the leading solar market in Europe for the last two years.
Since the May 2015 general election, a number of policy-related announcements have been made which have impacted project development and dented investor confidence in the UK's renewables industry. In addition to the early closure of the renewables obligation (RO) to onshore wind by 1 April 2016, the government is also proposing to close the RO to small-scale solar by 1 April 2016 and radically review the feed-in tariff (FiT) scheme, which is the main support mechanism for small-scale renewables. The government has alsodelayed decisions on the future of the Contracts for Difference (CfD) auctions and has removed the renewable technologies exemption from the Climate Change Levy (CCL), which will have an economic impact on renewable project revenues.
There is currently over 8GW of onshore wind in operation in the UK, with 2GW in construction and possibly a further 3GW added in the next few years. UK offshore wind capacity has reached 5GW, with over 7GW consented for in 2014/15 and a further 5GW in the planning system as of June 2015. Solar deployment reached 8.1GW installed capacity at the end of March 2015 and is projected to reach 11GW in 2016.
What does the future hold for renewables in the UK?
The UK renewables market is going through a period of readjustment following recent policy announcements, and the government’s stated aim of reducing subsidy available to renewable energy projects. This new direction in policy will inevitably see some realignment in the market as developers, financiers and investors seek to make the 'cut' under soon to be closed support mechanisms while other developers, utilities and investors will take a longer-term view on the market and plan for the future in a 'less subsidy' or 'subsidy-free' world. Any mature market will have winners and losers when significant change comes, but it is anticipated that renewables will still make an important contribution to the UK generation mix.
There will inevitably be a rush to push projects through before existing subsidy mechanisms close and this will produce a strong pipeline of developer, finance and re-finance work. Longer term opportunities are a little difficult to predict at this stage, but offshore wind is expected to maintain a strong pipeline of work with refinancing and M&A for operational portfolios expected to be strong in the mid-term.
What is the current status of France’s renewables market?
Renewable energy in France has, for a number of years, been at the heart of debates over the future of the country’s long-term energy policy. Now, after years of uncertainty as long-awaited legislation stalled, France is finally playing catch-up with its neighbours and is seeing strong activity.
Adopted on 17 August 2015, the French Law on Energy Transition for Green Growth (Loi relative à la transition énergétique pour la croissance verte) paves the way for energy transition in France. In accordance with the new law, France intends to increase its share of renewable energy while gradually replacing nuclear and fossil fuels.
Currently, renewable energy in France is mainly represented by hydro-electric power, which has a 13% share of total energy consumption. In August 2015, France announced a call for tenders for 800MW of solar energy production, representing between 40 and 60 new projects.
What does the future hold for renewables in France?
The new Law on Energy Transition for Green Growth sets clear and specific medium and long-term goals as follows:
What is the current status of Germany’s renewables market?
Although Germany recently fell from 3rd to 4th place in EY’s Global Renewable Energy Country Attractiveness Index, prompted by a slowdown in capacity deployment, it remains at the forefront of the European renewables market. Installation of new capacity, particularly in solar and wind, has slowed in 2015 but still compares favourably to peers.
Germany’s renewables industry enjoys a high level of government support and political stability, although reactions to its new auction regime have been mixed with particular concerns raised over its shift to a tender process.
Renewable energy sources contributed to 26%, or the largest share, of Germany’s total electricity output in 2014, while its ‘Energiewende’ reform law targets 60% of energy from renewables sources by 2035 and exiting all nuclear by 2022. Germany currently has the highest solar capacity in the world, with 38.9GW installed as of June 2015 and a large-scale auction system for solar PV planned for 2017.
What does the future hold for renewables in Germany?
One of the main challenges currently facing Germany is upgrading the grid to cope with the ever-increasing amount of renewable sources. A huge number of high-voltage, long distance power lines are needed to transport energy produced in the north, mainly by wind power plants, to industrial energy consumers in the south and south-east. Bundesnetzagentur, the German Federal Grid Agency, has been planning these power lines for three years, but has recently decided to build around two-thirds of the new lines underground following objections by federal state governments and municipalities along the route. This will require new planning, resulting in massive delays and additional costs.
What is the current status of Turkey’s renewables market?
Turkey has been steadily rising in the EY Global Renewable Energy Country Attractiveness Index, where it is currently ranked at number 15. Energy supply and production remain hot topics of debate in Turkey, particularly because of the country’s critical location at the crossroads of various energy paths and its high dependence on foreign energy imports. Although renewable energy has not traditionally been an important aspect of Turkey’s energy policy, it has gradually gained more importance due to the recent focus on domestic energy production and the positive effect of the EU’s policies in the area.
An important development this year has been the $180 million fund, provided by the European Bank for Reconstruction and Development (EBRD), to Turkey’s Yapi Kredi Bank and Garanti Bank to finance private sector renewable energy projects. In parallel with international support for renewable energy production, the Turkish Ministry for Energy and Natural Resources incorporated plans to develop renewable energy production capacity in its Strategic Action Plan for 2015-2019.
Despite these positive developments, the Turkish government has been vigorously criticised for its endorsement of the use of domestic coal as part of the same Action Plan. In addition, highly debated plans to build two new nuclear plants in Turkey remain underway.
As of 2013, Turkey had over 22GW of hydro generation capacity, but only 2.76GW of installed wind generation and no installed solar projects.
What does the future hold for renewables in Turkey?
Around 30% of Turkey’s total energy generation capacity could come from renewable sources by 2023 and Turkey aims to increase its existing renewable energy capacity to 61GW by 2023 in support of this. This will be broken down into 34GW hydro, 20GW wind, 5GW solar, 1GW geothermal and 1GW biomass generation.
Given continued financial support from the EU and the Turkish government’s policy targets, it is clear that the renewables industry in Turkey will grow significantly over the coming years. In addition to production targets, certain subsidies that have been introduced for renewable sector investments have contributed to increased private sector engagement. It should also be noted that the Turkish Ministry for Energy and Natural Resources has adopted a goal to nearly double the value of power generation from renewable energy sources in comparison to 2012 levels. In order for Turkey to reach these targets, the government will have to introduce policies to increase investment into the industry.
Turkey’s growing population and demand for energy as well as its geographic potential make it a strategically important destination for the growth of renewables globally. If Turkey continues on its current trajectory with sustained EU support, it is clear that renewable energy will take a much more significant role in the country’s energy policies.
(Noyan Göksu and Irem Tümer)