U.K. Government Unveils Renewable Energy Expansion Strategy; Massive Wind Investment Planned

A Blueprint for Action

The U.K. government yesterday unveiled its plan of action to achieve the country's 15% renewable energy goal, as set down by the European Commission. At the centre of the plan is a massive expansion in renewable generation capacity, with a particular focus on developing wind energy. The plan envisages the construction of 7,000 new wind turbines in the country over the next 12 years, with 4,000 of these to be located off the coast and 3,000 on land. Altogether, renewable generation is expected to provide up to 35% of electricity by 2020. Announcing the plan, Prime Minister Gordon Brown set out a vision of transforming the North Sea into a global hub for wind energy, making the region "the equivalent for wind power of what the Gulf of Arabia is for the oil industry."

To achieve its ambitions for renewable power expansion, the government intends to boost financial incentives for such generation, extending and raising its existing support mechanism the renewable obligation (RO) and introducing either feed in tariffs or an enhanced RO scheme to encourage microgeneration. In addition, it laid out a number of other measures to spur renewable energy use:

• introducing new financial incentives for renewable heat use in homes and industry;
• removing grid connection barriers for renewable power, including new incentives for National Grid to build grid infrastructure;
• reducing planning consent barriers by providing stronger national guidance; and
• encouraging the use of biomass and food waste to generate energy.

But Challenges Remain

The release of the initial strategy, which will now be subject to a public consultation, has essentially seen the government set out in which sectors it plans to achieve the renewable energy growth necessary to meet the country's 2020 targets, and to list the mechanisms through which such growth may be achieved. Nevertheless, substantial challenges remain in actually realising this ambitious outlook.

Central among these challenges, will be the required expansion of the United Kingdom's power grid and the reform of access arrangements to facilitate the connection of substantial new renewable generation. At present, there remains a substantial backlog of renewable generation needing access to the system, indicating that existing procedures will be insufficient to accommodate the level of expansion anticipated by the renewables strategy. U.K. energy regulator Ofgem acknowledged the challenges in this area in the wake of the government's announcement, indicating in a statement that current rules were designed to connect large coal, gas, and nuclear power stations and that reform of the access rules will be necessary if the country is to achieve its renewables target.

Concerns have also been voiced over whether supply-chain constraints may hamper the intended renewables expansion. The United Kingdom currently has little wind turbine manufacturing capacity, and the rapid development of such an industry within a short space of time will be difficult. The country will also be competing with strong renewable energy expansion in other locations for international manufacturing capacity, suggesting that construction bottlenecks could be a key factor in achieving the roll out of a further 7,000 turbines in little over a decade.

Local objections also present a key risk, particularly in relation to the anticipated construction of 4,000 onshore turbines. The government acknowledged that visible changes to landscapes, towns, and cities as a result of the plan would be "inevitable", and has moved to streamline the planning process to ensure projects do not encounter undue delays. Still, objections are sure to be present at the local level, and prior experience has shown that such issues have the potential to cause substantial delays.

Lastly, the expected need for £100 billion in investment to fulfil the plan's aims raises questions as to who will fund the renewable energy expansion, and what the impact on consumers will be. The government has indicated that investment is expected to come from the private sector, with incentives provided by the government, largely through the RO scheme. Energy-price increases for households and businesses therefore seem inevitable as energy companies seek to raise cash to carry out such investments, with such news sure to be unwelcome for U.K. energy consumers, who have already had to bear substantial prices increases in the last 12 months.

Outlook and Implications

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