In the political furnace of Brexit negotiations, the government has to balance potential collateral damage to trade relations with a realistic plan for energy production.
In 2015 the percentage of energy coming from renewable and waste sources (such as wind, hydro power and biomass) had risen to 9%, but it’s unlikely the UK will be able to increase this to 15% by 2020.
The government will likely want to revise the target, however the EU has explicitly stated that the UK will not be able to ‘pick and choose’ which aspects of EU policy it adopts.
Alongside the EU Energy Efficiency Directive, the UK’s energy sector also has to contend with a whole host of other regulations and agreements including the 2025 coal pledge, the fifth Carbon Budget and the COP21 Paris Agreement.
Trends like advances in energy storage, increased focus on renewable heat and the rise of electric vehicles, supported by favourable tax rates, are also changing the sector’s dynamics.
One of the main challenges for the sector is the fact that feed-in-tariffs have been cut drastically in the last five years. Without this incentive companies and individuals will not invest at the same levels.
The government needs to provide clarity on its renewable energy agenda sooner rather than later. As an island the UK has exposure to an array of sustainable energy production methods, however, these require high levels of funding.
The bulk of investment is currently coming from private institutions. Without the feed-in-tariffs to support revenues, renewables have become an inherently more risky investment for banks, and it is inhibiting them from financing projects. What was once fast paced growth in the sector has slowed down considerably.
Despite the overall fall in UK energy consumption (17% drop in use between 1998 and 2015) and the increasing use of renewable and waste sources, our reliance on imported energy has returned to the levels last seen in the mid-to-late 1970s. Unless more funding or subsidies are forthcoming, the UK will have to continue to purchase the majority of its power from Europe.
Pre-Brexit, an international power grid has been gradually developing, using power interconnections to trade surplus energy across national electricity networks.
The UK has already plugged into the network through interconnectors to Ireland, Belgium, the Netherlands and France.
Drilling has started to connect Norway to Blyth in Northumberland and there is a proposal to connect Britain to Iceland’s abundant supply of geothermal and hydroelectric power using a subsea cable.
These developments create opportunities for renewable energy businesses, but government inaction is making it difficult for businesses and the UK public to grasp the positives.
We’re working closely with our clients to navigate the unprecedented level of uncertainty in the renewable energy market, assessing the impact of the various possible Brexit scenarios.
For example, when it comes to tariffs and duties the worst case scenario for the UK would be failing to secure a trade agreement, and being forced to operate under World Trade Organisation regulations.
However, the government has now announced its wish to operate under a temporary free trade agreement for two years. Our advice of course depends on a company’s specific operations and activities but this is one key area to consider. We are helping clients prepare for any eventuality and what different UK trade deals would mean to them.
It’s a challenging and uncertain time for renewable businesses, but there’s a huge power demand for the future, and a current lack of capacity.
We believe renewables’ role in bridging this gap will continue to grow in importance and with more clarity from government, our UK businesses can prosper.
Photo by ThinkGeoEnergy