‘Realistic budget and sustainable prices’ at CfD auction needed for private investment in solar

By setting a “realistic budget and more sustainable prices” for renewable electricity in the upcoming Contracts for Difference (CfD) auction, the UK Government could bolster private investment within solar, RenewableUK said.

As detailed within the firm’s recent report – 'Retaining the UK’s leadership in renewables – recalibrating policy in the midst of an energy crisis and increasing global competition' – without support from the UK Government, the nation could lose private investment to other countries currently facilitating investment within the clean energy sector.

Private investment is crucial in boosting the UK’s clean energy sector. But ongoing issues such as inflation and increased costs of labour have left the UK at risk of losing investors to the EU and US, both of which provide packages for renewable investment. This had similarly been raised by Energy UK.

RenewableUK detailed that the UK has a limited number of tax incentives for renewable energy investment, which is a stark contrast to those seen for the oil and gas industry. The Inflation Reduction Act (IRA) in the US includes tax incentives, grants, loans and other programmes to support clean energy development, manufacturing and supply chains. This “healthy” investment scenario in the US means the UK could lose out on private investment.

Other issues plaguing the UK low carbon generation market include interest rates, supply chain difficulties, increased competition, systemic regulatory uncertainty and lengthy delays to planning and grid connections, which currently are holding back projects from being developed quickly.

RenewableUK laid out recommendations in its report to help make the UK clean energy market more attractive for private investors.

This included streamlining planning processes and ensuring planning authorities are adequately resourced to ensure key infrastructure projects can move quickly. For this to be achieved, there is a necessity to solve grid connection delays. RenewableUK has thus called on the government to speed up the scale of investment in the UK’s grid to allow rapid development of renewable projects.

Further recommendations called for new tax incentives to be established and a reformation of capital, setting sustainable prices for renewable electricity in the CfD Auction Round 5 alongside a reform of the scheme to maximise investment in projects, enable the development of future renewable pipelines and support supply chain investment.

The government must also look to increase investment in key infrastructure such as ports through new mechanisms that unlock private investment. RenewableUK disclosed that revenue guarantees could be such measure.

The final recommendations called for an evolution of market framework and a simplified system for grid changes to address the increasing impacts of transmission charging on some renewable energy projects. This has been dampening investment according to RenewableUK.

“We’re urging the Chancellor to look carefully at the recommendations set out in this report ahead of his Spring Budget, as the renewable energy sector is facing a perfect storm this year, with inflation squeezing out already tight profit margins, and fierce international competition for investment, skills and supply chains,” said RenewableUK’s executive director of policy Ana Musat.

“The US and the EU are in a race to offer incentives to clean energy investors, and the UK cannot take its leadership position for granted. A combination of fiscal measures and smart regulation will create a business environment which can boost Britain’s energy security, reduce consumers bills and tackle climate change at scale, enabling us to reach our net zero goal as fast as possible.”