RO early closure: Could this spell uncertain times for UK renewables?

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Summary: Secretary of State for Energy and Climate Change Amber Rudd confirmed last Thursday, 18 June 2015 that the RO will close to onshore wind, but now a year earlier than anticipated from 1 April 2016. The Secretary of State also confirmed that the planning rules will change to give local people the final say as regards whether a wind turbine will be located in their vicinity.

Secretary of State for Energy and Climate Change, Amber Rudd, confirmed last Thursday 18 June that the Renewables Obligation (RO) will close to onshore wind, but now a year earlier than anticipated from 1 April 2016. The Secretary of State also confirmed that the planning rules will change to give local people the final say as regards whether a wind turbine will be located in their vicinity.

In a wider signal to the onshore wind industry, the Secretary of State also confirmed that DECC will be using the “tools available to implement our manifesto commitments” to revise the CFD and FIT regime for onshore wind - potentially removing onshore wind from any further CFD allocation rounds.

What was previously seen as a medium to long term objective – the removal of subsidies from the energy market – has come to the fore a lot sooner than expected for onshore wind and follows on the heels of the closure of the RO to large scale solar in April this year. This was justified on the basis that even with an early RO closure, 12.35 GW of onshore wind under the RO and CFD will be deployed which puts the government in decent shape to meet the 2020 targets.

Investors may become concerned about knock on effects to the renewables industry. Yesterday’s announcement increases regulatory uncertainty in a sector which had been seen as having a relatively benign regulatory risk profile - and this could increase the cost of capital for the renewables industry generally, contrary to the intent of the CfD.

The Secretary of State also announced a grace period might apply for those onshore wind projects which as of 18 June 2015 already had planning consent, an accepted grid connection offer and evidence of land rights – A measure she felt drew the line in the right place and maintained investor certainty in the wider renewables sector.

Offshore wind is now the most likely winner from any remaining CFD auction rounds.

Nuclear - With clear support from government and an Administrative Strike Price under EMR (no complicated auctions here) - is now the wild card. Whether it gets off the ground is a different story.

You can read a more in-depth overview of the renewables market following the Secretary of State for Energy and Climate Change's statement on ending subsidies for onshore wind, first published on Lexis®PSL Environment on 13 July 2015.

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