Investing in the Green Economy in the UK Deborah Sacks deborah.sacks@trade.gsi.gov.uk March 2017 2 Presentation title - edit in the Master slide
UK Market Overview Population England 54.79 million Scotland 5.37 million Wales 3.10 million Northern Ireland 1.85 million UK Total 65.14 million GDP £471,000 million equivalent to CAD 780,710 million Strong Track Record: The UK remains one of the major global locations for international companies seeking to establish and grow their HQs. According to the EY UK attractiveness survey 2016, the UK has a 53% market share of headquarters investments across Europe. 3
Doing business in the UK: Uniquely among Europe’s major Every year, the World Bank economies, the UK is the only country ranks the ease of doing whose labour force is expected to grow business globally. The 2017 over the next 15 years. rankings are based on the average of the economy’s The UK has the highest percentage of rankings on 10 topics: adults with tertiary education in Western Starting a business Europe Dealing with construction The UK has the lowest rate of permits Getting electricity corporation tax in Europe and the G7 Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Resolving insolvency 4
Reasons to invest in UK renewable energy A mature market for wind and solar PV, with attractive, stable, long term subsidies for operating assets . • Operating wind and solar generating assets benefit from inflation-linked, Government-backed revenue stream* in the form of: • a feed in tariff (“FIT”) grandfathered for 20 years; or • tradable certificates (“ROCs”) grandfathered for 15 years; or • a Contract for Difference (“ CfD ”) awarded to successful bidders in a 2015 auction for a term of 15 years. • Returns on these types of projects are decoupled from the ups and downs of the financial markets, and considered by many institutional investors to be far better than government bonds. • In the past 12 months there has been a significant increase in secondary market sales activity, consolidation of ownership of smaller operating assets into larger portfolios and optimisation of the operation of such assets to generate returns in excess of other infrastructure assets (an unlevered IRR of 6-9% net is typical). 5
What impact could BREXIT have? In general, the impact on investment in energy and infrastructure should be much less than on some other sectors • As an island economy, UK infrastructure mostly caters to the domestic market and is therefore largely unaffected by cross-border considerations with the EU • The enormous need for new infrastructure in the UK remains regardless of BREXIT, especially given a growing population (unlike many other EU countries) • UK energy and infrastructure assets are generally regulated by UK, not EU, agencies • The UK has its own currency and was never part of the Eurozone • The E&Y attractiveness index for inward investment into the UK ranks EU membership at only 7th in the top 10 reasons for investing in the UK 6
UK Renewable Energy Targets The Climate Change Act 2008 sets out UK policy : Targets are • to meet 15% of energy needs from renewable sources by 2020. • to reduce emissions by at least 80% of 1990 levels by 2050. • to generate 30% of electricity from wind, solar and other low-carbon sources by 2020 • to generate 12% of heating energy from renewable sources by 202 • 10% of transport fuels to come from renewable sources by 2020 Annual support for renewables is expected to double during this Parliament to more than £10 billion: There is £730m of funding for renewables (in particular for less established technologies including offshore wind) through the Contracts for Difference mechanism 7
UK Energy Market Overview The energy mix in the UK is undergoing fundamental changes in the coming years, with coal power stations closing, renewables growing and new nuclear coming on stream: Low carbon energy accounted for 50% of electricity generation in the UK by the end of 2016 (77% in Scotland). 8
UK Carbon Emissions UK emissions were 37% below 1990 levels in 2015. However, current projections show that the UK will exceed its carbon budget in the period 2023-2027 2008-12 2013-17 2018-22 2023-27 2028-32 9
UK Renewable Energy The priorities in the UK are mainly • Off-shore wind • Biomass, Biofuels and Energy from Waste • Heat Networks There is also activity in solar and hydro including tidal stream and tidal lagoon. Average annual domestic electricity bill (£) 590 There is an on-going 580 debate about the 570 560 affordability of energy in the 550 540 UK, since domestic bills 530 520 have increased significantly 510 500 in recent years. 490 480 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 10
UK electricity networks All UK electricity network assets are privately owned and regulated by an independent economic regulator • Electricity transmission networks are high voltage 110kv and upwards electricity transmission cables which send electricity over long distances. • Electricity distribution networks are lower voltage electricity cables which send electricity over short distances. The transmission network works on a national basis and the distribution networks on a regional basis. There are 3 transmission networks in the UK and there are 14 regional electricity distribution companies. • Regulation is carried out by the independent economic regulator Ofgem . • Ofgem sets revenues for transmission networks for 8 year periods through an iterative ex ante business plan review process. • The regulator has specific responsibilities and powers which are set out in law, these enshrine the regulators independence and reduces political risk. • There are different regulatory regimes for each new type of electricity network: • Offshore Transmission Operators (known as “ OFTO ”), • Competitively Allocated Transmission Operators (known as “ CATO ”), • electricity interconnectors; and • the traditional monopoly transmission network (operated by National Grid). 11
UK off-shore wind New offshore wind projects are eligible to bid in early 2017 for a Contract for difference ( CfD ): • This is a 15-year contract under which a generator is paid the difference between the market price and the “strike price”, indexed against inflation, for the term of the CfD commencing from commissioning ( see the Electricity Markets Reform section of www.gov.uk for further information ). • CfD strike prices for offshore wind in earlier auctions cleared at £119 MWh for commissioning 2017/18 and £114 MW/h for commissioning 2018/19 as against a cap set prior to the auction of £140 MWh. • The UK Government has announced that the strike price for offshore wind in next CfD auction (to be held in early 2017 for commissioning in 2020/21) will be capped at £105/MWh Bids are expected to be significantly lower than the cap (perhaps as low as the 2026 target of £85/MWh 12
Energy Storage A key challenge is delivering flexibility, not just capacity . In 2016 the National Infrastructure Commission recognised the importance of both storage (e.g. battery, air compression, pumped hydro and other new technologies) and interconnectors to creating a more flexible network, improving security of supply and reducing cost to the consumer, particularly as more intermittent generation comes on-line. The UK Government and the UK Government supports the delivery of storage to the system through, amongst other things, the auction of long term contracts for capacity volumes. 13
UK Waste Market Overview The market is being driven by… • Landfill tax – now £84 (CAD134) per tonne for biodegradable waste • Increasing recognition of the role of resource efficiency and the circular economy • The need for more anaerobic digestion (AD) of food and farm waste, better systems for obtaining high quality feedstock and advanced technologies (gasification and pyrolysis) and energy from waste with combined heat and power (CHP). Through… • Initial public sector-led investment in strategic facilities • Improved understanding of waste flows and the quantities and types of material available for a range of treatment types • Consistent regulation. 14
UK Market Overview Opportunities exist in… • Innovative collection systems to preserve the quality of waste material • Obtaining value from recyclate • Re-processing of recyclate and waste streams to bring about the use of waste materials in new products • Efficient treatment of residual waste to quality as an energy source • Demonstrated by… • Increases in recycling and treatment rates • The development of reprocessing facilities for waste materials at all stages of the waste hierarchy • Growing involvement in the sector by a wider range of companies in the renewable energy sector 15
Waste management in the UK Other; 24 716 C&I; 47 Households; 567 27 506 Construction ; 100 230 Waste generation split by economic activity Composition of Municipal Waste 16
Destinations of waste derived fuel products from the UK from January 2014 to September 2014 17
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