While the UK government’s recent decision to remove renewable energy sources from Climate Change Levy (CCL) exemption will generate around £490 million (approx. $767 million) by 2016 and up to £1 billion (approx. $1.5 billion) per year by 2020, the policy will have a negative impact on the country’s renewable sector, says an analyst with research and consulting firm GlobalData.
According to Prasad Tanikella, GlobalData’s Senior Analyst covering Power, the renewable energy sector may suffer in the next few years, but decreasing costs will mean that it will continue to grow in the long term.
Tanikella explains: “In the short term, the government’s latest move to phase out the Renewables Obligation and impose CCL on renewables will certainly discourage investment in the sector.
“However, it is expected that ending the levy exemption will generate around £490 million during 2015-2016 for the government, increasing to £1 billion in 2020-2021.”
The analyst adds that the UK’s wind sector is expected to be the worst affected, although the new measures will not have a substantially detrimental impact on offshore wind installations, which GlobalData has forecast to reach 23.2 Gigawatts (GW) by 2025.
Tanikella continues: “UK wind power currently has a pipeline of over 43 GW, around 12.5 GW of which is onshore and the remainder is offshore wind.
“The UK’s current offshore wind capacity is around 4.5 GW and over 1 GW is expected to come online this year. Even in current circumstances, it is anticipated that the country will add around 1 GW each year over the next five years.”
GlobalData believes that other renewable technologies with high capital costs, such as biopower, could also be affected, while subsidies for solar power are currently under review.
“The Department of Energy and Climate Change is considering closing subsidies for some small-scale solar farms by 2016. The government’s decision to abruptly discontinue subsidies will dent investor confidence and slow down investments in the industry,” the analyst concludes.