HM Insights

Renewables Trump the naysayers as momentum swings in Scotland

Trump & Tusk may sound like an elephantine law firm but those are two names that no-one will forget from a year in which the world really pushed on with the development of renewable energy. Donald and Elon respectively made significant interjections on the future of the planet's energy requirements, but it was the latter who had the last say. Speaking as a renewables lawyer (and, of course, an inhabitant of this planet) I can only say thank goodness.

Firmly in the mainstream

The previous year had seen the necessary ratification of the agreement reached at the Paris Climate Change Conference in December 2015 and countries such as China and India increasingly used renewables to power growth while others focused on solar pv development and new leaders, as in France, brought forward a stronger renewables agenda.

Large companies increasingly met their electricity needs by acquiring renewable energy via Power Purchase Agreement (PPA) deals and Google became the first large company to announce that its operations were now powered 100% by renewable energy.

Closer to home, the world's first floating offshore wind farm was commissioned off the coast of Peterhead, two Maygen turbines in the Pentland Firth set a world record for monthly production from a tidal stream power station, Scotrenewables announced it had achieved 1GW of power generation from its tidal device at EMEC in Orkney, Forest Enterprise Scotland revealed that Scotland's national forest estate now contains more than 1GW of renewable energy capacity following a programme of hydro and wind farm development and the Scottish government announced plans for a not-for-profit, publicly owned energy company to try and cut energy bills for consumers.

Renewables has become more mainstream with the growth of work in the secondary market and refinancing of renewable projects – in addition to our work for Forest Enterprise, one of our busiest areas in 2017 has been the acquisition and disposal of completed or consented wind farms for funds and acquisitive developers.

The Green Genie v The Donald

The year had not started promisingly. The first significant event for world renewables was the election of President Trump and the Paris Accord was thrown on its head when he indicated he would reverse the Obama administration's approval – and this he duly did, with the US withdrawing from the Accord in June 2017. But how much of an impact did this actually have?

Around 70% of US carbon emissions are controlled at state level and the US Climate Alliance (a grouping of various states) has pledged to meet the CO2 cuts in the Obama Clean Power Plan. As one investor commented after the June withdrawal, this would have been "a disaster" if the US announcement had come five years ago "but now the landscape has changed" and "Trump can't put the green genie back in the bottle".

Closer to home

The Scottish government had kicked off 2017 with their draft energy strategy focusing on a whole-system view (an integrated approach to heat, power and transport), a long-term plan for energy transition through to 2050 and a smarter model of local energy provision. It also included a 50% all-energy target by 2030.

In November the analysis of consultation responses showed those responding to be broadly supportive of the proposals and progress towards implementation is now expected imminently.

In the interim, fracking had been rejected in October. Following on from the decision to have no new nuclear plants in Scotland and the closure of the Longannet and Cockenzie power plants, it brought renewables firmly to the forefront of Scottish energy strategy.

Meantime, installed renewable capacity in Scotland has continued to increase. Figures from Scottish renewables show that: 9,309MW were installed by the end of Q1 2017; renewables delivered the equivalent of 54% of Scotland's gross electricity consumption in 2016; and the sector was now 2.5 times bigger than it was at the end of 2008.

Old King Coal usurped – but onshore wind thwarted

According to National Grid, between 21 June and 22 September 2017, the carbon intensity of the grid was more than halved from its level four years ago and renewables had moved from being part of the mix to "often being a significant, majority part of the mix".

Part of this arose from the demise of coal. For 24 hours on 21 April 2017, National Grid supplied the GB electricity demand without the need for coal generation and in July 2017 coal generation fell to a record monthly low, just 2% of the energy total. By October, the UK government's Clean Growth Strategy included the shut-down of all coal plants by 2025. As the Guardian reported on 16 October 2017, "the war on coal is over. Coal lost".

Onshore wind development has, however, reached a hiatus. With the closure of the Renewable Obligation in March 2017 - save for the projects which have 2018 grace periods, will be built under Round One Contract for Difference (CfD) awards or are otherwise being completed - there is limited new-build expected before 2020.

The Conservative Party's pre-election manifesto said that while they did not believe more onshore wind was right for England (leaving the position open for Scotland), they would maintain Britain's position as a global leader in offshore wind and support the development of wind projects in the remote islands of Scotland. But in the Scottish version of the manifesto, by slip or otherwise, the statement was repeated save for saying that the party did not believe more onshore wind was right for Scotland. That seemed to keep the door shut on subsidy and leave the Scottish Government to find a route to market for its key renewable technology as part of its strategy and planning review.

In September 2017, the results of the 2nd CfD Round (from which onshore wind and solar had been excluded) were issued with offshore wind being the big winner (including the Moray Offshore wind farm) at a considerable reduction in costs, prompting the not usually pro-renewables Telegraph to declare "Rise of offshore wind power leaves the doubters out in the cold" and "Green power to energise British industrial growth". The result did, however, leave wave and tidal out in the cold, unable to compete on cost and wondering whether the efforts of Wave Energy Scotland would be sufficient to help the marine industry through the R&D phases.

A third CfD Round was announced for Spring 2019 with the Scottish remote islands eligible for inclusion for the first time but with some commentators wondering whether offshore wind should by that stage still count as a "less-established" technology requiring support and, if cost-reduction was the name of the game, why the cheapest technologies – onshore wind and solar pv – should still be excluded?

Battery powering towards subsidy free renewables

In October the UK government brought forward their own energy strategy – termed the UK Clean Growth Strategy. It concentrated on Green Finance capabilities, energy efficiency, bringing Carbon Capture and Storage back in from the cold, heat networks, low carbon transport, smart systems, the phasing out of coal, delivering Hinkley C and securing a competitive price for future nuclear projects and improving the route to market for renewable technologies such as offshore wind. Significantly, however, neither onshore wind nor solar/pv were mentioned.

Coming close on its heels was the Cost of Energy Review, authored by Dieter Helm. His main findings were that the cost of energy was too high and that UK energy policy, regulation and market design were not fit for the purposes of the emerging low-carbon energy market. Helm argued that the most efficient way forward is to set a universal carbon price (i.e. one set across the whole economy and not just electricity) and run what he calls unified Equivalent Firm Power Capacity Auctions.

So, given the cuts in subsidy support, how close are we to subsidy-free renewables in Britain? Solar pv is seen as getting closer but PPA contracts are still required to bridge the gap between costs and discounted value of revenues.

One recent estimate indicated there could be subsidy-free onshore and solar installed by 2025 and subsidy-free offshore by 2030 but that still means some fallow years if there is no support in the interim.

It is therefore vital for onshore wind in Scotland to see what the Scottish government strategy can deliver in respect of the planning system and, particularly, repowering and higher tip-heights and therefore more powerful and profitable turbines. It also means that new sites which have any exceptional cost-sensitivities - whether in respect of access, grid, woodland costs or others - may find it difficult to be viable.

One consequence of the rise of renewables is that it increases the demand for flexibility on the grid as baseload generation diminishes. Battery storage is seen as the main way of dealing with this. In 2016, on the basis of Enhanced Frequency Response, the National Grid procured 200 mega watts of capacity at an average price of £9mw/ha and developers of this technology are looking for more and bigger auctions to boost this growing industry as battery costs reduce and the number of hours of electricity that can be stored increases.

And that's where Elon Musk comes in.

As the year ended we perhaps saw a glimpse of the future as the South African-born polymath and his company Tesla delivered the world's biggest battery to help ease energy supply issues in South Australia.