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Green Bubble Bursts: Investors In Wind Power Get Cold Feet

The UK’s energy market white paper is too vague to encourage green investment – Funding for wind farms slowing down due to low average wind speeds which are depressing rates of return.

NIALL Stuart had been hoping that investment in renewable energy projects would begin flowing after the UK government published its white paper on energy market reform.

Green energy supporters believed it would provide a clear framework for investors by setting guidelines on pricing and the returns they might expect.

Instead, the chief executive of Scottish Renewables was hit by news that a fund specialising in low carbon energy had postponed a fundraising because it could not attract the capital it needed, as it became apparent that investors did not believe the government had provided the clarity it promised.

Stuart said the 380-page white paper simply didn’t provide enough details of how the future energy market would operate and had therefore failed to end the uncertainty about the role of renewables and the tariffs they would attract.

The white paper was published earlier this month, and within days Climate Change Capital postponed raising finance to buy a £61.3 million stake in a Scottish wind farm due to what it called “difficult market conditions”.

The firm, which specialises in funding low carbon projects, said it would consider withdrawing from other projects associated with the fundraising effort, even though it believes wind power is an “excellent area” for investment.

A Climate Change Capital spokesman said: “It’s a difficult market but our decision has nothing to do with the wind industry.

“It is an area we will continue to explore and look to support and develop, as we see it as a vital area for the UK future economy and future energy supply.”

Although the seller, Scottish and Southern Energy, said the incident would not affect its plans to invest £1.7 billion in its infrastructure in the current year, ultimately the large electricity firms will invest more in renewables if they can sell some of their existing developments to generate new capital.

Stuart said: “Renewable energy is one of the few growth areas for capital investment. However, electricity market reform and speculation over the Renewables Obligation banding review has created uncertainty around future returns on investment and impacted on investor confidence.”

“There are also no guarantees that reform of transmission charging will create a more favourable financial framework for investment in Scotland as we had hoped.”

The Renewables Obligation has so far been the main support scheme for renewable electricity projects in the UK. It places an obligation on suppliers to source an increasing proportion of their electricity from renewable sources and provides levels of support for different technologies.

The levels of support are reviewed regularly and the UK government is currently consulting on the support for 2013-17.

Meanwhile, electricity market reform seeks to provide a carbon price floor, set emissions standards and introduce long-term contracts for suppliers.

Nathan Goode, head of energy and sustainability at Grant Thornton, said it was not surprising that investors found it all too complicated. “We are finding deals difficult to get at the moment,” he said.

That was partly due to regulatory uncertainty, he said, but funding for wind farms was also being impacted by low average wind speeds over the last couple of years, which has depressed rates of return on existing projects.

“It all gets a bit complicated for investors. It makes it harder to see what returns they can get,” he said. “I can see why investors, especially those new to the sector, will wait and see how it works out.

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