United Kingdom

United Kingdom

UK energy minister promises to deliver investor "confidence"

Siemens offers qualified support, but crucial details still unclear

Legislation designed to provide investors in new low-carbon energy generation, including offshore wind projects, with "precisely the confidence they seek" about the price they will receive for their power has been presented to the UK parliament today by energy minister, Ed Davey.

The contents of the energy bill represent the "biggest transformation" in the UK’s electricity market since its privatisation in the late 1980s, he said.

There were no surprises for the offshore wind industry in Davey’s statement to parliament. Developers will have to wait until at least mid-2013 to learn what the strike price will be for offshore wind, giving them time to make their case – once again – to government.

Last week’s announcement detailing a tripling in the funding that the UK government will make available to support new low-carbon generation to 2020 - £7.6bn – remains the biggest and best news in recent weeks for offshore wind developers.

But the government's failure to pair this jump in low-carbon funding with a binding target to decarbonise the country’s electricity market by 2030 has prompted some to suggest that offshore turbine manufacturers, such as Siemens, will decide not to build production facilities in the UK after all, fearing that demand for their machines will drop toward at the end of this decade.

Some MPs plan to propose an amendment to the bill in the new year designed to re-introduce the idea of one or a series of decarbonisation targets.

The UK Department of Energy and Climate Change (Decc) has confirmed that the process of applying for incoming feed-in tariffs based on contracts for difference (CfDs) will be a two-stage process. Projects will apply for a CfD "once they have cleared meaningful hurdles", such as planning permission and securing a grid connection agreement. The CfD will be finalised once a "small number" of additional steps are completed.

Qualified support from Siemens

As the dominant supplier of offshore wind turbines in Europe, Siemens’ reaction to the energy bill is crucial. Its initial statement was largely positive, praising the draft legislation for addressing "some of the key issues that have previously created uncertainty in the market".

But the manufacturer is clearly frustrated that a decision about whether to set a 2030 decarbonisation target has been delayed until 2016, describing it as "a long time to wait".

Making no promises, Siemens nevertheless referred openly in its statement to its negotiations to establish a production facility at Hull. These are "on track", it said, adding that its priorities are to "conclude the current planning process as well as …discussions with [port owner] ABP, Government and most importantly our customers".

Siemens has a framework contract to supply 300 6MW turbines for Dong’s UK offshore pipeline, but as yet it has announced no other UK orders for its new offshore-specific direct drive machine.

Reacting to the energy bill, the Confederation of British Industry (CBI) urged the government to shore up investor confidence by passing the legislation quickly. "It will be crucial for investors to see the momentum kept up in Parliament so that the Bill can get onto the statute books as quickly as possible," said CBI director-general, John Cridland.

Davey emphasised the power of new low-carbon projects, such as offshore wind, to create jobs across the country as well as the significant contribution they will make in reducing the UK’s sensitivity to global wholesale energy prices. The goal is to reduce sensitivity by 30% by 2020.

 

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