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Back to the future

Eight years on from our first issue, Gareth Taylor and Nick Morgan take stock of the way energy markets have evolved.

When our first issue of Energy Matters went to print in 2012 we were at the height of subsidies for wind and hydro schemes with relatively unproven “new technologies” starting to be seen as cash cows for landowners and developers keen to establish a footprint in the emerging renewables market.

Eight years and 20 issues of Energy Matters later, the renewable energy sector has changed significantly and, with commitments from Governments for net zero carbon emissions by 2050, we are once again seeing developers competing for sites, but this time in a free-market world.

In celebration of our 20th issue, we have been assessing where the industry has been and where it’s likely to head during the next decade.

Public perception

The public response to new or extended developments was initially “not on my back doorstep”, but over time we’ve seen this change and turbines, solar photovoltaic fields and anaerobic digestion plants are now recognised parts of the rural landscape.

Opinion has shifted significantly during this time with climate change rising up the agenda. Being involved in the shift towards a low carbon economy is now seen as respectable, even admirable.

End of life for first generation

Some initial schemes, especially wind, are now approaching the end of their subsidy commitments and commercial life. Developers arelooking to gain planning extensions to inject new life into wind projects or re-power sites withlarger, more productive turbines.

While the infrastructure in hydro schemes tends to feature a far longer lifespan, upgrades to switch gears and electrical infrastructure will be commencing in this technology.

Many of the provisions governing reinstatement following the decommissioning of a scheme are still to be tested and it remains to be seen if the financial bonds put in place to protect the local planning authority and landowner in case of default or if the developer goes into administration will be sufficient.

Developers are always looking to minimise the bond levels to save costs but landowners need to ensure the level of the bond adequately covers potential decommissioning liabilities.

The right end of the scale is everything

While public perception is dominated by everlarger turbines (some in excess of 220 meters to tip height) and there is a general trend for fewer but higher turbines, the lower-profile market for micro-generation sites continues, especially in areas where capacity is constrained and near to where there are large demands (such as combined heat-and-power plants providing electricity to cool potato stores and heat chicken sheds at the same time).

Mortgage lenders and now far more accustomed to these technologies at a domestic scale and in our experience more inclined to approve them.

The market for single mid-range turbines, between 225kW and 1MW – the mid-market – has largely disappeared as the technological advances in turbine development have not been sufficient for them to compete without subsidies.

Continuous evolution of technologies

Evolution isn’t just affecting the size of wind turbines. As the market has matured, so has the supply chain. Methods of construction have improved, reducing environmental impact, and there is increased engagement with local communities over any development, with far more options for local community investment in renewable schemes.

Fallen by the wayside

Biomass too has struggled to establish itself without subsidy, the high labour costs involved in managing schemes and high breakdown rates continuing to prevent its expansion.

However, the growing targets for tree planting and a likely prohibition on gas boilers may revitalise the district heating scheme industry, providing a new incentive to invest in biomass schemes.

The same problems persist

While much has changed, long-standing hurdles still affect the viability of schemes, notably planning and grid availability. The cost of grid connections is often considerable and a major constraint on many opportunities.

Significant delays in grid availability make many schemes unviable, which is frustrating, especially in areas with favourable natural features. However, recent improvements to the grid provide potential for these schemes to come online in future.

There are many complexities involved in securing planning, but the different approaches taken by each local planning authority often increase the time and cost of securing consent. This is especially problematic where schemes straddle different planning authorities. New planning problems continue to emerge, such as aviation lighting, providing new challenges to the industry. Securing planning permission is costly. However it remains key to unlocking value, and so reasoned advice that considers all cost variables should be understood before a spending commitment is made.

Pace of change

The pace of evolution is likely to continue to increase, especially as more blue-chip companies commit to going green. The commitment to phase out petrol and diesel cars is game changing and the growth of the grid to accommodate electric vehicles will be both transformative and challenging.

The importance of sound advice

What has remained constant throughout the evolution of the sector, and is more apparent now, is the need for early engagement with professionals. The industry has become specialised and the sums involved warrant their use.

The Galbraith team continues to act for landowners and developers offering strategic, pragmatic and impartial advice. We also undertake valuations of assets and land rights for owners and operators and as part of transactions. Our experience across the sector, combined with local knowledge, continues to add value to clients