Renewables Industry Confidence Survey

Transcription

1 Renewables Industry Confidence Survey March 2013 The REA has developed an overall confidence index to capture the outlook for the renewables industry in relation to turnover, new business and employment. The index also takes into account industry confidence in relevant regulatory regimes and confidence in the UK meeting its 15% renewable energy target by RENEWABLES INDUSTRY CONFIDENCE INDEX, Q = 47% Figure 1*. Renewables Industry Confidence Index (RICI) A maximum score for all questions would give an index of 100%. The REA believes that a score of at least 75% is required for the UK to have good prospects of meeting its 2020 target. The initial score of 47% therefore falls short and clearly demonstrates the industry s current lack of confidence in the Government s programmes and policies being able to deliver the scale of investment and growth needed to meet the mandatory 2020 renewable energy targets. Renewable energy consumption must grow annually by 16% to 2020 for the UK to achieve its 15% target The REA Confidence Survey The REA has instigated a regular new survey to assess our members' confidence in the outlook for UK renewable energy sector. We plan to repeat the survey at six month intervals to assess the state of the sector and the confidence in Government policies and measures over time. This report sets out our key initial findings. *Where shown the graphics have been produced by Blue & Green Tomorrow based on data provided by the REA.

2 Percentage of respondents 2 Our survey was designed to assess the current state of and outlook for the renewable energy industry through a range of relevant factors. The questions can be found in Appendix 1 at the back of this document and the raw data are presented in Appendices 2 and 3. The survey was distributed to senior managers across our own and the Solar Trade Association s membership and was open to responses for the month of February A total of 68 responses was collected, the majority of which were Independent Project Developers (47%) and Consultants (30%), see Figure 2. Of these 93% were active in the electricity sector (63 respondents); 78% heat (53 respondents); and 22% transport (15 respondents) Figure 2. Roles of those surveyed within the renewables industry. 2.0 Key Findings: The Renewables Industry Confidence Index for Q is 47%. A maximum score would be 100% and the REA considers that a score of at least 75% is required if the UK is to have good prospects of achieving its mandatory target of 15% renewable energy by % of respondents have poor or very poor confidence that the UK will achieve its 15% renewable energy target by Only 4% thought prospects of meeting the target were good or excellent. 69% think the lack of an emissions target within the Energy Bill sends a poor or very poor signal to investors. 9% felt this sent a fair signal and 4% a good signal. 51% of respondents active in the electricity sector have poor or very poor confidence that Contracts for Difference, as set out in the Energy Bill, will be effective in bringing forward renewables generation. 31% didn t know the highest level of uncertainty, 13% rated their confidence as fair, while 4% responded good or excellent. There is a mixed response on the functioning of the key renewable energy incentive schemes, ranging from an average of poor (Renewable Heat Incentive) to fair (Feed-In Tariffs and Renewables Obligation). Business over the last 6 months has been hit by policy uncertainties but companies are more optimistic about increasing their turnover, new business and employment over the next 6-12 months. Despite policy uncertainties there has been no significant decrease in employment in the sector in the past 6 months and there is higher confidence that employment will increase rather than decrease over the next 6-12 months. New business has increased in the past 6 months, and it is expected to increase further in the next 6-12 months. 2

3 Average annual growth rate required to achieve 2020 RES target These findings show that there is a level of business and employment stability in the UK renewable energy sector, and optimism going forwards. However, there are concerns about the complexity and efficacy of current policy mechanisms and about the Energy Bill in particular. Reluctance to set a decarbonisation target in 2014 sends a poor signal to investors and there is a marked lack of confidence that Contracts for Difference will be effective in bringing forward new capacity. There are further concerns about access to finance with only 13% of responses having good or excellent confidence in raising finance. The renewables sector is reasonably optimistic about short-term growth, but it lacks confidence that longer-term growth will be sufficient to deliver the 2020 renewable energy targets. The UK has to achieve the most challenging growth rate in the EU if it is to meet its 2020 target 16% year on year, Figure % 16% 14% 12% 10% 8% 6% 4% 2% 0% Figure 3. Average annual growth rate required to achieve 2020 RES target (based on latest 2010 data from EUROSTAT). Work is needed by DECC to improve the industry s confidence in the Energy Bill. The REA has been raising the problems the Energy Bill currently poses for independent generators, in particular, and for whom ministers have committed to securing a solution. The Feed-In Tariff has a relatively high level of confidence, but the Renewable Transport Fuel Obligation (RTFO) and the Renewable Heat Incentive (RHI) appear to inspire little confidence. A 2030 CO 2 target in the Energy Bill is seen as of major significance, and its absence is undermining confidence in investment in renewable energy and its supply chains this decade. These findings are detailed and explored further in the remaining sections of this report. 3

4 4 3.0 Results 3.1 Confidence Respondents were asked to present their rating of confidence across a number of different areas (Question 8). Ratings ranged from Very Poor to Excellent and a full breakdown can be found in Appendix 3. Figure 4 shows 68% had poor or very poor confidence in whether the UK will achieve its target of 15% renewable energy by This lack of confidence is no doubt partly related to the uncertainties caused by the replacement of the Renewables Obligation by Contracts for Difference (CfDs) 51% of respondents who are active in the electricity sector have poor or very poor confidence that CfDs will be effective at bringing forward renewables generation. Of these responses 31%* said don t know, 13% rated it fair, and just 4% considered it as good or excellent. Furthermore, 69%* of respondents consider that the lack of an emissions target in the Energy Bill sends out a poor or very poor signal to investors. Figure 4. Level of confidence in the relevant statements. The data for confidence in CfDs represents solely respondents active in the electricity sector. Data for all sectors are used elsewhere. *Figures expressed in text may vary slightly compared to graphics as a result of rounding. 4

5 It is interesting to note that 43% of the respondents had poor or very poor confidence in their ability to raise finance for their RE business activities. With only 13% having good or excellent confidence, it is clear that the issue of obtaining finance remains a key concern. As can be seen in Figure 5, the overriding response for all three sectors was that respondents had poor confidence in their associated regulatory regimes. Notably, the electricity sector saw the highest proportion of very poor ratings, at a disappointing 25%. Given the more favourable rating for the Feed-in Tariff (FiT) scheme (see Figure 6a), this poor rating presumably mainly reflects the perspective on the Renewables Obligation (RO) and the new CfDs. Please note that whilst considering this graphic, the percentage of ratings for the transport sector represents a much smaller proportion of total respondents. Potential reasons behind such figures have been discussed further in section 3.2 where we investigate the functioning of the various RE support schemes. 5 Figure 5. Confidence in the associated regulatory regime for each of the electricity, heat and transport sectors. 5

6 Percentage of respondents Percentage of respondents Percentage of respondents Functioning of Key Renewable Energy Support Schemes Question 8 of the survey also questioned respondents on their rating of the functioning of their associated support schemes. These data can be found in Appendix 3 and are represented graphically in Figure Figure 6a. Ratings of the functioning of support schemes in the electricity sector Very Poor Poor Fair Good Excellent Renewables Obligation ROC Market Feed-in Tariff Figure 6b. Ratings of the functioning of support schemes in the heat sector Very Poor Poor Fair Good Excellent Renewable Heat Incentive Very Poor Poor Fair Good Excellent Figure 6c. Ratings of the functioning of support schemes in the transport sector. Renewable Transport Fuel Obligation As shown, respondents considered that the small-scale FiT scheme functions the best, with 72% rating it fair or good. The functioning of the ROC market and the RO as a whole were considered fair by 47% and 39% respectively. The Renewable Heat Incentive (RHI) and the Renewable Transport Fuel Obligation (RTFO) received less supportive responses; 56% of responses for the RHI rating it as very poor or poor; and 67% of responses for the RTFO rating it as poor or very poor. 6

7 7 3.3 Status and Prospects for the Renewables Industry Questions 6 and 7 of the survey covered the past 6 months and prospects for the next 6-12 months, with respect to three variables: turnover, new business and employment. These were rated on a scale of significant decrease to significant increase. Data, found in Appendix 4, have been ranked on a scale of -2 to +2. By taking the averages for both past and future ratings for the three variables, we are able to portray our findings as shown in Figure 7. Figure 7. Changes seen in turnover, new business and employment over the past 6 months and predicted for the next 6-12 months. The results for this section of the survey are presented further in Figure 8 overleaf. The survey shows that the majority of respondents reported that turnover remained broadly the same over the past 6 months, whilst 18% saw a significant decrease. The short-term projection for turnover is however more positive with the majority of respondents predicting an increase and only 3% forecasting a significant decrease. Of the three variables investigated, new business has increased the most over the past 6 months with almost half (47%) of respondents reporting an increase or significant increase. Furthermore, this proportion is expected to rise to 56% over the next 6-12 months. The results show a very slight overall decrease in employment over the past 6 months. Just under a half of companies reported broadly stable employment levels and nearly as many firms have increased employment, as decreased. Looking forward over the next 6-12 months 62% of companies expect employment levels to stay the same, and twice as many firms expect to see employment increasing, compared to those expecting a decrease in employment. From these results we suggest that whilst over the past 6 months business has been hit by policy uncertainties, companies appear more optimistic about the future. The results of these questions are relatively encouraging but need to be seen in the context of the 16% annual growth rate required if the UK is to meet its 2020 renewable energy target. 7

8 8 Figure 8. Breakdown of responses to changes seen in turnover, new business and employment over the past 6 months and looking forward to the next 6-12 months. 8

9 Business prospects and confidence index (all sectors) The REA Renewables Industry Confidence Index The Renewables Industry Confidence Index combines the renewables industries assessment of short-term (6-12 months) prospects for turnover, new business and employment with their confidence that the UK will achieve its mandatory target of 15% renewable energy by 2020 and their confidence in the regulatory regime for their business sector. A maximum score for all questions would give an index of 100%. The REA believes that a score of at least 75% is required for the UK to have good prospects of meeting its 2020 target. The results for the individual factors and the overall Index are presented in Figure 9. The initial overall score of 47% therefore falls well short of the required 75% and clearly demonstrates insufficient industry confidence in the Government s programmes and policies. This is undoubtedly compounded by the perceived ambiguity of the Government s current energy policy. See Appendix 5 for the detailed calculation of the Index. 100% 90% 80% REA's view of the scores required to achieve the UK's 2020 target 70% 60% 61% 63% 54% 50% 47% 40% 30% 27% 32% 20% 10% 0% Turnover New Business Employment Reaching the 2020 target Regulatory regime Overall index Figure 9. The REA Renewables Industry Confidence Index in February 2013 (data from all sectors) 9

10 Conclusions and REA Recommendations The survey has indicated that employment, turnover and new business have been fairly stable and the outlook for these is broadly optimistic. Yet it must be considered that the UK has probably the most challenging renewable energy target in Europe, requiring 16% growth per annum. Therefore whilst there is confidence and optimism to build on, issues such as uncertainty about the Energy Bill, the functioning of support schemes and continuing difficulties in raising finance, are limiting the necessary high levels of growth across the renewables sector. In response to the results of this survey, the REA asks that the Government: Provides consistent messages across Government departments within the context of a clear and positive vision. Sends out a clearer signal of its longer-term objectives, for example by introducing a 2030 decarbonisation target for the power sector in 2014, in order to promote sector and investor confidence in the prospects for the renewables sector. Ensures that the CfD proposals in the Energy Bill secure investor and generator confidence for all types of investor. Key outstanding concerns must be addressed e.g. CfD contract allocation process and route to market for independent generators. Addresses concerns with the RHI and RTFO by: RHI - Introducing viable new tariffs on time. - Setting a stable long-term framework, including a funding level, for the scheme. RTFO - Setting a trajectory to 2020 and beyond. 10

11 Appendices 5.1 Appendix 1 Copy of the REA Confidence Survey as it appeared on-line. 11

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15 Appendix 2 Data collected from Question 3: Which Renewable Electricity sectors are you most active in? (Please tick all that apply) : Answer Options Response Percent Response Count Biogas 27.69% 18 Biomass 41.54% 27 Deep geothermal 1.54% 1 Hydro-power 10.77% 7 Landfill gas 9.23% 6 Ocean energy 3.08% 2 Sewage gas 3.08% 2 Solar PV 43.08% 28 Waste to Energy 30.77% 20 Wind 21.54% 14 None 4.62% 3 Other (please specify) 1 answered question 65 Data collected from Question 4: Which Renewable Heat sectors are you most active in? (Please tick all that apply) : Answer Options Response Percent Response Count Biomass 49.21% 31 Biomethane to grid 12.70% 8 Energy from waste 30.16% 19 Heat pumps 19.05% 12 Solar thermal 20.63% 13 None 17.46% 11 Other (please specify) 2 answered question 63 15

16 Data collected from Question 5: Which Renewable Transport sectors are you most active in? (Please tick all that apply) : 16 Answer Options Response Percent Response Count Biobutanol 0.00% 0 Biodiesel 7.58% 5 Bioethanol 6.06% 4 Biomethane 4.55% 3 Electricity 9.09% 6 Hydrogen 0.00% 0 None 72.73% 48 Other (please specify) 0 answered question 66 16

17 Data collected from Question 8: Please provide your rating of the following: N.B. Any unanswered questions were counted as Don t know or not applicable responses. This table shows the raw data for these questions. In producing the graphs and figures in this report, data relating to the statements on the functioning of support schemes, confidence in regulatory regimes and on the new Contracts for Difference, have been analysed according to relevant sector. For example, we have only considered answers on the Renewables Obligation from those respondents who are active in the electricity sector. Answer Options Very Poor Poor Fair Good Excellent Don't know or not applicable The functioning of the Renewables Obligation The functioning of the ROC market The functioning of the small-scale Feed-in Tariff The functioning of the Renewable Heat Incentive The functioning of the Renewable Transport Fuel Obligation Your confidence in the regulatory regime for your technology(ies) Your confidence that the new Contract for Difference will be effective in bringing forward new renewable capacity Your confidence that the UK will achieve its target of 15% renewable energy by 2020 The signal sent by the lack of an emissions target within the Energy Bill Your ability to raise finance for your renewable energy business activities Response Count Appendix 3 17

18 Data collected from Question 5: Please indicate the changes for renewables in your company over the last 6 months : N.B. Any unanswered questions were counted as Don t know responses, these were not included in any calculations in this report. Answer Options Significantly decreased Decreased Broadly the same Increased Significantly increased Data collected from Question 5: In comparison to the last 6 months, what is the outlook for your company with respect to renewables over the next 6-12 months? : N.B. Any unanswered questions were counted as Don t know responses, these were not included in any calculations in this report. Don't know Turnover New business Employment Answer Options Significant decrease Decrease Broadly the same Increase Significant increase Don't know Turnover New business Employment Response Count Response Count Appendix 4 18

19 Appendix 5 Breakdown of the calculation of the Renewables Industry Confidence Index (RICI). As presented in the table below, the RICI takes into account five ratings from the survey. These include the short-term outlook for turnover, new business and employment, as well as confidence in achieving the 2020 target and confidence in the relevant regulatory regime. Responses for each of these five topics were converted into numbers ranging from 0-4 for the five answers, i.e. ignoring any Don t knows. These ratings were chosen so that the bottom answer reflects a 0% score, whilst the top answer reflects a 100% score. Thus for the five factors the full range of summed results would be Furthermore, by dividing the sum by 20 the result is converted into a fraction (or percentage). Results have also been separated further to represent the results given for the three different sectors: electricity, heat and transport. The results show that the aggregate Index is very similar to those calculated for the individual sectors (transport appears slightly higher but we consider that this is highly reliant on the fact that the sample size is much smaller for this sector). Using the above methodology, the overall index produced is 47%. It is considered reasonable to suggest that the target Index should be at least 75%, representing the next to top rating (or 3 on the scale of 0-4), if the UK is to stand a chance of reaching the 2020 target of 15% renewable energy. Outlook over the next 6-12 months for: Electricity Heat Transport All responses Turnover % % % % New Business % % % % Employment % % % % Confidence in: Electricity Heat Transport All responses Reaching the 2020 target Regulatory regime % % % % % % % % Electricity Heat Transport All responses Confidence index: % % % % 19

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