UK Wind & Marine Energy Business Barometer

Now in its third year, the UK Wind & Marine Energy Business Barometer is the UK’s leading measure of business sentiment in the renewable energy sector


Much progress has been made since the last UK Wind & Marine Energy Business Barometer in 2012. Recent statistics published by the Department of Energy and Climate Change (DECC) show that renewables share of electricity generation reached a record high of 15.5% in the second quarter of 2013. The lion’s share of this progress has been made by the wind industry, with a number of new developments going operational in recent months. It’s also becoming clearer that the public recognises the importance of the wind and marine industries. Polls indicate repeatedly that wind farms enjoy the support of a clear majority of voters. RenewableUK’s findings that employment in wind and marine energy has risen 74% since 2010 should help underline the importance of continued investment and support.

Despite progress, the wind and marine sector is still a remarkably challenging space in which to operate. Bringing down costs, uncertainty of returns and obtaining the right talent are all major obstacles. Some investors want clearer signals from the government; in September a group of key players called for a decarbonisation target be set in to the Energy Bill. Recent clamour over consumer energy prices highlights the importance of continued development to deliver more sustainable power at a lower cost. The latest statistics show that the UK sourced 3.93% of its energy from renewables in 2011/12, missing the target of 4.0%. While the DECC has indicated that the UK is on track to meet renewable targets, some are clearly sceptical.

Encouragingly, the third annual UK Wind & Marine Energy Business Barometer demonstrates that across investment, policy and skills there have been positive movements. This year’s survey findings reveal that a higher proportion than ever believe that skills in the UK job market are adequate to support development in the wind and marine sectors. Most respondents expect to increase employment in the year ahead and opportunities for young people are even more attractive than last year. Taken in context though, there is still a significant skills gap in the UK that causes many businesses to struggle to find the right talent.

In terms of growth, respondents see the investment climate as overall more favourable today than it was a year ago. However, they also anticipate less investment (in value terms) over the next 18 months than at the last poll. While businesses are more confident than last year about investment and growth, it seems that expectations over what will be achieved in the next five to seven years have been scaled back. There is still widespread concern over government policy, though this year those surveyed are marginally less critical.

Energy price support is still the biggest incentive for development in offshore wind, with one third of those surveyed saying this is the biggest issue

In offshore wind energy, government policy and certainty are seen as two keystones for success, as evidenced in the survey findings. These two factors are interrelated and businesses continue to look to the government to deliver long-term policy security. In onshore wind there continue to be major challenges relating to public perception of wind farms and achieving planning permission. Meanwhile in marine energy, respondents indicate a renewed focus on research and development while the biggest challenges are reducing costs and raising finance.

Investment

Despite widespread concerns about investment and growth in the UK’s renewable energy sector, responses to this year’s barometer reveal growing confidence among those in wind & marine energy. This year 33% of respondents indicate that they believe the current investment climate is more favourable than a year previously. This marks a considerable improvement in sentiment compared to last year’s survey when 30% gave this response. The proportion of respondents who believe that the investment climate is less favourable than last year is 29%, down from 36% last year.

The majority of respondents expect to see growth between 5% and 20% over the next 18 months (figure 3). While this reflects the headline findings from last year’s survey, there has been a marginal degradation in sentiment. The proportion of respondents expecting relatively low growth of up to 5% in the next 18 months has risen from 7% in 2012 to 13% in 2013. Meanwhile those who expect negative or flat growth has gone from 10% in 2012 to 15% this year. Encouragingly though, slightly more respondents expect to see growth between 30% and 50% over the next year, with 9% of the survey pool indicating within this range, up 3% on last year’s response. Also, a substantial number of those polled (16%) expect growth greater than 50%, which is on par with last year’s findings.

Businesses in the tidal segment are most confident, with 43% stating that they feel the environment today is more favourable than a year ago. They are closely followed by respondents from wind energy, of whom 41% in offshore and 36% in onshore believe the investment climate has improved. More than one quarter of respondents from tidal businesses expect to see growth of 40% or more over the next 18 months while just 8% of wave businesses expect to see growth at this level. Wind businesses are also confident about growth with 17% of offshore wind respondents and 18% of those from onshore wind backgrounds expecting to see growth of 40% or more over the next year and a half.

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Policy

Survey findings reveal little improvement in sentiment regarding government policy, with 63% saying it has become less favourable over the last 18 months compared to 68% who said this last year. Just over one fifth (22%) indicate they feel policy has stayed the same, exactly echoing the proportion who gave this answer in 2012. The good news is a 5% uptick in the proportion saying government policy has become more favourable over the last 18 months. Fifteen per cent gave this response in the most recent survey compared to 10% at the last poll.

Those in the wave sector are most critical of government policy. Sixty-one per cent of these respondents say policy has become less favourable over the last 18 months and only 4% say it has become more favourable. Those polled in onshore wind are also critical - sixty per cent indicate government policy has become less favourable. Fifty two per cent of respondents from the tidal industry say government policy has worsened, while 31% say it has stayed the same and 14% indicate it has improved. In offshore wind, half of the survey pool think government policy has become less favourable, about 22% think it has stayed the same and 21% think it has improved, making this segment the most positive towards the government.

Overall findings indicate that supportive government policy remains core to the on going development of the wind and marine sectors. In offshore wind, price support and certainty of returns are seen as critical to drive development. In onshore wind it’s planning issues and return on investment that are key. Respondents in the marine sector focus on the importance of technological development and cost containment.

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Energy price support is still the biggest incentive for development in offshore wind, with one third of those surveyed saying this is the biggest issue, up slightly from 29% last year. The proportion of respondents who think certainty/confidence is the biggest incentive for development dropped from 25% of those polled last year to 19% this year. Supportive government policies were identified by 19% of the survey pool and 17% pointed out return on investment as a major incentive. Meanwhile slightly more respondents cited planning issues and concerns related to the supply chain as key, though these are only highlighted by a small minority (8%) of the sample.

Ranking of the biggest obstacles for development in offshore wind has changed according to our survey pool. Uncertainty on returns, cited by 31% of respondents, replaces cost/economics as the most important obstacle. The second most important issue is government policy, according to 24% of respondents. Under a fifth (19%) of those surveyed said that cost/economics was the most important challenge.

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Just 14% of respondents identified the level of financial support derived from ROCs as the biggest incentive for development, down from 27% last year. At the same time, return on investment is becoming more important, with 41% saying this is the critical incentive compared to 31% last year. Site availability/planning issues have risen in relevance for the second year in a row, with 22% of respondents saying this is most important compared to 18% last year. This is also reflected in the answers given concerning the most important obstacles to development with 42% citing planning issues as the biggest obstacle compared to 38% last year.

About half as many respondents think uncertainty of return on investment is the biggest obstacle compared to last year, dropping from 14% to 7% of the survey pool. Localism/nimbyism has also fallen lower on the list of concerns, with 15% saying it’s the biggest obstacle this year compared to 20% last year. Grid connectivity and aviation issues have been highlighted as the biggest obstacle for development by a larger proportion of respondents than last year, though collectively these issues are highlighted by just 14% of the survey pool. A more significant concern is government policies, with 19% stating this is the biggest obstacle for development.

06

The importance of Research & Development (R&D) for marine energy has surged in importance in this year’s survey findings, with one fifth placing R&D as the most important incentive for development compared to just 5% last year.

At the same time, government incentives/targets/support have fallen in significance, with 34% saying these are the biggest incentive compared to 43% last year. Just 11% say energy price support/tariff issues are the biggest incentive compared to 19% last year. Certainty/confidence and long term potential have both grown in importance according to the survey pool while a similar number indicate that return on investment is a key incentive for development.

In terms of obstacles to development, finance is seen as a major stumbling block, with 26% placing it as the biggest challenge in this year’s survey compared to 19% last year. Similarly, 23% indicate that costs are the biggest issue, up from 19% in the 2012 survey. Technology remains a key issue, with just over a quarter of the survey pool (26%) saying it is an important obstacle for development.

Methodology

This study was conducted based on the responses to a web-based survey amongst members of RenewableUK, the trade association for the wind, wave and tidal energy sectors. A total of 181 responses were received. The companies that responded to this survey covered a broad spectrum of the industry in terms of both their size and main areas of activity.

Key areas of focus

This research looks at the industry’s views on three key areas and identifies the factors that will either help to incentivise growth or act as an obstacle to progress in these areas:

01 Investment

02 Government Policy

03 Education and skills