For Renewable Energy, Brexit Spurs Mixed Prospects

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at 2016.11.07
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For Renewable Energy, Brexit Spurs Mixed Prospects

When Mark Meyrick sat down with a developer to review plans for two solar farms the company he works for is building in Wales and southwestern England, one number jumped out at him. With the value of the pound sliding since Britons voted to leave the European Union, the cost of the imported solar panels Good Energy must buy has risen.

That extra expense is likely to hit the plants’ profitability, so the company is hurrying its purchases out of fear that Britain’s currency may grow weaker still. “If we just sit here and wait, and the pound falls another seven or 10 cents, which I think it easily could do, that project probably wouldn’t be viable,” said Mr. Meyrick, Good Energy’s trading director.

Like firms in other sectors of the British economy, renewable energy companies are waiting nervously to see how the country’s departure from the European Union, known as Brexit, will affect them. In their case, the answer will be key to determining whether Britain meets its commitments to cut emissions of planet-warming greenhouse gases.

The June Brexit referendum and the domestic political turmoil it set off came at a difficult time for the sector, struggling to find its footing after former Prime Minister David Cameron cut many subsidies that had helped new technologies become commercially viable. It is a moment, too, when the country’s power system needs fresh investment to replace aging nuclear and coal plants scheduled for retirement.

“The problem with Brexit is that because it creates another 2½-years-plus of uncertainty, the danger is that it just damages investor confidence further,” said Richard Black, director of the Energy and Climate Intelligence Unit, an advocacy group. “One of the consequences could be that things simply don’t get built that we need to get built, or that they’re more expensive.”

Theresa May, Mr. Cameron’s successor, worried environmentalists by eliminating the Department of Energy and Climate Change on her first full day in office .

Those concerns eased somewhat a few weeks later, when Parliament approved a new carbon reduction plan. And in September, Mrs. May said Britain would ratify the Paris climate deal by the end of the year and continue to “play our part in the international effort against climate change.”

Many clean-power advocates now say folding climate issues into the more powerful Department for Business, Energy and Industrial Strategy may prove a wise move, allowing for better coordination of policy.

But while the business department includes strong advocates of climate action, they are “going to have to shout very loud around the cabinet table to be heard,” said Robin Teverson, chairman of the House of Lords’ E.U. Energy and Environment Subcommittee, which is preparing a report on Brexit and the environment.

With complex Brexit negotiations likely to consume a great deal of Mrs. May’s time and political capital for years to come, “I don’t see the climate side and renewable energy being particularly high on the government’s agenda,” said Mr. Teverson, of the opposition Liberal Democrats.

Many of Britain’s environmental rules are underpinned by European targets and accords, and are enforceable by European Union judges, so their fate in post-Brexit Britain remains unclear. Antiregulatory sentiment and a desire for freedom from Brussels’s authority were key themes of the Leave campaign.

Mr. Meyrick said it was “encouraging, or not discouraging,” that Mrs. May did not seem to plan on backing away from climate and clean energy commitments.

But, said Antony Froggatt, senior energy and environment researcher at the Chatham House think tank, “being a part of the E.U., it double-locked policy” in those areas, with Britain committed to carbon-cutting targets via its European promises and its own domestic laws. “No longer being part of the E.U. level doesn’t mean we will change U.K. policy, but future administrations may find it easier to do so.”

Even the rough outlines of Britain’s future relationship with the European Union are likely to remain unclear for some time. Mrs. May has said Britain would officially notify Brussels by the end of March 2017 of its intention to depart, setting the clock on two years of negotiations.

Some in the industry say Brexit may bring benefits for clean energy. A weak pound makes electricity more expensive, because it pushes up the cost of the imported natural gas often used to generate it. That allows companies selling solar and wind power to charge higher prices too, increasing revenue.

Low interest rates make it cheaper for those companies to borrow, and the higher inflation Brexit may cause will raise income from an inflation-linked system that sets the price of some renewable power purchases, said Michael Bonte-Friedheim, chief executive of NextEnergy Capital, which manages the NextEnergy Solar Fund.

“All of that put together makes the solar and renewable energy sector more attractive for public-market investors,” he said.

For manufacturers building renewable power equipment in Britain, the weak pound makes their products less costly when sold abroad. Potentially offsetting that benefit, though, is the possibility that European tariffs on British imports may replace the free trade that came with E.U. membership, depending on the exit terms Mrs. May strikes.

“We’re in a position where the market is still completely unclear as to what happens, not only as to the ramifications, but also to the timings,” said Nick Boyle, chief executive of Lightsource Renewable Energy, a solar power company.

Germany’s Siemens, which began producing blades for offshore wind turbines at a new plant in Hull, in northeastern England, in September, warned before the referendum that leaving the European Union “could make the U.K. a less attractive place to do business and may become a factor when Siemens is considering future investment here.”

The company’s chief executive, Joe Kaeser, later backed away from that, saying Brexit “will not diminish our commitment to your country.”

For now, the factory, which employs about 500 and had been intended before the Brexit vote to eventually provide 1,000 jobs, is busy fulfilling orders for British wind farms. The company hopes to export parts to Europe too, but any change in trade terms could affect those plans.

There is little clarity, as well, on a number of bureaucratic and technical questions that are important to the industry.

Among them are the rules governing installation and operation of planned undersea power connections that would expand transmission of electricity between Britain and the Continent. Mr. Froggatt said building new interconnections still made sense, both financially and because they make renewable power systems more reliable by allowing consumers to get electricity from afar when the sun went in or the wind slowed close to home.

“I would assume these projects will go ahead,” but delays are possible, he said.

Another worry is funding from the European Investment Bank, an important lender to renewable energy infrastructure projects. While the bank is able to lend to projects in non-European Union nations, Britain could lose its influence there as an outsider.

And with ripples of discontent with Brussels spreading beyond Britain, the bloc may be distracted from its own efforts to increase renewables and combat climate change.

“If European institutions and pro-European governments see that they’re fighting for the survival of what Europe means, then it gets much more difficult to do things like energy on a detailed basis,” said Mr. Black.

Published at Mon, 07 Nov 2016 05:01:25 +0000

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