Warning over renewables as economic crisis leaves funding gap

Scant aid, too much hype and unrealistic targets threaten climate-change pledges by Terry Macalister and David Adam.

Green power companies are heading for "crisis" and Britain should no longer rely on them to meet its energy security and climate change obligations, some industry experts are warning.

The difficulties - triggered by the credit crunch, recession and a collapse in the carbon price - have led to new demands this weekend to ministers from companies warning that their renewables schemes are at risk without more financial aid.

Over the past week alone, the previously fast-growing renewable energy sector has seen Shell decide to stop building wind and solar schemes worldwide, the wave company Pelamis hit by technical and financial troubles, and EDF Energy warn that UK renewables targets would not be realised and should be scaled back to achievable levels.

In addition, a group of more than 40 businesses has taken the unique step of writing collectively to Joan Ruddock, the energy and climate change minister, warning her of the threats to a host of projects unless something is done.

"I think it's heading towards a crisis," said Andrew Mill, who sits on the government's Renewables Advisory Board. "The government has done a lot in terms of policies and targets, but the reality is that it was always going to take a lot of money to make it happen. And that money is not coming through quickly enough."

The situation could be worse because green industry figures often suggest that everything is fine, argues Mill. "A lot of the [renewable companies] can't afford to talk about it as they need to be seen as a good investment. If they don't give out a good story then they can't raise money."

The problems stretch across the industry, he said, from small marine energy companies to large-scale investments in offshore wind farms that are expected to form the cornerstone of ambitious plans to generate 15% of Britain's energy from renewable sources by 2020. "The big utilities are struggling to raise project finance for inshore wind farms, and they were supposed to be the easy projects."

"There is a serious problem," agrees John Constable, head of policy at the Renewable Energy Foundation (REF). "I warned a year ago that the industry was being set up for a fall and now it has happened. There has been too much hype and the government was always far too unrealistic about what could be achieved."

David MacKay, a Cambridge University professor and author of a new book, Sustainable Energy - Without the Hot Air, also agrees. "It may well be that renewables has been overhyped and there is a backlash against it ... There is a big, big problem compared with a year ago. I know a number of people who are unable to get investment for the kind of new technology we need for a low-carbon future."

Leading companies such as BT, Marks & Spencer and United Utilities have told Ruddock that they are "concerned over the current barriers to renewable energy investment and generation by the corporate sector".

The British Wind Energy Association, which usually paints an unfailingly upbeat picture and which has just wrung a series of new subsidy concessions from ministers, will demand in a budget submission to be unveiled in two weeks' time more help for an industry hit by a shortage of bank finance, the plunging value of the pound and mounting equipment costs.

The London Array, potentially the biggest offshore wind farm in the world, is already known to be under threat because of the changed economic conditions. Shell pulled out last year and Centrica and E.ON have both voiced major concerns about the prospects for big wind schemes, which are essential if the UK is to meet its targets for renewable power.

The Carbon Capture & Storage Association has also written to the chancellor, Alistair Darling, saying government hopes of meeting carbon-reduction targets using CCS are doomed "without a serious and urgent commitment to funding from the UK government".

The REF says that some of the £1bn annual subsidy that already goes into green schemes through the Renewable Obligations Certificates should be used to bolster the "utterly disgraceful" low levels of research and development funding.

Constable also believes that Britain could be left having to use more gas or even coal plants to keep the lights on, accepting that even the "super-critical new efficient coal plants like the one E.ON wants to construct at Kingsnorth would leave us breaching our carbon-emission targets".

Source - The guardian