With our Corporate Energy @TW series, we aim to highlight current developments and issues in the renewable energy sector across different jurisdictions. Taylor Wessing's international Energy & Infrastructure industry group has more than 50 experts across 16 offices. We have been active in corporate/M&A and financing in relation to renewable energy for more than 15 years and have extensive legal and commercial expertise and market knowledge. We are currently ranked fourth globally according to the number of renewable energy M&A deals in the Clean Energy League Tables 2021.
Question: What are the most important current
developments in the field of renewable energy transactions and
financing?
Answer: The UK was the first major economy to
adopt a binding net zero target for 2050, with an interim goal of
78% less emissions compared to 1990 by 2035. During Q4 2021, the
government announced that in order to achieve these goals the UK is
aiming to decarbonise its power sector fully by 2035. This includes
a massive roll out of renewable energy, including an increase of
offshore wind capacity to 40 GW by 2030. 40 GW of offshore wind
power is almost double of Europe's entire current offshore wind
capacity (currently around 25 GW), which would put the UK at a
world-leading level. Whilst the decline in onshore technology costs
ought to support the deployment of onshore wind technologies in the
UK, planning policies in England & Wales have severely
restricted further development of onshore wind projects. Onshore
wind and solar were less expensive than traditional electricity
sources due to, amongst other reasons, lower capital costs and
technological progress.
The contract for difference (CfD) auctions remain the mechanism for providing public funding for capacity growth. The fourth and biggest ever auction round, which aims to secure 12 GW of electricity capacity, opened in December 2021 with £285 million a year funding for offshore wind, onshore wind and solar, tidal and floating offshore wind projects, amongst others. Offshore wind will be supported by £200 million funding per year, of which £24 million is being dedicated to floating offshore wind (find out more about floating foundations in our Q&A Floating Foundations for Offshore Wind Farms) and £20 million to new technologies. £10 million is allocated to established technologies such as onshore wind and solar PV. The results of the auction are expected to be announced in spring-summer 2022. The years in which successful projects must be commissioned have not yet been confirmed, but are likely to follow the delivery year of the third allocation round, i.e. after 2025.
The UK Government has recently announced that CfD auctions will be held annually from 2023 (in place of the current b-annual auctions).
Question: What market developments can be
expected in 2022 and beyond?
Answer: The UK renewable energy market continues
to attract investments (both domestic and foreign). Clean energy
project finance amounted to $6.57 billion in H1 2021, placing the
UK fifth in the global ranking, behind China, USA, Spain and
Brazil. The majority (63%) of the UK's total deal value was
again dedicated to offshore wind projects, while Solar PV accounted
for 12.2%, experiencing a very strong upward trend, with $802.29
million invested (+81% compared to H1 2020). We expect offshore
wind, solar PV and battery storage to be then main areas of focus
for project development and a continuing increase of corresponding
transaction activity in these areas. To meet the ambitious goal to
decarbonise the UK's power sector fully by 2035, a significant
ramp up of renewable energy generation is required. The energy
crisis the UK is currently facing due to the high share of gas in
the energy mix will further increase the demand for more renewable
energy.
Corporate PPAs enabling companies to meet their emissions reduction goals and providing a hedge against volatile market prices support this tendency. PPAs are expected to drive utility-scale PV growth, providing a major upside potential in the short and medium term. As often, lengthy permitting processes hamper the development of solar, onshore and offshore wind. Grid availability can be an issue.
In October 2021, the UK government released a "Roadmap to Sustainable Investing". Notably, this roadmap includes sustainable disclosure requirements (SDR) for UK companies and covers aspects of the UK Green Taxonomy. International ESG-related developments will increasingly drive renewable energy investments, in particular for institutional investors and debt funders. Further developments in the UK sustainable finance legislation will support this development.
Question: What was your personal "game
changer" or "highlight" in the field of renewable
energies in 2021?
Answer: The energy crisis the UK amongst other
European countries is currently facing might be a turning point for
the energy market. Due to increased demand along with lower gas
imports, gas costs have increased by 500 per cent in less than a
year and they may increase further. The UK's single-largest
source of power generation is natural gas. Whilst we have seen
significant strides in the development of renewable electricity
generation, the replacement of gas for heating and generation
remains a significant challenge. There is a long way to go to make
technologies such as green hydrogen commercially viable at scale.
However, we are seeing increasing interest here and are pleased to
have supported clients making investments in this area.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.