Between 2009 and 2013, the proportional importance of electricity generated from renewables in the UK rose significantly from 7% to 15% as output more than doubled.

Figure 1: UK Renewable Penetration of Electricity Generation, 200913

Source: MBD analysis of DECC data

Between 2009 and the first half of 2014, the installed capacity of wind energy has increased by 174%, reaching just more than 12GW. Onshore continued to dominate total installed capacity, although its share has fallen from 79% in 2009 to 66% by mid-2014. Offshore capacity has more than quadrupled since 2009, while onshore wind has increased by 131%.

Figure 2: UK Wind Energy Capacity, 2009-14,

Note: * = first six months

Source: MBd analysis of DECC data

Between 2010 and 2012 the Crown Estate licensed almost 40 wave and tidal sites throughout the UK. While the vast majority are in Scottish waters, sites are also being developed as far as Falmouth in the south west of England and Torr Head in Northern Ireland. There is now a substantial pipeline of potential capacity, with likely deployment of 100 to 200MW of devices expected by the end of 2020. In July 2014, the Crown Estate unlocked a further 11 sites for UK wave and tidal current opportunities.

Electricity generating capacity from waves remains low in the UK, though capacity was more than doubled in 2012, but no further increases have been made since, reflecting the sector’s development stage. In 2013, the UK generated 6GWh of electricity from wave technology, up from just 1GW two years earlier.

Solar capacity has expanded very quickly since 2010, reaching more than 4GW in the first half of 2014 according to official DECC data. However, the actual installed capacity is likely to be higher due to a time lag in the DECC caused by accreditation processes. Installed PV capacity is believed to have reached 5GW in August 2014, making the UK only the sixth country to have more than 5GW.

Domestic installations, defined as 4KW and below, dominate solar PV deployment under the FIT scheme, accounting for 95% of all installations as of Q1 2014. Exceptional growth in residential PV installations was recorded in 2011, reflecting the introduction of FITs in the previous year and the infancy of the market. However, the number of domestic installations fell strongly in 2013, reflecting cuts to the FITs tariff. Household retrofit installations, at almost 434,000, have been a key sector of the market, dwarfing the 7,281 installations in new homes.

As of September 2014, some 2.2GW of PV installations had received planning consent and were awaiting construction, with planning consent for a further 3.1GW being considered - more than the total UK installed capacity. This highlights the current rush to gain planning permission for solar farm projects and secure RO support before next April, when ROCs will close to new large-scale solar farms above 5MW.

Hydro electricity generating capacity is dominated by large-scale plants that account for 87% of total hydro capacity, though small-scale capacity has slowly increased in proportional importance in the last few years. Between 2009 and Q2 2014, large-scale hydro capacity has increased by less than 1%, while small-scale capacity has increased by 28%. Hydro electricity generating capacity is dominated by Scotland, with a 91% share of large-scale activity and 73% of small-scale capacity.

Bioenergy electricity generating capacity has increased by 125% between 2009 and Q2 2014, with major changes in the segmentation of capacity in the last few years. By far the most prolific expansion of capacity has been in the plant biomass sector, which accounted for 50% of total sector capacity in mid-2014, up from just 15% in 2010. The growth of the sector is largely due to the conversion of units at Tilbury, Ironbridge and Drax coal-fired power plants.

The DECC estimates that a fifth of the UK’s current electricity generation capacity will cease by 2020 and that electricity demand will double by 2050. The UK is also committed to achieving 15% of its energy consumption from renewable sources by 2020. To meet these obligations, the DECC predicts that the UK electricity sector will need around £110 billion of capital investment in the next decade.

The Renewables Obligation (RO) is currently the main support mechanism for renewable electricity projects in the UK. Smaller scale generation is mainly supported through the FeedIn Tariff scheme (FITs). The RO places an obligation on UK electricity suppliers to source an increasing proportion of electricity from renewable sources. This proportion is set each year and has increased annually.

However, as part of the government’ Electricity Market Reform (EMR), the RO will be replaced by less generous Contracts for Difference (CfDs) from March 2017, which will then be the primary financial support mechanism for new largescale renewable generation. Unlike ROCs, CfDs will also be available to generators of nuclear electricity. New renewable generation that comes online between 2014 and 2017 can choose between CfDs and ROCs during a transition period. All projects in the RO as of that date will remain in the RO until the original period of support expires, or until 31 March 2037, whichever is earlier.

Despite the government’s support for onshore wind farms in the renewables roadmap, the Conservative party announced in April 2014 that it would scrap subsidies for new wind farm developments if it wins next year’s general election. Labour and the Liberal Democrats continue to support onshore wind, - the lowest cost renewable energy technology in the UK’s energy mix - though UKIP opposes all subsidised wind farms. With potential policy changes on the horizon, this makes the outlook for the sector increasingly uncertain. Onshore wind has already been subject to subsidy cuts, with the government arguing that there has been so much investment in onshore wind that it no longer requires so much state support. At the same time, the government announced increased backing for offshore win developments as it is a more immature technology.

The government issued its Solar PV Strategy in October 2013, which reiterated the ambition to increase the UK's solar power capacity to up to eight times its current levels by 2020 to between 7GW and 20GW. The then climate change minister Greg Barker suggested that about 33% of the 2020 solar target could come from largescale solar farms. This prompted the press to predict 2,000 new solar farms on the basis that output would equate to 7GW. However, the government has since changed tack, announcing that RO support will close to large-scale solar developments from April 2015, two years earlier than planned. The number of large-scale solar farms above 5MW is therefore likely to drop significantly following the spring 2015 deadline, though some projects are expected to be successful in securing funding through the CfD auction system. According to industry sources, many sites currently planned in the scale of 68MW are likely to become 4.99MW options after 31 March 2015, reflecting policy changes.

The level and product mix of renewable energy installation has been largely dependent on cost. The costs of renewables have fallen substantially, but the future mix will continue to be driven by ongoing cost developments and government support provided to various technologies. The recent rapid expansion of the renewables sector is set to slow in percentage terms, partly due to the transition from the RO subsidy system to the less generous CfD mechanism.

The latest Renewable Energy Country Attractiveness, published by EY in September 2014, shows that the UK has slipped to the seventh place behind India, reportedly due to subsidies for large-scale solar being two years early and dwindling CfD budgets resulting in the cancellation of offshore projects. This suggests that frequent policy tinkering and the lack of a clear, long-term energy policy are making the renewables sector increasingly fragile, which could hamper investment in the short to medium-term.

Offshore wind has the strongest development pipeline, with almost 1.4GW currently under construction, 8.1GW awaiting construction and planning applications being considered for a further 7.9GW. However, not all projects in the pipeline are likely to get off the ground, reflecting the financial risk and technical difficulties often involved in such projects, which have already resulted in a number being cancelled. The limited CfD budget is also likely to result in the cancellation of projects that fail to secure financial aid through the auction system. Moreover, the lack of a longer-term government strategy with regards to offshore wind beyond 2020 is damaging investor confidence in the sector.

Solar farms are the most acceptable type of energy plant near to where people live, with 28% identifying it as the most acceptable plant, followed by hydro power plant (26%) and wind farm (23%). On the other end of the scale, 51% of people identified nuclear power as the least desirable plant to have nearby, followed by coal-fired power stations (21%). These findings are unsurprising given that renewable energy plants are less associated with negative connotations, such as air and environmental pollution, noise or potential health hazards and danger. Bioenergy is the only type of renewable plant that does not have high acceptability, with just 7% of people rating it as the most acceptable type of plant, slightly lower than nuclear plants, which 8% of people identified as the most acceptable plant nearby. The low acceptability of bioenergy is believed to be due to concerns about air pollution and health risks to residents.

Figure 4: Most Acceptable Type of Energy Plant, July 2014

Click here to zoom

Source: Lightspeed GMI/Mintel

A feature of renewable energy is the nascent nature of many sectors of the market and industry. Many newly emerged companies have yet to file accounts or have filed abbreviated accounts because of the low levels of activity and diverse number of companies that have entered the market. The sector is also characterised by a wide diversity of company sizes, with the larger operations involved in established sectors, such as hydro electricity generation.

The government’s renewable energy roadmap, which was initially published in 2011 followed by a second update in November 2013, outlines how the UK will get 30% of its electricity from renewables in 2020, up from 14.9% in 2013. Such progress is required to ensure the UK meets a binding EU renewable energy target.

The deployment of renewable energy has been, and can expected to be, strongly influenced by government policy, particularly subsidies, which have been the stimulus for market development. However, with UK energy prices remaining high, renewable subsidies will remain highly contentious. The next general election, due in May 2015, also increases uncertainty for the sector, with the main parties favouring different technologies. The Conservative party said it would cut subsides for onshore wind farms if it wins the election, Labour and the Liberal Democrats are in favour of the technology, while UKIP opposes all subsidised wind farms - onshore and offshore. There has also been a recent decline in investor confidence in UK renewable energy sectors, with frequent policy changes and the lack of a clear, long-term energy policy making the sector increasingly fragile. Although the deployment of renewable energy is expected to demonstrate sustained growth over the coming years, the level of growth and the future technology mix remain highly uncertain. Nonetheless, the strongest growth potential for renewable energy deployment is expected to be in the offshore wind and solar power sectors.