Financial close on the £1 billion ($1.52 billion) Swansea Bay Tidal Lagoon project in Wales has been delayed until 2016, its sponsors said late last week (2 October 2015). The developers had previously been aiming to close the financing before the end of this year.

The project sponsors are waiting until a firm contract for difference (CfD) has been agreed with government until making a final decision to proceed with the development. CfDs – still a relatively untested state support instrument - guarantee a set revenue for energy producers, and are a key part of the nation’s Energy Act which came into force in December 2013.

Negotiations over Swansea Bay’s CfD began in March this year. It may be the last agreed by government for sometime, with developers told in July that the next planned round of CfD awards had been postponed indefinitely.

Raft of changes

CfDs are just one example of regulatory change in the UK. The renewables sector in particular has seen a raft of changes and new proposals since the general election in May, when the UK’s Conservative party won a majority in parliament.

In June the Department of Energy and Climate Change (DECC) announced that it would end the Renewables Obligation Certificate (ROC) subsidy for onshore wind farms a year earlier than previously planned. The new deadline is 1 April 2016.

Tax incentives for clean energy have also changed, with exemption for renewables from the country’s climate change levy (CCL) stopped.

The levy is a tax on UK business energy use intended to cut carbon emissions and encourage renewables development. As part of the UK state budget on 8 July, the Chancellor George Osborne announced the removal of the exemption from the CCL for electricity generated from renewable sources, with effect from 1 August 2015.

Regulatory changes have been coming on what seems like a monthly basis. In late August, DECC launched a consultation over proposals to end the country’s feed-in tariff (FiT) support for small-scale renewables as early as January 2016.

The consultation proposes a raft of changes to the existing FiT structure, including new, lower tariffs based on “fresh evidence about costs, technology characteristics, and rates of return new FIT participants might get.” The document states costs for deploying some renewables technologies have dropped by more than 50% since 2012.

It also proposes a cap on new feed-in tariff spend of £75-100 million by 2018/19.

Confidence knocked

At the start of October the International Energy Agency forecasted new online energy capacity in the UK to halve from 4GW in 2015 to less than 2GW in 2016, citing “wavering” government support.

A report released this week (6 October 2015) by UK industry body RenewableUK said 73% of its members – made up largely of manufacturers and developers – described the UK investment climate as less favourable than the previous 18 months, up from 48% the previous year. Of those polled, 42% expected to decrease investment in the sector. 

Ratings agency Moody’s took a more balanced view of the sector's near-term fortunes in a report, also published this week. “Great Britain has a stable track record,” it said, “but we see slight increase in regulatory risk. Support rates have been reduced as technology costs have fallen, but those who have invested in renewable projects have, by and large, been protected as the reductions have only been applied prospectively. This commitment to “grandfathering” has been a key policy principle in ensuring investor confidence.”

Necessary change?

The government argues such cuts to subsidies are necessary to protect taxpayers and reflect the falling costs of renewables deployment. They will need to balance these demands with a very pressing need to bring new power online: the UK’s capacity margin is at its lowest point in a decade, with 25GW of old power being retired off the grid last year.

It is not only renewables projects that are moving slowly through procurement. Last week EDF said it is yet to convince Chinese shareholders to finalise a deal to take up to a 40% equity stake in the £24.5 billion ($37.26 billion), 3.2GW Hinkley Point C nuclear power project in Somerset.

The long-term impact of subsidy changes on investment levels in the UK energy sector is yet unknown. But investors will be hoping to see out the rest of 2015 without further regulatory tinkering from government.