From our own recent activity in the UK renewable energy space, we are witnessing certain family offices and institutional investors actively considering first investments in the sector, and envisage that traditional property investors will start to take a closer look. The UK government is clearly serious through the new Energy Bill, and its measures and funding, for the reformed energy market to work, but ‘considerations’ and ‘closer looks’ by investors, however, will only develop further if the practicalities of the proposed measures are understood exactly and the opportunities are deemed to be ‘investment grade’.
The Bill has delivered a broad degree of clarity and has generally been welcomed by the industry, and should have investors hovering over the ‘on’ button. However, there are still policy uncertainties around what is or what is not going to be have state involvement or backing, particularly with regards to contracts. Without the government underwriting agreements, investors will probably see more risk and view the building of new capacity as more expensive. While we have found that there is significant investor appetite for renewables projects in the UK that are due to become operational even up to the close of the Renewables Obligation (RO) support scheme in 2017, those development portfolios with longer lead times and more uncertain grid connection dates are receiving less interest and are often commanding higher risk premiums.
For the moment we expect this outlook to hold sway until the finer points of the Energy Bill are settled, and most critically, the ‘strike prices’ for CfDs are known (next year) which will ultimately define their value and determine whether investors, on the whole, are ‘in’ or ‘out’.
The future looks bright but….