The First Minister of the Scottish government, Alex Salmond, made an interesting statement along the speech he hold today, talking at the Scottish Low Carbon Investment Conference. He mentioned the commitment of its government to cut CO2 emissions by 42 per cent by 2020, including a target of at least 80 per cent of electricity demand based on renewable energy. "Scotland is committed to be a major exporter of low carbon electricity and to decarbonise our electricity supply by 2030, through a combination of renewables and clean fossil fuels utilising carbon capture and storage" he said. Indeed, Scotland is deemed to detain a quarter of Europe's capacity in offshore wind and tidal electricity generation.
Ambitious predictions. Route Map in hands. The conference was the occasion to release the Scottish Offshore Wind Industry Route Map. The Route Map defines five areas of priority: infrastructure, supply chain and innovation, grid, managing the environment, skills, and finance. Reference should also be made to an Offshore Valuation report that wonders what is the value of the UK's offshore renewable energy resources.
How will that be financed? In terms of support, the Renewables Obligation (RO) remains the main instrument in the UK, i.e. a market-based instrument involving a buy-out fund. Scotland has implemented a similar mechanism, the so-called Renewables Obligation Scotland (ROS). ROS has been in force since April 2002 and is running in parallel to the others RO in the UK (England and Wales, Northern Ireland), although connected to some point. See Renewables Obligation website of the UK government. However, it is doubtful that this will suffice and the Firt Minister calls upon major private investments, underlying the green winfalls to come in return. The Offshore Valuation report calls for a mix of financing and a stronger involvement of the state.
In that sense, the Offshore Valuation Report have advanced some proposals in terms of financing:
"This technology maturity should accompanied by a maturity in the financing mechanisms for offshore renewables. Development and construction costs will be financed by a combination of developer balance sheets, third party equity, and potentially public private programme structures (PPPs) but once sites have been in operation for a period of time it should be possible to refinance with a much greater share of lower cost debt (for example from pension funds or long term infrastructure investors). This will then release equity for developers to invest in subsequent projects.
Not all of the risks associated with offshore renewables will decrease over time. ...
Long term finance
Institutional UK pension fund assets were worth approximately £1,200 billion at the end of 2009. If an amount equal to one percent of this was allocated to offshore renewables each year, it could finance over 200GW of capacity by 2050. The return on this investment ... would provide an income to UK pension funds of more than £500 billion over four decase. The lifetime of a typical offshore renewable project is also a particuarly good match for the time horizon of a pension fund investment.
The Housing Finance Corpotation (HFC) provides a working model for very low risk infrastructure finance in the UK that avoids increasing the size of the Treasury balance sheet. ... There is a parallel with the renewable energy sector in that 'energy bonds' would be backed by real assets, in this case steel, copper and conrete, and the returns would be underpinned by electricity sales - currently augmented by the government - backed Renewables Obligation.
New sources of finance.
...there also may be more direct role for government in reducing the financing risk in both the short and long term... one option is for the government to take an active role in the financing of offshore renewables ... it could be a central role for a UK Green Investment Bank.
Taking the concept of the Green Investment Bank (GIB) one step further, it could be used to open the door for ordinary people to invest in offshore renewables. Energy Bonds or Green Energy ISAs could be offered to the public through the GIB. ..." (pp.62-63)
Comments