The recent drop in the price of oil suddenly seems to question the future of renewables. As we know, fracking in America has dramatically reduced worldwide oil prices, exaggerated by the Middle East’s unusual reaction of maintaining high levels of production in the hope of keeping prices low in order to force out competitors. Whilst this may imply low oil prices are a temporary phenomenon, of course in the UK we are only just beginning to start fracking following our American cousins’ example. Perhaps what the over-enthusiastic supporters of renewables forgot to mention was that the “green revolution” was not sustainable! Is it now dead in the water? Are there any real long-term opportunities remaining for generating renewable heat or electricity? Without a financial return from generating green energy, are only the “greenest of the green” going to be interested any more?
Government subsidies in the form of the Feed-in Tariff have been the key driver to renewables being an attractive option for some landowners and investors, but reductions in these rates, the lower cost of energy due to falling oil prices, the unpredictability of prices paid for electricity sold into the grid, and increased difficulties in connecting to the grid make it more complicated than ever to assess the feasibility of renewable energy projects. In some areas an increase in generation capacity created by more renewables means that the national grid is at full stretch already. Certainly, issues around grid connection now limit the feasibility of many larger renewables projects, and the reduced incomes to be made from exporting electricity mean that many proposed projects will never see the light of day.
As with any of these things, though, the devil is in the detail, and calculating the savings or income that can be made from renewables needs to start with a thorough understanding of all the options available. A well-planned project can still generate decent returns, or provide long-term income for the landowner; for many farmers, generating their own heat or power can also reduce energy bills.
Changes to the Feed-in Tariff rates have reduced the subsidies available considerably, with a further reduction due in April this year, but up-front cost for solar PV, for example, has fallen significantly. Where the cost and difficulty of installing renewables such as in AD and hydro schemes mean they remain less popular, changes in the FiT rates have reflected this, so these technologies still receive relatively high payments, which are likely to continue to underpin some localised land rental values now hitting nearly £400/acre including BPS.
Index-linked, guaranteed FiT payments for 20 years can still make technologies that receive Feed-in Tariff a uniquely secure source of income. Even so, fluctuations in the energy market make it harder to future-proof investments in renewables if they rely on payment for what they export into the grid in order to be feasible. These uncertainties make generating energy for use on-site the best option in many cases, unless a renewables company is able to offer guaranteed income for their use of your land.
But with the reduction of financial incentives for using renewables, and the return to cheap oil and gas, many people will be asking about renewables: was it all too good to be true? The jury is out.
