The 2014 UK Wind & Marine Energy Business Barometer appears towards the end of a mixed year for the sector.
On the one hand, it has seen significant changes in the Conservative Party’s energy policies. This is possibly due to the increasing level of public backing in some parts of the country for the climate-sceptic UK Independence Party, which does not support the development of renewable energy.
In April, the then Energy Minister Michael Fallon said that his party would seek to end all financial support for new onshore wind farms, the cheapest form of renewable energy, and to introduce new planning restrictions if it wins the general election in 2015. The industry has also had to contend with the attentions of Eric Pickles, the Secretary of State for Communities and Local Government, who has called in more than 50 onshore wind farm planning applications, blocking the addition of 520MW of new clean energy capacity.
Ernst & Young’s renewable energy country attractiveness index shows that mixed messages from government and its constant policy tinkering has made the UK a less attractive destination for investors and developers.
On the other hand, the industry greeted the new year with the news that in December 2013, wind power had generated 10 per cent of the UK’s electricity for the first time. For 2013 as a whole, the amount of wind-generated electricity rose 40 per cent.
In February, the December record was exceeded, with wind supplying 11 per cent of the UK’s total electricity needs, enough to power more than 6.5 million homes.
Beneath the concern at government interference and indecision there lies confidence for the future with more than half of respondents predicting that their companies would continue to grow
The sector was also boosted by the news that Siemens would create 1,000 jobs at two manufacturing hubs for offshore wind turbines in Yorkshire, investing £160 million. The move should have positive knock-on effects, creating further jobs and helping to establish a UK supply chain for the sector.
Public support for wind remains strong, with 76 per cent of adults supporting offshore wind according to an Ipsos MORI poll. This is in marked contrast to the 24 per cent of people in a poll for the Department of Energy & Climate Change who support the Tories’ favoured alternative: fracking for shale gas.
The wider geopolitical landscape highlighted the importance of homegrown renewable energy as a key component in the UK’s energy security strategy, as the security situation in Ukraine deteriorated and unrest continued in the Middle East.
In the light of all these developments, it is little surprise to find that the industry is less confident than it was last year. Many think not only that the investment climate has deteriorated in the last 12 months but that this will lead to a fall in investment in their business.
However, beneath the concern at government interference and indecision there lies an industry that retains confidence in its prospects for the future, with more than half of respondents predicting that their companies would continue to grow.
Nonetheless, there is clear evidence that the attitude and actions of Tory ministers have had an impact, particularly in the sector that has faced the fiercest onslaught: onshore wind. Here, 18.2 per cent of those questioned believe their businesses would shrink in the next 18 months, more than double the proportion taking that view last year.
The wind and marine sectors stand finely poised as we approach the end of 2014. With the right policy environment they can continue to be a significant contributor to the UK’s energy security, economy and job creation. Without that, there is a question over whether they can fulfil their potential as swiftly as those working within this vibrant sector would wish.
INVESTMENT
There has been a marked decline in confidence about investment in the wind and marine sector in the last 12 months. Almost half of survey respondents (49 per cent) say that the investment climate is less favourable now than in the previous 18 months, with just 21 per cent reporting that conditions have improved and 30 per cent saying the situation is about the same.
This contrasts sharply with responses from the last two years, when views were much more evenly split. In 2013, for example, 33 per cent thought conditions had improved against 34 per cent who said they had deteriorated.
The same proportion (49 per cent) think that investment in their business will either fall or remain the same in the next 18 months: 23 per cent forecast a lower amount of financing and 26 per cent see no improvement. Just 11 per cent think an increase of more than £10 million is likely, while a fifth expect an increase of £1 million or less, with the majority of these respondents believing their firms will see less than £500,000 coming in.
There has been a marked decline in confidence about investment in the wind and marine sector in the last 12 months
While the proportion of respondents predicting no change is similar to recent years, the 23 per cent expecting a fall in investment is significantly higher than last year’s 13 per cent, which in itself was a substantial increase on 2012’s 7 per cent. This suggests the sector’s confidence has taken a beating in recent years thanks to policy uncertainty and the financial crisis.
Despite the gloomier outlook on investment, the industry remains primed for growth. More than half of respondents predict growth of between 5 and 30 per cent in the next year and a half. Almost a quarter (23.5 per cent) expect growth of between 5 and 10 per cent, 16.8 per cent see 10 to 20 per cent growth and 12.6 per cent are confident their companies will be 20 to 30 per cent larger in 18 months’ time. However, the proportion of optimists expecting growth of more than 50 per cent had halved from 16 per cent in each of the last two years to 8 per cent today.
Meanwhile, 11.8 per cent of respondents expected no growth in their business, up from last year’s 8 per cent, while 16 per cent thought their business would shrink, more than double last year’s 7 per cent.
Despite the gloomier outlook on investment, the industry remains primed for growth
Most pessimistic were onshore wind groups, where 18.2 per cent expect shrinkage over the period and 14.3 per cent expect no growth. They were also the least likely to expect growth of between 5 and 10 per cent, the most common growth expectation. Just 22.1 per cent expected this level of growth, compared to 27.4 per cent in offshore wind and almost 32 per cent for wave (31.7 per cent) and tidal (31.8 per cent).
Tidal companies seem the most confident of a breakthrough in the coming months, with 9.1 per cent predicting growth of 50 per cent or more. By contrast, wave companies did not expect this.
Smaller companies were more super-optimistic than larger enterprises. Businesses with between 20 and 100 employees were most likely to expect growth of 50 per cent or more (18.5 per cent), while those with more than 500 staff were least likely to share that view (3.1 per cent).
The largest companies were most likely to expect a steady 5 to 10 per cent growth rate (43.8 per cent), while 40 per cent of mid-sized businesses with between 100 and 500 workers thought they would grow by between 10 and 20 per cent.
Some 85 per cent of respondents think that there will be no more than 15GW of installed onshore wind capacity by 2020. These break down as: a third expect to see less than 10GW, 36 per cent predict between 10GW and 13GW and 16 per cent forecast capacity of 13GW to 15GW.
Forecasting offshore wind capacity, 15 per cent believed it would be in the 13GW to 15GW range by 2020, while 29 per cent expected to see 10GW to 13GW and 34 per cent thought between 8GW and 10GW would be operational by the end of the decade. However, although many see the offshore sector approaching the size of the onshore industry over the next five years, ambitions for the installation of wind farms around our coasts have been tempered compared to previous years. The 45 per cent of respondents who predict less than 10GW capacity is a sharp increase on previous years, with the number of people expecting more than 15GW falling away dramatically (8 per cent in 2014 compared to 25 per cent in 2012) as visibility over the investment climate and UK energy policy has improved and a number of projects have been postponed or cancelled.
Marine energy remains at a much earlier stage of development and 88 per cent of those questioned said that by 2020 there would be 100MW or less of installed capacity. Optimism about deployment levels in the wave and tidal power sectors has fallen sharply in recent years. In 2012, almost half of survey respondents (48 per cent) said there would be between 100MW and 300MW and 28 per cent thought there would be more than 300MW of marine energy capacity installed in the seas around Britain.
POLICY
The reason for the sector’s lowered expectations is clear. Asked if UK government policy towards wind and marine has become more or less favourable over the last 18 months, an overwhelming 79 per cent said that it has become less so. Respondents noted that, for example, “the implementation of policy has taken a stifling and crushing step backwards”, that government policy still lacks conviction and that it fails to provide the certainty needed to give investors sufficient confidence to support projects.
Even though a large majority expressed similar sentiments in previous years (68 per cent in 2012 and 63 per cent in 2013 thought the policy environment had regressed), this year’s figure sees a marked deterioration in sentiment. There is also a noticeable decrease in those who think the policy environment has remained roughly the same, down from 22 per cent in each of the last two years to 12 per cent this year. Just 8 per cent think the situation has improved.
Government policy still lacks conviction and fails to provide the certainty needed to give investors sufficient confidence to support projects
This negative perception was strong across all wind and marine sectors, but strongest among those involved in the onshore wind industry, where 79.2 per cent of those questioned said the situation has deteriorated. This is no surprise, given that the Conservative Party has said that it will withdraw financial support for onshore wind if it wins the next election and that Communities and Local Government Secretary Eric Pickles has called in more than 50 applications for onshore wind projects in recent months.
It is perhaps more surprising that 77.3 per cent of those involved in tidal power also said the policy environment had deteriorated. The least pessimistic sector was offshore wind, but even here some 71.6 per cent thought that the policy environment was worsening.
When it comes to encouraging the offshore wind sector, the most important factors, according to the survey, are price support mechanisms, supportive government policy and the certainty that investors will see a return on their investments.
Some 27 per cent of respondents said energy price support schemes such as Renewables Obligation Certificates and Contracts for Difference (CfDs) are the single most important incentive for development, with a further 13 per cent specifying the availability of CfDs, the support scheme mechanism that will replace the Renewables Obligation from 2017.
Almost a quarter of those surveyed (24 per cent) said supportive government policies and commitment to the industry are the most important factor, with a further 14 per cent citing the need for certainty and confidence, which is strongly linked to government support. Investors’ certainty that they will see a return is also linked to government intent and 17 per cent of respondents cited this as the most important incentive.
Meanwhile, the single biggest obstacle to the offshore sector is seen to be the availability, or otherwise, of CfDs (27 per cent of respondents), followed by government policy (24 per cent). Closely linked to these are uncertainty on returns (18 per cent) and cost (17 per cent).
There has been a slight drop in the proportion of those concerned about energy price support, from 33 per cent last year to 27 per cent this year, which is likely to be a reflection of the fact that the Electricity Market Reform process has come to a conclusion, giving the industry greater visibility about the viability of future projects. This may also explain the reduction in those concerned about the need for certainty, from 25 per cent in 2012 to 14 per cent this year.
By contrast, the tenor of comments from Conservative politicians about renewable energy have contributed to an increase in the percentage of respondents concerned about the need for supportive government policies and commitment, from 19 per cent in 2013 to 24 per cent this year.
There were some encouraging results for the offshore sector. Issues on which there was very little concern include the availability of finance (just 4 per cent said this was a problem), while no-one said that grid connection, supply chain issues or the lack of a skilled workforce were issues to be worried about. Just 6 per cent were concerned about planning issues – possibly a reflection of the fact that there are fewer objections to offshore developments, but also of a clearer regime in place for the development of offshore wind farms from concept to reality.
Back on dry land, the key incentives for the success of the onshore sector are seen as energy price support (31 per cent) and the security of return on investment (30 per cent), while 15 per cent of those questioned saw site availability and planning as the most important factors.
Linked to the issue of energy price support were those answers that highlighted specific aspects of the incoming CfD regime, namely the strike price of CfDs (5 per cent) and the availability of CfDs (4 per cent). Improved grid connectivity and public perception scored similarly (5 per cent and 4 per cent respectively).
The main obstacles to the success of onshore wind projects are the lack of supportive government policies and commitment, cited by 28 per cent of those questioned. This was followed by the related problem of planning issues (20 per cent), the uncertainty of return on investment (16 per cent) and NIMBYism, which was highlighted in 14 per cent of questionnaires.
A tenth of replies highlighted grid connectivity issues as a key barrier onshore. There was very little concern about cost and the availability of finance (1 per cent each) as barriers to development, reflecting the fact that onshore wind is one of the cheapest forms of renewable energy available. Only 3 per cent raised the technical issue of concerns from the aviation sector, suggesting that this is seen as an issue that all parties can continue to resolve. The same small proportion highlighted the availability of CfDs, but concerns over the new support instrument are likely to be covered by the large number of respondents highlighting the energy price support regime as a barrier to development.
It is striking that fears over return on investment and site availability/planning issues have receded since 2013, while there is a big jump in those seeing the energy price support regime as an obstacle to further development.
In the marine energy sector, the main theme is the need for long-term support as the industry seeks to establish itself. Energy price support was cited as the most important incentive for companies by 29 per cent of those questioned with a further 16 per cent saying government targets and infrastructure support are key. A further 27 per cent focused on the need for certainty and confidence in the sector with 13 per cent focusing on the long-term potential of the sector.
Both energy price support and the need for certainty and confidence have become significantly more important over the last 12 months – last year just 1 per cent said energy price support was important while 7 per cent cited certainty and confidence. By contrast, there was a drop this year in the proportion of people concerned about government targets and infrastructure support, down from 34 per cent in 2013 (and 43 per cent in 2012) to 16 per cent in 2014.
There was also a fall in those worried about research and development, from 20 per cent last year to 7 per cent this year, suggesting that the sector is making progress with some of the many challenges it faces.
When it comes to barriers, the relative immaturity of the sector compared to some other renewable technologies is reflected in the fact that 30 per cent of respondents highlighted issues around the availability of finance and 22 per cent said that there are still technology issues to overcome. Driving costs down was highlighted by 15 per cent and grid connection was seen as important by 13 per cent.
All of these factors point to the fact that marine energy has some way to go until it reaches commercialisation. Indeed, the sector’s lack of current concern over a number of other issues suggests it’s still at an early stage of growth. Just 4 per cent cited lack of government involvement and return on investment as important barriers, while only 2 per cent highlighted environmental issues and planning/site availability as serious worries. These issues will no doubt rise up the agenda as companies continue to put devices in the water and start to deploy multi-device arrays.
EMPLOYMENT
Despite the uncertainty and pessimism suggested by some of the answers, the vast majority (79 per cent) of those questioned saw their companies either increasing their workforces in the next 18 months or keeping them steady. Nonetheless, a fifth of respondents thought their businesses would employ fewer people in a year and a half than they do today.
However, the percentage that see employment actually rising has declined steadily, from 70 per cent in 2012 to 54 per cent in 2013 and 44 per cent in 2014. There is some encouragement in that those that previously predicted expansion now think their organisation will maintain current levels of employment rather than cut it. The proportion of respondents expecting a fall in jobs has actually shrunk from 35 per cent last year to 20 per cent this year, while the numbers expecting employee numbers to hold steady is up from 12 per cent to 35 per cent.
Those that previously predicted expansion now think their organisation will maintain current levels of employment
Organisations most likely to predict an increase were governmental or quasi-governmental bodies at 75 per cent of respondents, suggesting that fears over a lack of government support in future may be misplaced. These are closely followed by construction and installation businesses and operations and maintenance, both of which saw two thirds of those questioned predicting an increase. Sectors most likely to expect job cuts were those involved in planning and commissioning site developments (43.3 per cent), highlighting the difficulties some developers are facing in getting projects through the planning system.
Generally, larger companies are the most upbeat about future workforce expansion, with 46.9 per cent of those employing 500 or more staff predicting an increase, and 53.8 per cent of those with between100 and 500 workers expecting a rise in numbers. Meanwhile, the smallest companies are the most likely to contract, with a third of respondents expecting a decrease.
Of those planning to expand, the biggest proportion (36 per cent) will take on just one to five extra members of staff, but almost as many (32 per cent) plan to take on between 10 and 50 new employees. Just under a fifth (18 per cent) will take on up to 10 new people and one in 10 respondents said they expected to create between 50 and 100 new jobs. An optimistic 4 per cent plan to create more than 200 new posts.
The number planning to take on one to five new staff is down on previous years, while those taking on larger numbers have increased, suggesting that the sector continues to add scale.
Half of companies involved in operations and maintenance were most likely to take on five or fewer staff, but a quarter were planning to take on up to 50 and another quarter were planning to hire up to 200 more staff. Those involved in planning, commissioning and site development were most likely to be taking on large numbers of staff, with 28.6 per cent planning to recruit up to 50 new workers, 14.3 per cent taking on up to 200 and the same proportion taking on more than 200 new staff.
Unsurprisingly, companies that are currently small are likely to have smaller ambitions than larger corporations. More than 90 per cent of businesses that employ fewer than 20 people today plan to hire five or fewer people in the next 18 months.
More than half of those companies planning to hire (52 per cent) are likely to hire one to five young workers under the age of 25, down slightly on last year’s 57 per cent. There were increases in the numbers planning to recruit between 10 and 100 employees, adding to the impression of a slow but discernible scaling-up in the industry.
There has been a steady increase in the last two years in the proportion of those questioned saying that the skills levels of the job applicants they interview are adequate. In 2012, 55 per cent of those questioned were satisfied with skills levels, which improved to 65 per cent last year and 68 per cent this year.
However, it is notable that the proportion of people saying skills levels were lacking has not fallen from last year but remained at the same rate of 24 per cent and there are still very few people who think that applicants have abundant skills and qualifications: 5 per cent of this year’s responses, down slightly on last year’s 7 per cent. This is not a problem unique to the wind and marine energy industries. All parts of the economy requiring engineering skills have concerns about the lack of engineers coming through and about and the increasing age profile of the profession. The average age of engineers in the oil and gas industry, for example, edged up to 56 this year.
A few respondents elaborated on their replies. “The British applicants are expensive and unskilled; the foreign ones are affordable and skilled,” said one. Another commented that “core training is in abundance. However, experience, knowledge and know-how is hard to come by due to the immaturity of the market versus the amount of new engineers undertaking training of their own accord to secure careers.”
There will also be a greater pool of experience and knowledge as the industry continues to grow, install more capacity and become more mature.
Methodology
This study was conducted based on the responses to a web-based survey amongst members of RenewableUK, the trade association for the wind, wave and tidal energy sectors. A total of 180 responses were received. The companies that responded to this survey covered a broad spectrum of the industry in terms of both their size and main areas of activity.
INVESTMENT
