24th Jun 2016
by: Solar 21
Issued by Solar 21, 24/06/2016
What is the impact of Brexit on UK energy policy and ROCs (Renewable Obligation Certificates)?
We believe that the UK decision to exit the EU will not have any impact on UK energy policy given that the UK is still bound by national and international decarbonisation obligations. It is anticipated that renewable and low-carbon energy development will continue to form part of UK Government climate-change policy.
Indeed, Britain’s own unilateral Climate Change Act 2008 imposes even tougher requirements for cutting carbon emissions. Under the Act, the UK must cut its carbon emissions by 80 per cent on 1990 levels by 2050. The Committee on Climate Change states that “The proposed UK carbon budget covering the same period (2028 to 3032) is tighter than our estimate of the UK share of the EU 2030 target.”
Another important reason for maintaining the UK’s current commitment to renewables is energy security. A key component of the UK’s policy on energy security is to increase the use of low-carbon technologies to reduce UK dependence on international oil and gas markets in the longer term and maintain diversity in the domestic energy sector. Therefore the government’s support via the ROCs system for the construction of large-scale renewable energy infrastructure such as Biomass 21’s Hull development is a key part of delivering on this strategy.
What will the effect be on sterling and the Euro/sterling exchange rate?
While volatility is expected in the short term, we fully expect sterling to recover after the initial knee-jerk reaction and well before investor exit in 3 years’ time. As we are still in the fund-raising period, the Biomass project and new investors will actually benefit from a weaker pound by getting more “bang for their buck” in the short term.
An assured address by the Governor of the Bank of England, Mark Carney, has appeared to settle the nerves and markets have realised the sky has not fallen on their heads. The key message is that “The Bank of England has planned for this eventuality and put in place extensive contingency plans to ensure that the core financial system is well-capitalised, liquid and strong. This resilience is backed up by the Bank of England’s liquidity facilities in sterling and foreign currencies. All these resources will support orderly market functioning in the face of any short-term volatility.”
http://www.bankofengland.co.uk/publications/Documents/news/2016/056.pdf
How will this impact on the key contractors to the project in the UK?
Neil Burton, MD of CF Struthers, the plant manufacturer, does not foresee any impact on his business from Brexit. All their orders are taken in sterling so they are not exposed to currency fluctuations. There could actually be a positive effect for CF Struthers as much of their business comes from overseas customers who may benefit from a weaker sterling in the short term.
It is worth pointing out that by the time Britain invokes article 50 and goes through the two-year process of leaving, we intend to have completed the build and exited the investment.
If you are a broker or investor and have any specific questions, we will be happy to answer them. Solar 21 and our key partners are positive that this result will not have an impact on the Hull Biomass project, and, apart from the short-term currency volatility, which we are monitoring, it is business as usual.