2 Presentation title - edit in the Master slide

Deborah Sacks deborah.sacks@trade.gsi.gov.uk March 2017

Investing in the Green Economy

in the UK

3

UK Market Overview

Population

England 54.79 million

Scotland 5.37 million

Wales 3.10 million

Northern Ireland 1.85 million

UK Total 65.14 million

GDP £471,000 million

equivalent to CAD 780,710 million

Strong Track Record:

The UK remains one of the major global locations for international

companies seeking to establish and grow their HQs. According to the EY

UK attractiveness survey 2016, the UK has a 53% market share of

headquarters investments across Europe.

4

Doing business in the UK:

Every year, the World Bank

ranks the ease of doing

business globally. The 2017

rankings are based on the

average of the economy’s

rankings on 10 topics:

Starting a business

Dealing with construction

permits

Getting electricity

Registering property

Getting credit

Protecting investors

Paying taxes

Trading across borders

Enforcing contracts

Resolving insolvency

Uniquely among Europe’s major

economies, the UK is the only country

whose labour force is expected to grow

over the next 15 years.

The UK has the highest percentage of

adults with tertiary education in Western

Europe

The UK has the lowest rate of

corporation tax in Europe and the G7

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Reasons to invest in UK renewable energy

A mature market for wind and solar PV, with attractive, stable, long

term subsidies for operating assets.

• Operating wind and solar generating assets benefit from inflation-linked,

Government-backed revenue stream* in the form of:

• a feed in tariff (“FIT”) grandfathered for 20 years; or

• tradable certificates (“ROCs”) grandfathered for 15 years; or

• a Contract for Difference (“CfD”) awarded to successful bidders in a 2015

auction for a term of 15 years.

• Returns on these types of projects are decoupled from the ups and downs of

the financial markets, and considered by many institutional investors to be far

better than government bonds.

• In the past 12 months there has been a significant increase in secondary

market sales activity, consolidation of ownership of smaller operating assets

into larger portfolios and optimisation of the operation of such assets to

generate returns in excess of other infrastructure assets (an unlevered IRR of

6-9% net is typical).

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What impact could BREXIT have?

In general, the impact on investment in energy and

infrastructure should be much less than on some other

sectors • As an island economy, UK infrastructure mostly caters to the domestic

market and is therefore largely unaffected by cross-border considerations

with the EU

• The enormous need for new infrastructure in the UK remains regardless of

BREXIT, especially given a growing population (unlike many other EU

countries)

• UK energy and infrastructure assets are generally regulated by UK, not

EU, agencies

• The UK has its own currency and was never part of the Eurozone

• The E&Y attractiveness index for inward investment into the UK ranks EU

membership at only 7th in the top 10 reasons for investing in the UK

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UK Renewable Energy Targets

The Climate Change Act 2008 sets out

UK policy: Targets are

• to meet 15% of energy needs from

renewable sources by 2020.

• to reduce emissions by at least 80%

of 1990 levels by 2050.

• to generate 30% of electricity from

wind, solar and other low-carbon

sources by 2020

• to generate 12% of heating energy

from renewable sources by 202

• 10% of transport fuels to come from

renewable sources by 2020

Annual support for renewables is expected to double during this

Parliament to more than £10 billion:

There is £730m of funding for renewables (in particular for less established

technologies including offshore wind) through the Contracts for Difference

mechanism

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UK Energy Market Overview

The energy mix in the UK is undergoing fundamental changes in the coming years,

with coal power stations closing, renewables growing and new nuclear coming on

stream: Low carbon energy accounted for 50% of electricity generation in the UK

by the end of 2016 (77% in Scotland).

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UK Carbon Emissions

UK emissions were 37% below 1990 levels in 2015. However, current

projections show that the UK will exceed its carbon budget in the period

2023-2027

2008-12 2013-17 2018-22 2023-27 2028-32

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UK Renewable Energy

There is an on-going

debate about the

affordability of energy in the

UK, since domestic bills

have increased significantly

in recent years. 480

490

500

510

520

530

540

550

560

570

580

590

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Average annual domestic electricity bill (£)

The priorities in the UK are mainly

• Off-shore wind

• Biomass, Biofuels and Energy from

Waste

• Heat Networks

There is also activity in solar and hydro

including tidal stream and tidal lagoon.

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UK electricity networks

All UK electricity network assets are privately owned and regulated by an

independent economic regulator

• Electricity transmission networks are high voltage 110kv and upwards electricity transmission

cables which send electricity over long distances.

• Electricity distribution networks are lower voltage electricity cables which send electricity over

short distances. The transmission network works on a national basis and the distribution

networks on a regional basis. There are 3 transmission networks in the UK and there are 14

regional electricity distribution companies.

• Regulation is carried out by the independent economic regulator Ofgem .

• Ofgem sets revenues for transmission networks for 8 year periods through an iterative ex

ante business plan review process.

• The regulator has specific responsibilities and powers which are set out in law, these

enshrine the regulators independence and reduces political risk.

• There are different regulatory regimes for each new type of electricity network:

• Offshore Transmission Operators (known as “OFTO”),

• Competitively Allocated Transmission Operators (known as “CATO”),

• electricity interconnectors; and

• the traditional monopoly transmission network (operated by National Grid).

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UK off-shore wind

New offshore wind projects are eligible to bid in early 2017 for a

Contract for difference (CfD):

• This is a 15-year contract under which a generator is paid the difference

between the market price and the “strike price”, indexed against

inflation, for the term of the CfD commencing from commissioning (see

the Electricity Markets Reform section of www.gov.uk for further

information).

• CfD strike prices for offshore wind in earlier auctions cleared at £119

MWh for commissioning 2017/18 and £114 MW/h for commissioning

2018/19 as against a cap set prior to the auction of £140 MWh.

• The UK Government has announced that the strike price for offshore

wind in next CfD auction (to be held in early 2017 for commissioning in

2020/21) will be capped at £105/MWh Bids are expected to be

significantly lower than the cap (perhaps as low as the 2026 target of

£85/MWh

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Energy Storage

A key challenge is delivering flexibility, not just capacity.

In 2016 the National Infrastructure Commission recognised the

importance of both storage (e.g. battery, air compression,

pumped hydro and other new technologies) and interconnectors

to creating a more flexible network, improving security of supply

and reducing cost to the consumer, particularly as more

intermittent generation comes on-line.

The UK Government and the UK

Government supports the delivery

of storage to the system through,

amongst other things, the auction

of long term contracts for capacity

volumes.

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UK Waste Market Overview

The market is being driven by…

• Landfill tax – now £84 (CAD134) per tonne for biodegradable waste

•Increasing recognition of the role of resource efficiency and the circular

economy

• The need for more anaerobic digestion (AD) of food and farm waste,

better systems for obtaining high quality feedstock and advanced

technologies (gasification and pyrolysis) and energy from waste with

combined heat and power (CHP).

Through…

• Initial public sector-led investment in

strategic facilities

• Improved understanding of waste flows

and the quantities and types of material

available for a range of treatment types

• Consistent regulation.

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UK Market Overview

Opportunities exist in…

• Innovative collection systems to preserve the quality of waste material

• Obtaining value from recyclate

• Re-processing of recyclate and waste streams to bring about the use of

waste materials in new products

• Efficient treatment of residual waste to quality as an energy source

•Demonstrated by…

• Increases in recycling and

treatment rates

• The development of reprocessing

facilities for waste materials at all

stages of the waste hierarchy

• Growing involvement in the sector

by a wider range of companies in

the renewable energy sector

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Waste management in the UK

C&I; 47 567

Construction; 100 230

Households; 27 506

Other; 24 716

Waste generation split by economic activity

Composition of Municipal Waste

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Destinations of waste derived fuel products from the UK from

January 2014 to September 2014

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The Challenges and Opportunities in the UK

• Secure a site

• Secure a feedstock supply chain (see next slide)

• Identify markets for outputs

• Gain planning approval

• Deliver against regulatory requirements

(Environmental Permit form Environment Agency)

• Secure funding

Development of a waste site will

generally take several years. For

a project to successfully come to

fruition it usually needs to solve

the following issues:-

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Management methods for Commercial &

Industrial Waste

Criteria for site

selection will

be dominated

by the choice

of technology

and activity

taking place on

the site and the

potential

consequential

impacts:-

• Local planning policies

• Proximity of housing

• Potential visual impact

• The historic environment

• Local air quality

• Flood risk

• Local environmental conditions having a significant

bearing on air or odour issues.

• Potential impact and accessibility for new traffic

generated by the facility

• Proximity of local feedstock sources

• Availability and suitability of grid connections

• Availability and accessibility of local heat demand

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Potential for Growth in Anaerobic Digestion

Today the AD industry is currently contributing 570MW to the UK energy

supply

• The industry has the potential to contribute 80TWh, equivalent to 30%

of UK domestic gas or electricity demand. • AD could be worth £4bn to

the UK economy.

• Today the global AD supply chain is worth over $9bn, and is projected

to double by 2020.

• Large global companies, such as GE and Dupont, are now growing the

market.

21 Presentation title - edit in the Master slide

Deborah Sacks

Department for International Trade

Renewable Energy Team deborah.sacks@trade.gsi.gov.uk 44 7290 257943