Douglas Taylor: Financial spark needed to re-energise renewables sector

The renewable energy and financial services sectors may be the calling cards for a successful Scottish economy, but recent and proposed changes in the renewables industry are creating uncertainty, which is not helping this essential area to prosper.

We need new sources of energy and we need them fast. In the UK in the next eight years, 33 per cent of our coal-fired power capacity and 67 per cent of our oil-fired capacity of our power stations and nearly 75 per cent of our nuclear capacity will close down. The lights could go off - this is a real concern.

The World Energy Outlook 2010 acknowledges that the potential of renewables to meeting our energy demands is unquestionably large, but "how quickly their contribution grows to meeting the world's energy need hinges critically on the strength of government support to make renewables cost-competitive with other energy sources and technologies".

The current state of flux of our renewable energy policies and the changes that the UK government is making are significantly impacting the potential success of our renewables sector.

The introduction of the renewable heat incentive last month is to be applauded, but we have been provided with only some of the information and it is not yet entirely clear how that will play out.

The current reform of the electricity market is a hugely-important development with very significant ramifications across the UK. However, there are concerns, particularly in Scotland where the increased financial incentives that the Scottish Government currently offers to new tidal and wave technologies may be removed.

In addition, the UK government tinkered with the feed-in-tariff (FIT) regime last month by altering the fiscal incentives available for large-scale electricity generating solar panel developments. While the FIT changes will not be retrospective in their nature and will not apply to developments currently generating electricity, there are a number of developments in process. Some have obtained planning consents and all will have involved considerable sums of money being spent and are facing the rug being pulled from under their feet.

The UK government said it changed the FIT to avoid a boom and bust renewables regime - but we need an energy boom. It also said the change would create certainty. I disagree; there is no guarantee that they will not make more changes next year and beyond.

We also need a strong hand by the Scottish Government. It is conceivable that the fiscal incentives offered in Scotland could be more attractive than they are in the rest of the UK by making subtle changes to energy policies. We need the next Scottish Government to be decisive. It is essential we ensure Scottish renewable energy development opportunities are attractive to domestic and international investment.

We are now in a position of not knowing whether the tide of fiscal incentives is coming in or going out.This has a major affect on bringing investors into this sector. At a recent renewables conference that I chaired, the overriding message was that projects will not get off or into the ground without "clarity, confidence and certainty" and strong political commitments.

Similarly, at a recent meeting with a number of housebuilders, the message was that the costs involved are fluid and it is unclear how prospective purchasers will react to the incorporation of renewable technologies. As a lawyer, I marginalise the risk in projects. This is challenging when the policy and legislation keeps changing so unpredictably in a sector that is still relatively embryonic with many other variables.

Most funders are not bound to invest in renewables or, indeed, in the UK. They could turn their backs on this sector, which needs investment to succeed. Scotland could, as a result, find itself in a position where it is considered to be an unattractive investment opportunity and that really will be bad news.

We need certainty and a strong hand by the next Scottish Government. The renewables sector is too important to be tossed around like a political football. It needs certainty. Without solid fiscal incentives, this revolution will stutter and fail, which would be a massive blow to our economic recovery.

• Douglas Taylor is partner and renewable energy lawyer at law firm Davidson Chalmers