Andrew Buglass: Energy market reform must be right to help raise cash

I don’t think anyone doubts the logic behind the need for changes. The reforms are designed to ensure the UK’s wind industry is as competitive as possible. When the dust settles, we hope projects will be financeable and the number, scale and pace of projects will rise.

In basic terms, it will require a more transparent and understandable subsidy system that makes the UK more attractive to external investors. If we are to continue attracting project finance, we have to make sure the UK offers the best investment climate, so that investors feel confident directing their money here, in preference to, say, Germany or the Netherlands. The long-term nature of these projects mean investments are typically made over 20-30 year periods, so investors understandably want to see a degree of certainty around a regulatory environment before signing up to fund schemes.

Encouragingly, there are plenty of deals happening and at RBS we are being kept very busy; we were the UK’s biggest renewables lender in the first half of this year, with a 20 per cent market share. In the past 12 years, we have financed 9GW of renewables globally, nearly twice the UK’s total renewables capacity.

The pace at which offshore wind projects are coming on-line is slow, but there has been plenty of movement in other sectors, including onshore wind, biomass and solar. Meeting carbon-reduction targets means pursuing a wide range of technologies, not just putting all your eggs in the offshore wind basket.

The biomass sector is an interesting example and one that still has far less public profile than wind. RBS recently financed the 7.2MW Helius combined heat-and-power (CHP) plant in Moray, the first UK biomass plant to use whisky by-products in this way. It is partly fuelled by the by-products of distilleries around Rothes. It takes biomass co-products from the manufacturing process and burns them to produce electricity, while steam from the process evaporates liquid residues to form an animal feed.

The plant is expected to start operating in 2012 and to save 46,000 tons of carbon dioxide each year. This kind of innovative project is significant in demonstrating what can be achieved outwith the more-established sectors.

There is huge potential in biomass, but there too, people are waiting for the outcome of the ROCs review, due next month. They want to know what level of subsidy will apply and how this affects the business case. The same is true for solar power. However, solar installations do not create large numbers of jobs – it’s wind energy where the big numbers start to kick in. And that’s where Scotland has global ambitions and where it gets more bang for its buck.

Again, in this area there has been considerable activity recently, albeit a slight hiatus as everyone waits for clarity on where government policy is heading. RBS was involved in financing the UK’s first onshore wind farm in Cornwall and has more recently financed Falck Renewables’ Kilbraur wind development in Sutherland. We are also involved in the London array offshore wind farm. We like the offshore wind sector very much and see its enormous potential.

So the picture is one of ongoing activity in the sector, but with some unease over exactly what the future holds. Finance providers are very involved in the discussions on future policy direction and we’re working closely with government to ensure we are well-informed about the way the wind is blowing. Conferences such as the SLCI event are an invaluable part of that process.

Yes, this area is fiendishly complex and yes, we have seen a slowdown of projects in the short term. However, if we get the reforms right we can increase the level of investment and build-out, and ultimately make the UK the destination of choice for renewable energy finance.

l Andrew Buglass is head of energy in the structured finance unit at Royal Bank of Scotland.