The outcome of June’s referendum on the UK’s membership of the European Union (EU) will inevitably increase uncertainty as to the future direction of UK renewable energy policy.
However, the renewables industry is not unfamiliar with uncertainty. The last year and a half in particular has seen significant subsidy cuts and taxation changes by the UK government and increasingly divergent views as between UK political parties and more broadly between the different regions of the UK. The majority vote across Scotland to remain in the EU raises further questions for Scottish renewables policy, particularly given Scotland’s particular suitability for renewables developments.
The format for Brexit remains unknown and a range of different outcomes are possible, including in respect of memberships of the European Free Trade Association and European Economic Area, the potential for negotiated free-trade deals and continued access to the single market and Scotland’s position in post-Brexit Britain and Europe. The impact of Brexit on the legal and regulatory framework for renewables in Scotland will vary accordingly.
Scottish Renewables Policy
In terms of EU law behind UK renewable energy policy, energy directives, state aid guidelines and green energy targets have to an extent driven and underpinned investment in renewables and the development of UK subsidy schemes such as the Renewables Obligation, Contracts for Difference, Feed-in Tariffs and the Renewable Heat Incentive. Although economic uncertainty caused by the referendum result or the future triggering of Article 50 may affect investment in renewables technologies and developments, as greater risks require greater returns, would possible changes in the legal framework behind UK renewables have the same effect?
On the one hand, the UK’s own green energy targets have tended to go beyond those set by the EU Renewable Energy Directive, with UK energy policy having a more significant foundation in the Climate Change Act 2008 than in EU law. Arguably therefore domestic appetite for renewables already outstrips EU requirements. However, the EU targets are legally binding on member states, which can be fined for non-compliance. Leaving the EU could therefore mean failure to adhere to targets without direct adverse consequence, enabling the UK to pull back on investment in renewables.
The potential removal of EU state aid rules (which seek to ensure companies operating in one part of the EU are not disadvantaged by higher subsidies in other parts) and of EU environmental constraints on renewables projects could in principle give the UK more freedom to develop and expand on subsidy schemes and the regulatory framework for developments. Current domestic policy does not however indicate that that freedom would be exploited, and it would remain constrained in some respects by World Trade Organisation regulations.
Since the last general election, there has been increased talk of subsidy-free development and the new possibilities offered by improving energy storage technologies. No doubt the renewables industry will continue to seek out new opportunities to weather the storm of uncertainty affecting it and there will remain domestic political will among many to see renewables continue to form a key part of the UK energy mix.