The UK has slipped one place to eighth in the latest edition of EY’s biannual Renewable Energy Country Attractiveness Index (RECAI) due to a slowdown in investment ahead of the planned departure from the European Union.

EY said spending in the third quarter of 2018 was down 46 per cent year-on-year amid speculation over the impact of Brexit on power exports and the price of imported equipment.

The firm said there were “few positives” to draw from the recent budget, noting a lack of further encouragement for investment in renewables or low-carbon transport.

EY global power and utilities corporate finance leader and RECAI editor Ben Warren, said: “An uncertain world market has characterised the latest index, with some of the majors waiting to see how geopolitical fortunes play out – including Brexit and ongoing trade hostility…

“But while leading markets are reluctant to make decisive moves in this climate, the inertia will likely be temporary as the renewable energy sector continues to mature.”

Source: Renewable Energy Country Attractiveness Index, EY

The report also examined the issue of “price cannibalisation”, whereby existing renewable generators with near-zero marginal costs depress prices in the wholesale market, undermining the financial viability of new merchant projects without access to subsidies or price guarantees.

“Price cannibalisation is a big concern,” said Daniel Radov, director at NERA Economic Consulting. “We’re already seeing solar eroding peak prices in Germany and California. There are big risks to merchant generation and investment in renewable energy.”

Cornwall Insight has previously forecast revenues for a representative 10MW onshore windfarm to fall by 34 per cent between 2018 and 2031 as result of price cannibalisation. It expects revenues for a typical 5MW solar farm to decrease by 22 per cent over the same period.

Mike Mahoney, head of wholesale and modelling at Cornwall Insight, told EY: “Without some sort of assurance of minimum revenues, developers won’t be able to raise as much low-cost project debt, forcing up their financing costs.

“This is likely to restrict development to those able to fund projects with greater proportions of equity, such as big utilities and oil companies.”

Cornwall has suggested the contracts for difference mechanism could be amended to provide “one-way floor price contracts”. Unlike the current contracts, they would allow generators to reap the rewards of higher power prices. However, generators would first have to return any payments they received when prices fell below the floor.

“This becomes a backstop rather than a subsidy,” Mahoney explained, “offering price certainty and allowing renewables generators to bid lower floor prices in auctions.”

Another possibility would be to allow renewables to compete in the capacity market as the government is currently considering.

Anthony Tricot, economic advisory assistant director at EY, said: “This could provide a more stable revenue stream alongside the more volatile power price … but it would still be a challenging investment decision, as any capacity payments to renewables projects would be quite small compared with those to equivalent dispatchable capacity, given renewables’ intermittency.”

However, Radov questioned whether renewables should be protected from price cannibalisation, which he argued would incentivise generators to produce or store power for when it is needed: “I’m not sure that the remedy is to further shield renewables from fluctuating prices. If you’re looking for policy remedies, we should be looking at incentives to shift demand or encourage energy storage.”