New plans by the UK government to allow onshore windfarms to compete for subsidies could see institutional investors return to the sector, according to Aberdeen Standard Investments.

Under the proposals unveiled last week by business secretary Alok Sharma, which have been welcomed by the renewable energy industry’s trade associations, onshore wind projects will be able to compete in auctions under the contracts-for-difference (CFD) scheme in the next auction scheduled for 2021.

The policy reversal – the UK close the CFD scheme to onshore wind in 2015 – is unlikely to create a glut of new projects but it could help attract institutional investors to the space.

Alex Campbell, investment director at Aberdeen Standard Investments, said the lower risk profile of developing onshore wind compared with offshore wind could attract investors that have been put off the latter as well as those that have looked to non-UK onshore wind investments in recent years.

Offshore projects have been “changing hands for mid-high, single-digit equity returns”, Campbell said, expecting onshore to exchange “for closer to mid-single digits”.

Investors “who’ve been active in the UK and drifted overseas to find better onshore opportunities” could return to the UK, he said.

The government’s shift on onshore wind is intended to help it deliver its legally binding commitment to reach net-zero carbon emissions by 2050. Although CFDs have already secured 13GW of new offshore wind capacity since they were introduced in 2014, the government’s Committee on Climate Change has indicated that the net-zero target requires a quadrupling of low-carbon generation. The change in policy appears to be an admission that the offshore wind projects pipeline may not be sufficient to meet the target.

The CFD system guarantees a fixed amount of payment per megawatt-hour (MWh) to successful projects over a 15-year period, subsidised if necessary by electricity bills.

It is difficult to predict what scale of onshore wind will be procured as a result of the proposals, which are currently out to consultation. Sharma’s announcement did not indicate what budget would be allocated to onshore wind or whether there would be a cap on the level of capacity procured. According to the consultation document, onshore wind projects will, as previously, be placed in the ‘pot’ for established technologies. Offshore wind, which is generally more expensive, will remain in the pot for new technologies, so onshore and offshore projects will not compete against each other.

The announcement makes clear, however, that project developers will still need local support in order to win planning consent for their projects; although they can appeal if a local council rejects their application, they are required to show local support, such as through consultation. Planning consent is one of the preconditions for entering a CFD auction.

“It’s probable that there will be a limited increase in the amount of renewable generation,” said Campbell. “I think it will be marginal – I don’t think it will be dramatic – partly because CFD pots have historically been quite limited and because there’s an interplay with local government planning approaches.

“There’s only so much land in the UK, and communities and planning authorities for a while have had enough, so it will also need a rethink of planning approaches.”

As part of its changes to CFD auctions, the government also proposes to facilitate development of energy-storage projects. To be economic, storage projects must often be located next to associated generation, such as wind or solar farms, but this is generally unfeasible for wind farms located in the sea.

Aberdeen Standard Investments is optimistic that support for onshore wind could stimulate not only more storage projects but the development of a domestic supply chain.

“If we can find some home-grown technologies that work well and expand those, that’s a good thing for UK plc and for UK investors,” Campbell said.