MPs call on Govt. to restore investor confidence in UK energy sector

 

Commons Energy Cttee reportEnergy MPs have today published a new report warning the UK Government that there is increased nervousness among some investors looking at energy projects in the UK.

Investor confidence has been dented by a series of ‘sudden policy change’s since the election, which may lead to a hiatus in project developments and threaten the UK’s ability to meet its energy security and climate change objectives.

Britain drops out of World Top 10 investor-attractive renewable energy markets: Scottish Energy News – 16 Sept 2015; http://goo.gl/n03Zw0
Britain drops out of World Top 10 investor-attractive renewable energy markets: Scottish Energy News – 16 Sept 2015; http://goo.gl/n03Zw0
Angus MacNeil. MP
Angus MacNeil. MP

Angus MacNeil MP, (SNP, Western Isles) Chairman of the Commons Energy Committee said: “Billions of pounds of investment is needed in order to replace ageing energy infrastructure, maintain secure energy supplies and meet our legally-binding climate change targets.

“Since coming to office in May, the UK Government has made a number of sudden and unexpected changes to policy.  This has spooked investors and left them wondering ‘what will be next?’”

The Government has cut support for onshore wind and solar, ended the “Green Deal” energy efficiency programme and cancelled a long-standing competition to deliver carbon capture and storage.

The Committee heard that the contradictory signals coming from Government were causing some investors to put projects on hold, until there was more clarity on energy policy. Other factors affecting investor confidence include a lack of transparency in the policy decision-making process and a policy “cliff-edge” in 2020.

MacNeil added: Just two months ago, a historic new global climate agreement was signed in Paris.  But when the UK Government talks about using more gas while simultaneously cutting funding for carbon capture and storage or the need to control costs while halting onshore wind –  which is the cheapest form of low-carbon energy – investors begin to question how committed the Government really is to tackling climate change.”

“The Government must set out a credible, long-term vision for the future of the UK’s energy system. The Government will this year have to produce a plan setting out how we will keep on track to reduce our carbon emissions in 2030 and beyond.  This is an ideal opportunity to rebuild confidence in the direction of travel for the energy sector in the UK.”

“We are concerned that the Government is only considering short-term costs to consumers when it makes energy policy decisions. It needs to pay more attention to the impact of its decisions on the energy prices paid by the next generation of bill payers. Cutting support for low-carbon energy today may prove to be a false economy in the long-run.”

The report also argues that the Government needs to factor the impacts that its decisions are having on investor confidence more explicitly into the policy making process.

Dr. Nina Skorupska
Dr. Nina Skorupska

Long-frustrated with “sudden and severe”, UK energy policy changes, Dr. Nina Skorupska CBE, Chief Executive of the Renewable Energy Association, commented:

“The report shows that a lack of vision has damaged confidence and is making urgently needed new energy projects more expensive, raising costs for future generations.

“Since the election the government has created barriers to deployment for the most cost-effective technologies such as solar, biomass, and wind. The government talks about reducing costs to consumers, but their decision to instead support nuclear and subsidise new diesel and gas in the capacity market is adding new expense.

“Following this report the government now faces a frustrated investor community, a concerned public, and a wall of questions that need to be urgently answered. The renewables industry seeks clarity- when will CfD auctions take place and what technologies will be eligible, what will the Carbon Price Floor rise to past 2020, and what is the government’s long-term vision?”

The full report identified six factors that have combined to damage investor confidence:We found that the Government’s actions have clearly had an impact on the confidence of many investors. While the effect is not as great as has been experienced in some other countries—where the implementation of retroactive policies has caused investment to collapse – there nevertheless has been a dip in confidence since the election in May 2015.

Paul Barwell, Chief Executive, Solar Trade Association, commented: “This influential Committee has added its voice to the growing chorus of criticism of the secrecy surrounding the Levy Control Framework budget.

“The best way to ensure market confidence and trust is to be open with what is being spent, how much is left and how you are managing and forecasting future spend. Despite six months of promises, the Government has still to properly account for the apparent sudden increase in expenditure which has been used to justify the rapid withdrawal of support for the solar industry.

“The Solar Trade Association is also calling for the Levy Control Framework to be managed accurately, so that annual spending caps change as wholesale prices go and up and down.

“In the real world wholesale prices have dropped far more than Government ever anticipated so the Levy Control Framework needs to adapt to this reality. The Good Energy report showed that solar saved £300 million on electricity wholesale costs in 2015, a figure that will increase further in 2016.”

“Large, and even medium-sized, solar is now entering an investment hiatus because the Government has taken away virtually all support for projects over 1MW in size, with no plans for future support.

“This is worse than just a knock to investor confidence – it is a fundamental lack of understanding of the shape of our future energy system and the vital role of solar power.”

This is most clearly illustrated by the UK’s position in the EY Renewable Energy Country Attractiveness Index, which fell from 8th place in June 2015 to 11th place in September 2015.

(1) Sudden and numerous policy announcements have marred the UK’s reputation for stable and predictable policy development.

(2) A lack of transparency in the decision-making process has led investors to question the Government’s rationale for policy changes and to wonder “what will be next?”

(3) There has been insufficient consideration of investor impacts, exemplified by insufficient consultation and engagement ahead of policy decisions.

(4) Policy inconsistency and contradictory approaches have sent mixed messages to the investment community about the direction of travel. Examples of this include:claiming to want to decarbonise at lowest cost while simultaneously halting onshore wind;

– giving local people a say in wind consents but not shale gas; and

  • emphasising the important role of gas while scrapping support for carbon capture and storage.

(5) The lack of a long-term vision has made it more difficult for investment committees to make decisions about projects that are, by their nature, long-term endeavours.

(6) A policy “cliff-edge” in 2020, does not provide sufficient visibility about the size of the future Levy Control Framework (LCF) budget or what will happen to the Carbon Price Floor. This is a problem when projects can take five years or longer to go from conception to completion.

It has been estimated that between 2014 and 2020, the UK could need to invest up to £100 billion in the electricity system alone.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/331071/DECC_Energy_Investment_Report.pdf

Commons Energy Cttee reportThe Government has made a series of policy announcements since the election that have collectively contributed to investor nervousness:

  • May 2015, The Conservative Party Manifesto pledge to “halt the spread of onshore windfarms”
  • 18 June, DECC announces early closure of the RO for onshore wind
  • 8 July, Summer Budget announcements on the Climate Change Levy (CCL);
  • OBR publishes figures on the amount of funding left in the Levy Control Framework
  • 10 July, HMT Productivity Plan Fixing the Foundations announces scrapping of Zero Carbon Homes
  • 22 July, DECC announces cuts to RO for solar PV and biomass and FIT accreditation
  • 23 July, DECC ends funding for the Green Deal Finance Company, ending the Green Deal
  • 19 August, Consultation on changes to Feed-in Tariff accreditation closes
  • 27 August, DECC publishes consultation on a review of the Feed-in Tariffs scheme
  • 2 September, Consultation on changes to financial support for solar PV closes
  • 8 September, Impact Assessment published on closure of RO for onshore wind
  • 9 September, DECC announces decision to end pre-accreditation for new participants in the Feed-in Tariff
  • 23 October, Consultation on review of the Feed-in Tariff scheme closes
  • 18 November, Amber Rudd reset speech
  • 25 November, Autumn Statement and £1bn CCS competition cut
  • 17 December, Solar FITs decision announced

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