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Investors unnerved by stop-start energy policy

Investors have been unnerved by sudden Government policy changes that threaten the UK’s ability to meet energy needs and climate change objectives, according to MPs.

The Energy and Climate Change committee, a watchdog for DECC, says that uncertainty may have led to a hiatus in project developments, although the impact of this will only be apparent in three to five years’ time.

It gives six reasons for the uncertainly:

  • Sudden and numerous policy announcements
  • A lack of transparency in the decision-making process
  • Insufficient consideration of investor impacts
  • Policy inconsistency and contradictory approaches
  • Lack of a long-term vision
  • A policy ’cliff-edge’ in 2020

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

The committee report, Investor confidence in the UK energy sector criticises ministers for not holding a formal consultation on their decision to close the Renewables Obligation early.

There is also concern that change to the Levy Exemption Certificates was brought in on the day of the Budget without any engagement or consultation, even though it had significant effects on the share prices of several investors in renewables. Drax’s share price, for example, dropped 28% that day, wiping £425m off the company’s value.

Angus MacNeil, chair of the committee said: “When the 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 question how committed the Government really is to tackling climate change.”

He warned that nervousness among investors will make it “harder and more expensive” to build energy infrastructure, which will be passed on to consumers through higher energy bills.

“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 Government has made a number of sudden and unexpected changes to policy. This has spooked investors and left them wondering ‘what will be next?’ ”

He said that the committee was concerned that the Government was considering only short-term costs to consumers when it made energy policy decisions.

The report called for greater transparency and clarity on the Government’s existing low-carbon energy policies “as a matter of urgency”.

MPs want a detailed plan concerning the Contracts for Difference auctions, the mechanism by which the renewable energy contracts are supported. They urge the Government to announce when the next round of auctions will be, which technologies will be eligible and how much money will be available.

Manufacturers’ association EEF said the investigation’s findings came as no surprise but should serve as a “clarion call” for the Government to establish a “credible and coherent energy strategy during the course of this year”.

Claire Jakobsson, EEF head of energy and environment policy, said: “Last year’s “energy reset” speech from the Secretary of State, was an attempt to provide a sense of direction, but as yet it has not been backed up by policy decisions on the ground. 

“Above all, the Government needs to provide certainty over Levy Control Framework spending in the 2020s - how much there will be, what technologies will have access to it and on what terms. This week’s announced changes to the Capacity Market should help deliver investment in gas generation, but the long-term viability of these plants is heavily reliant on a CCS strategy from Government – and right now this is in complete disarray.

“The energy sector’s low carbon transition is one of massive upheaval. It is Government’s job to smooth this transition as much as possible – at present it is falling somewhat short of this task.”

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