MPs warn of 'dented' investor confidence over UK energy policy
The Government is risking higher energy prices and stalling new investment through 'sudden and numerous' energy policy changes that are denting investor confidence in the UK energy market, MPs have warned today (2 March).
A major new report from the Energy and Climate Change Committee (ECCC) reveals that the continued ‘chop and change’ approach to policies is threatening the UK’s ability to meet its energy security and climate objectives.
The report highlights six key policy factors that, when combined, are denting investor confidence in the sector.
The sudden policy announcements are the main cause for concern, while a lack of transparent decision making, a disregard of investor impacts, contradictory approaches, absent long-term thinking and a 2020 policy ‘cliff-edge’ have all added to the melting pot.
ECCC chair Angus MacNeil 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 Government has made a number of sudden and unexpected changes to policy. This has spooked investors and left them wondering ‘what will be next?’
“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, investors begin 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.”
Yesterday, MacNeil was involved in a heated exchange with Energy Minister Andrea Leadsom, who said she was "sick and tired" of the barrage of complaints being fired at the Department for Energy & Climate Change (DECC) over its punitive cuts to renewable energy subsidies.
A series of unfortunate events
The report notes the UK’s slide out of the top 10 of analyst EY’s respected international league table on renewable energy as a cause for concern on how the Government is promoting low-carbon growth.
With the report urging the Government to promote greater transparency on its existing low-carbon energy policies, the ECCC also calls for clarity on the next three rounds of Contracts for Difference (CfD) auctions and what technologies will be eligible. Economic reporting on the Levy Control Framework (LCF) – which is in need of review - is also requested.
The Government has an unflattering history when it comes to abrupt policy changes in the energy sector with the decision to axe the CCS competition, with only an hour’s warning given to the industry, a particular low-point. The ECCC report includes a statement from energy giant E.ON which expressed concerns over the void left by the many changes.
“Considered individually, some of the recent changes may appear reasonable, but the combination of so many changes in such a short period of time with limited or no consultation has left a void. Investors have been left questioning the future direction of Government policy and its commitment to long term targets,” the statement from E.ON reads.
Timeline: Conservative Government energy policy changes
Since the elections in May, the UK Government has introduce a series of policy announcements that have left investors nervous and MPs worried about ‘pulling out the last Jenga brick’. The timeline below shows the main policy changes since the elections last May.
- 30 May: 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); while 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
ECCC Investor confidence report: Industry reaction
Alasdair Cameron, renewable energy campaigner, Friends of the Earth
"MPs are right to slam the Treasury-led Government mess that’s being made of UK energy policy. It’s driving away investment and making it much harder to build a clean power system fit for the 21st century.
“Constant ministerial attacks on renewable energy have confused and frustrated businesses and investors, and this will inevitably lead to more expensive electricity and more pollution.
“The government must take a forward-looking approach to our energy needs. This means pulling the plug on climate-wrecking fossil fuels, and getting behind energy efficiency and Britain’s huge wind, wave and solar potential.”
Nick Molho, executive director, Aldersgate Group
“We have to recognise that the Government has faced some important cost pressures leading to some of its recent policy decisions in the low carbon and energy efficiency sector. But the Energy and Climate Change Select Committee is right to highlight the recent dip in investor confidence in the sector. What has been particularly damaging is the lack of an alternative plan accompanying recent policy changes, rather than the changes themselves.
"Confidence is essential to attracting investment at sufficient scale and at the lowest possible cost in the energy efficiency and low carbon sector and needs to be a priority for the government in 2016. A rapid adoption of the fifth carbon budget, together with a clear plan to increase investment in energy efficiency, low carbon generation and low carbon heat as well as to support the demonstration of carbon capture and storage technology would be an important step forward in re-establishing that confidence.”
Richard Black, director, the Energy and Climate Intelligence Unit (ECIU)
“This report pulls no punches in setting out the extent to which recent abrupt changes in energy policy have spooked investors, so putting an upwards pressure on bills.
“One investment firm puts the cost of policy tinkering at £3.14bn per year, which, if it were applied only to domestic consumers, would add as much as £120 per year to the average household bill.
“However, the Government has a couple of ideal opportunities ahead to build confidence, by setting out support measures for the period 2020-25 clearly in this month’s Budget, and agreeing a strong Fifth Carbon Budget."
Nina Skorupska, chief executive, REA
“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.”
Paul Barwell, chief executive, Solar Trade Association
“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 the market’s 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, 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 £300million on electricity wholesale costs in 2015, a figure that will increase further in 2016."