UK energy policy changes ‘spooking investors’

The sudden policy changes in the UK energy industry have dented investor confidence. The warning from MPs come as they believe there is still “increased nervousness” among some investors looking […]

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By Priyanka Shrestha

The sudden policy changes in the UK energy industry have dented investor confidence.

The warning from MPs come as they believe there is still “increased nervousness” among some investors looking at energy projects.

The government has made a series of policy announcements over the course of summer 2015, which raised questions about plans for meeting the nation’s low carbon objectives.

It includes scrapping subsidies for onshore wind from next month, reducing support for solar projects, ending the Green Deal programme and getting rid of the £1 billion carbon capture and storage (CCS) competition.

The Energy and Climate Change Committee found there has been a dip in confidence since the election in May last year.

What has damaged investor confidence?

Six factors have been identified that are said to have “spooked” investors:

  • Sudden and numerous policy announcements
  • Lack of transparency in the decision-making process, leaving investors to wonder what will happen next
  • Insufficient consideration of investor impacts
  • Policy inconsistency and contradictory approaches sending mixed messages, for example, giving local people a say for wind projects but not shale gas and emphasising the important role of gas while scrapping support for CCS
  • Lack of a long term vision
  • Policy “cliff-edge” in 2020 does not provide sufficient visibility about the size of future Levy Control Framework (LCF) or Carbon Price Floor

The MPs believe “if government is willing to learn from its mistakes, things can now begin to move in a more positive direction”.

They are calling on the government to provide more clarity about how existing policy mechanisms will be used and create a “credible long term vision” for the future of the UK’s energy system. They believe developing a carbon plan to deliver the fifth carbon budget presents an “ideal opportunity”.

Image: Thinkstock
Image: Thinkstock

The government is also being urged to “pay particular attention” to the LCF “which seems to be the root of many of the recent policy alterations”.

The Committee said it is concerned the government is only considering short term costs to consumers.

Angus MacNeil MP, Chair of the Energy and Climate Change Committee said: “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?’

“Nervousness among investors will make it harder and more expensive to build the new energy infrastructure that we need. Any increase in the cost of project capital will ultimately get passed on to consumers through higher energy bills.

“It can take the best part of a decade or more to plan, finance and build new gas-fired power plants, wind farms and nuclear power stations. Decisions made by the government now have long term impacts so it is important that the government thinks carefully about the consequences for investors before leaping into policy decisions.”

DECC said its priority is “crystal clear” and that is to ensure consumers have access to secure, affordable and clean energy supplies.

A spokesperson added: “To deliver this, we are taking the long term decisions to tackle a legacy of underinvestment in our energy system – creating the right environment for businesses to invest in clean, affordable energy and building an energy infrastructure fit for the 21st century. We have been clear that low carbon energy sources such as nuclear, offshore wind and shale gas will play a key role in our energy future.

“At the same time we are rightly taking action to keep bills as low as possible to protect consumers and ensure they get value for money, including by being tough on subsidies so that technologies stand on their own two feet.”