‘Spooked’ investors need policy certainty: ECCC

The government needs to lay out “a credible, long-term vision for the future of the UK’s energy system” in order to calm the nerves of investors, according to a report released by the Energy and Climate Change Committee (ECCC).

The paper said that policy changes over the summer of 2015 – such as the early closure of the Rewewables Obligation – “took many stakeholders by surprise” and “raised serious questions” about the government’s plans for decarbonisation. It said although it was “too early to provide hard data” there was “anecdotal evidence of a pause in investment”.

Committee chair Angus MacNeil 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?’”

The immediate concern for the government, the report said, should be providing greater clarity on how existing policy mechanisms will be used. It called for a detailed plan on what will happen with the next three Contracts for Difference (CfD) auctions, laying out how much money will be available and which technologies will be eligible. It said the government should also publish the methods and assumptions used to calculate the Levy Control Framework (LCF) budget and make a decision on how much money will be available beyond 2020.

Attention should then turn to the setting out a long term vision, according to the report. “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,” said MacNeil.

The paper raised concerns that the government was only looking at the “short-term costs to consumers” and called on it to consider “the impact of its decisions on the next generation”. It said there should similarly be a greater focus on how decisions affect the confidence of investors.

MacNeil said: “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.”

He added: “We are calling for the Government to introduce Investment Impact Assessments for new policies to ensure that new policies don’t inadvertently discourage the investment that we desperately need.”

The reaction:

Chief executive of the Renewable Energy Association Dr Nina Skorupska

“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?”

Director of the Energy and Climate Intelligence Unit Richard Black

“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.

 “[Octopus Investments] 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.”

CEO of the Solar Trade Association Paul Barwell

“This influential committee has added its voice to the growing chorus of criticism of the secrecy surrounding the LCF 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.”

CBI business environment director Rhian Kelly

 “The committee’s report underlines the importance of clear leadership and stable policy to attract the investment we urgently need in secure, affordable and low-carbon energy for British consumers.

“The government needs to work with business to achieve this, and we’ve seen some positive steps recently, including moves to look at some measured reforms to the capacity market.”

Former chair of the Climate Change Committee Lord Turner of Ecchinswell

“It’s fairly obvious that investors look to politicians for a clear and stable policy framework, especially when they are making investments in large projects that can take years to pay off.

“For bill-payers the main impact of policy vacillation is extra costs on bills – and if there’s one conclusion we should take away from the committee’s report it is that lack of policies can in the end cost a lot more than policies themselves.”