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Energy investment in the UK

03 March 2016

A new report by the Energy and Climate Change Committee warns of nervousness among investors looking at energy projects in the UK.

Investor confidence has been dented by a series of sudden policy changes 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.

Angus MacNeil MP, Chair of the Energy and Climate Change Committee commented that "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?'"

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. 

Angus MacNeil further said that "two months ago, a historic new global climate agreement was signed in Paris. Yet 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."

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.

Angus MacNeil MP concluded by saying "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.

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.

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."

CBI emphasises how important it is for Government to work with business to achieve investor confidence.

Rhian Kelly, CBI Business Environment Director, commented on the report from the Energy and Climate Change Committee, saying that “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.

“With investors and energy users looking for clarity on the future of the Levy Control Framework (LCF) and the Carbon Price Support after 2020, further action is needed, starting with decisions at Budget. Looking ahead, we also need to get the details right for future Contracts for Difference (CfD) auctions, to ensure we are keeping the market open to a range of technologies.” 

The Committee calls for the Government to:
• Provide a detailed plan for when the next three rounds of Contracts for Difference (CfD) auctions will be held, how much money will be available and which technologies will be eligible to take part.
• Publish the assumptions and methodologies that underpin the calculations of how much money is being spent in the Levy Control Framework (LCF).
• Set out how much money will be available in the Levy Control Framework beyond 2020. 

You can read the full report here. 

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