MPs to consider whether recent UK energy policy changes have 'spooked' investors

Out-Law News | 18 Sep 2015 | 10:49 am | 2 min. read

MPs on the House of Commons Energy and Climate Change Committee have begun an inquiry into the extent to which recent UK energy policy changes have affected investor confidence.

It is seeking evidence from the industry on how well the Department of Energy and Climate Change (DECC) considers the needs of investors when making policy changes, any steps the department should consider taking to reduce policy uncertainty and views about where future investment in the energy sector could come from. The closing date for submissions is 26 October.

Committee chair Angus MacNeil said that major energy projects could "take years from planning to completion, so maintaining investor confidence is crucial if we want to upgrade our energy system".

"Energy experts have told us that the government has spooked investors with a series of sudden energy policy changes announced over the summer without proper parliamentary scrutiny," he said. "We will be looking at what steps the government must take to restore confidence in the UK energy sector and improve DECC's policymaking processes."

The announcement came as the UK fell from eighth to 11th place in the quarterly Renewable Energy Country Attractiveness Index (48-page / 4.13MB PDF), published by professional services firm Ernst and Young (EY). In an accompanying report, the firm accused the government of "[sentencing] the UK renewables sector to death by a thousand cuts" through a series of policy announcements since the general election in May. Changes and proposed changes to its subsidy programmes will particularly affect funding available to onshore wind and small-scale solar photovoltaic (PV) projects.

In a statement to parliament in June, energy secretary Amber Rudd admitted that around 250 planned onshore wind projects across the UK were unlikely to go ahead as a result of the government's announcement that it would close the Renewables Obligation (RO) subsidy programme to these projects one year earlier than planned. Around 7.1GW of onshore wind generating capacity was in the early stages of development when the changes were announced, and will not be eligible for the 'grace periods' announced by the government.

The government also intends to close the RO to smaller solar power generation of up to 5MW in generating capacity one year earlier than originally planned, and has withdrawn 'grandfathering' support for certain biomass generators already accredited under the scheme. It is also consulting on major changes to the feed-in tariff (FiT) scheme, currently available to the smallest projects powering individual homes and businesses. It has claimed that these schemes are unaffordable according to the latest projections, due to higher than anticipated uptake and the falling costs of the various technologies involved.

DECC has estimated that the UK needs around £110 billion worth of investment over the next decade in order to replace its aging energy infrastructure and match increasing demand, while still meeting international climate change commitments. However, the committee said that it was concerned that the department's recent announcements were "weakening the case" for this investment, both by damaging short-term investor confidence and by removing certainty over the long-term direction of UK energy policy.

"This could mean that projects will become more expensive to deliver, as investors demand a greater return on their investment to compensate for increased risk, or that projects simply do not go ahead," the committee said. "This could hamper our ability to meet climate, energy security and affordability objectives."