The Energy and Climate Change Committee has said that the sudden changes to UK energy policy since the last election have dented investor confidence and potentially made it more difficult and expensive for the country to get the green power generation it needs for future energy security.
The Committee has therefore called for more transparency and clarity over the direction of future energy policy and is urging the government to publish the potential impact of new policies on investment based on its economic impact assessments, as well as set out its plans to encourage investment once the existing Levy Control Framework (LCF) cost cap comes to an end in 2020.
As the Committee’s chair pointed out, billions of pounds of investment is needed to replace aging energy infrastructure, maintain secure energy supplies and meet the UK’s legally binding climate change targets.
However, if investors are nervous, it will be harder and more expensive to build the new energy infrastructure the country needs and any increase in the cost of project capital will ultimately be passed on to consumers via higher energy bills.
Since it can take the best part of a decade to plan, finance and build new gas-fired power plants, wind farms and nuclear power stations, the Government must think carefully about the consequences for investors before making snap decisions on policy.
As well as being put off by Government decisions such as ending support for onshore wind and solar farms earlier than planned, investor confidence has also been damaged by ‘contradictory signals’ and a lack of transparency about policy decisions.
In addition, they fear the ‘cliff edge’ built into the LCF, which caps the cost of renewable energy subsidies that can be passed on to consumers through bills. However, the current mechanism only runs until 2020, which is the same year in which the carbon price floor permit system for emissions from fossil fuel plants also expires.
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