‘Growing chorus of criticism’ supports ECC committee report

A growing number of investor groups, politicians and climate change organisations have added further weight to a report out today criticising the government’s changes to energy policy since May 2015.

The Energy and Climate Change (ECC) select committee has concluded its inquiry into investor confidence in the UK energy sector with the publication of a report claiming the recent overhaul of UK policy has impacted investor confidence and risks adding £120 to consumer bills.

Angus MacNeil MP, chair of the ECC Committee and one of the most outspoken opponents to the government’s policy decisions, 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," he added.

This view has been supported by Octopus Investments, which took part in the ECC committee’s inquiry. Chief executive of the company Simon Rogerson said: “Constant changes to policy has made the UK a less attractive place to invest in energy infrastructure. We need to get a more transparent and stable policy environment that gives investors long-term clarity.

“While policy changes can support innovation, there must be a move away from a ‘chop and change’ approach towards thoughtful forward planning that rebuilds confidence for investors and UK energy consumers – who should be at the heart of all decisions.”

Clarity needed on LCF

Throughout the inquiry, which was launched in September last year, both the Department of Energy and Climate Change (DECC) and HM Treasury were criticised for their failures to publish specific details surrounding the Levy Control Framework (LCF). The cost-controlling cap on low carbon generation levies applied to consumer bills was considered in the report to be the “root of many of the recent policy alterations” and was widely believed to be controlled by the George Osborne’s department.

Following the publication of today’s report, shadow energy secretary Lisa Nandy said: “The Chancellor’s sudden decision to rip up the country’s plan A for energy investment without putting in place a plan B means that clean energy investment is expected to fall off a cliff.

“It’s extraordinary that he took this decision just when our power supply is going into the red. It means Britain could be left reliant upon emergency measures and power from abroad just to keep the lights on, and households will pick up the tab for his failure through higher energy bills.”

The attention on the Treasury has also been pointed out by Richard Black, director of the Energy and Climate Intelligence Unit (ECIU), who said: “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.

“It’s interesting that critical evidence given to the Committee came from some of the biggest investment houses as well as from people in the renewables industry – and interesting too that the Committee points its finger squarely at Treasury.”

No one sector has arguably been more affected by changes to policy covered by the LCF than solar, which has seen subsidy support slashed in recent months. Paul Barwell, chief executive of the Solar Trade Association – who delivered evidence to the ECC committee during its inquiry – said: “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.”

Despite Barwell’s claims, the government is unlikely to make any LCF details known after energy secretary Andrea Leadsom said yesterday during a delegated legislation committee session on the early closure of the Renewables Obligation: “We don’t break down published information on components of LCF spend because of the potential disclosure of commercially confidential information and in certain [circumstances] that has to be the case and has to remain the case.”

“Dip in investor confidence”

As well as calls for transparency around the LCF, the new report makes significant references to the damage policy decisions have caused to investors across the renewables sector. This has been supported by a number of individuals, such as Nick Molho, executive director of the Aldersgate Group.

“The ECC select committee is right to highlight the recent dip in investor confidence in the sector. What has been particularly damaging is the lack of an alternative plan accompanying recent policy changes, rather than the changes themselves,” he said.

“Confidence is essential to attracting investment at sufficient scale and at the lowest possible cost in the energy efficiency and low carbon sector and needs to be a priority for the government in 2016.”

The report has gained significant traction with the business community, with several leaders – past and present – adding their voiced to the debate.

Lord Turner of Ecchinswell, former director-general of the Confederation of British Industry (CBI) and the first chair of Committee on Climate Change, said: “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.

"It’s so obvious that one wonders why a select committee has to point this out to the Treasury – but apparently it is necessary, given the continued sense that UK energy policy is drifting aimlessly.

“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.”

Rhian Kelly, the CBI’s business environment director, added: “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.”

“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.” 

Learning from past mistakes

Despite the damning comments of the report, there is hope that DECC will improve the situation moving forward. The report states: “We are hopeful that - if the Government is willing to learn from its mistakes - things can now begin to move in a more positive direction.”

Emma Pinchbeck, head of climate and energy at WWF-UK, commented: “This year, ministers should send a stronger signal to private investors and the wider public by setting an ambitious fifth carbon budget, consulting industry experts on their new carbon plan, and putting the UK in the forefront of the green industrial revolution the world needs to see in the coming decades."

In response to today’s report, a DECC spokesperson said: “Our priority is crystal clear – to ensure our families and businesses have access to the secure, affordable and clean energy supplies they can rely on now and in the future.

“To deliver this, we are taking the long-term decisions to tackle a legacy of under-investment 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.

“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.”

On the issue of the LCF, DECC said it was aware of the needs of industry for clarity on government policies and future allocation rounds in order to manage investment decisions and the department would “aim to support this”.

This story has been amended since original publication to include comment from Octopus Investments.