Ernst & Young calls for energy certainty as UK slips down world renewables index

Renewable energy investment in the UK will suffer further if today’s Energy Bill does not show a united political front, Ernst & Young has warned.

The accounting firm said a lack of agreement on the coalition government’s energy policy has contribruted to the UK's slipping from fifth to sixth place in its annual Renewable Energy Country Attractiveness Indices published today.

The index scored 40 countries on the attractiveness of their renewable energy markets, energy infrastructure and suitability for individual technologies. During Q3 2012, China remained at the top of the All Renewable Index (ARI), but the US dropped 1.5 points, resulting in Germany moving into second place ahead of the US, even though Germany has heavily cut its feed-in tariff.

Ernst & Young blamed “political miscommunication and the lack of consistency” over key energy reforms for impeding future investment in the UK. In particular it singled out the decarbonisation target, which will be omitted from the bill, following wrangling between the Conservatives and Liberal Democrats.

Commenting on the UK’s position Ben Warren, Ernst & Young’s Energy and Environment Partner said: “The inability to commit to decarbonisation targets before 2016 is a let-down, and perhaps a sign of the continuing tensions within the government. With some policy-makers still seeing the expansion of gas plants as more critical to the country’s energy strategy, the prospect of a decarbonisation target is as uncertain as ever”.

In October, the firm reported an investment of £43 billion in the UK over the past four years; however, in order to maintain that momentum, it now advises that the renewables industry will need to look at market restructuring and the emerging secondary infrastructure financing market for aid.

Warren said: “We are now looking at the government’s new Energy Bill to restore the necessary environment of stability and trust that will attract further investment. The significant increase in the Levy Control Framework budget to £7.6 billion is a step in the right direction. However, in order to satisfy investors looking to commit significant levels of capital to the UK energy sector, further questions around the implementation of the LCF need to be addressed.”

While the UK’s solar index score remains unchanged pending the results of a consultation, which recommends cutting support for large solar projects, the proposed reductions published by the government are expected to “galvanise” solar developers, said Ernst & Young.

A rush to complete projects before the phased subsidy cuts begin is expected, as developers seek to escape the proposed reduction to 1.5ROCs/MWh from April 2013 with further cuts thereafter, down from the current 2ROCs/MWh. The cuts are a response to higher than expected demand for large solar projects, signalling the government’s determination to prevent what it deems to be an unsustainable solar boom.