The Energy and Climate Change Committee’s report on factors affecting investor confidence in the energy sector identifies six factors:
- sudden and numerous policy announcements;
- lack of transparency in making policy decisions and consequent uncertainty;
- not enough consultation and engagement ahead of decisions, particularly around the impact on investors;
- a contradictory and inconsistent approach to policy;
- planning for long-term projects undermined by a lack of long-term vision; and
- a looming policy ‘cliff edge’ for 2020, particularly around the Levy Control Framework budget and the Carbon Price Floor.
The Committee acknowledges there is little shortage of investment for projects in the late construction or operational phase but say the issues arise at the earlier stage of project development. The MPs suggest there is unreliable evidence of this and warn that if investment has dried up it may not be apparent until the end of the decade.
DECC’s response has been to list the “top 10 things the government is doing to secure investment in clean secure energy” including such measures as:
- reforming the Capacity Market, which sends a clear signal to investors that will encourage the secure and clean energy sources needed to come forward – such as gas and interconnectors;
- committed to the first new nuclear plant for a generation at Hinkley Point C despite the uncertainty surrounding EDF;
- boosting innovation funding to over £500m, including £250m for nuclear innovation and Small Modular Reactors;
- confirmed we could support up to 10GW of new offshore wind projects in the 2020s, with a further three auctions in this Parliament if the Government’s conditions on cost reduction are met;
- set out plans to close all unabated coal-fired power stations by 2025 if the government is confident that the shift to new gas can be achieved within the necessary timescales.
- allocated £295m to invest in energy efficiency measures in schools, hospitals and other local public services;
- introduced a new energy efficiency supplier obligation for 5 years from April 2017 set at £640m a year;
- more than double the support to households and businesses to decarbonise their heating supply in this Parliament (from £430m to £1.15bn);
- allocated over £300m to deliver up to 200 heat networks in communities, leveraging up to £2bn in private investment; and
- announced a 50% increase in the UK climate finance commitment to a total of £5.8bn over the next five years to help the poorest countries cut carbon emissions and adapt to climate change.
In a bid to counter concerns over the UK’s electricity supply capacity, DECC are proposing to bring forward the capacity market process to January 2017 with an early auction to provide capacity for winter 2017/18. The government has already held capacity auctions for the delivery of capacity in 2018/19 and 2019/20 with the next scheduled auction to take place in December 2016. Target levels for the auction(s) are not yet clearly defined but could be substantially more than would otherwise have been.
The government is also proposing a stricter penalty regime and measures to focus on emissions from diesel generators with the hope that diesel generation will play a smaller role in future auctions, whilst new gas fired capacity will be encouraged, with the capacity market expected to remain technology neutral.