Investment in renewable energy has halved in just three years, says alarming research

 

Fundamental ideological disagreements within the government about renewable energy have turned away droves of potential investors in crucial new green electricity generators, according to damning new research.

Britain needs to attract tens of billions of pounds of private investment in low-carbon energy in the next decade, to ensure the lights stay on while meeting ambitious environmental targets.

But alarming new research shows that investment in essential industrial-scale wind, water, solar, biomass and nuclear power projects has more than halved in the past three years, in the face of government indecision over its green energy policy.

Furthermore, last week’s energy bill failed to provide many would-be investors with the reassurance they need to “pull the trigger” on key renewable energy projects, warns Michael Liebreich, head of Bloomberg New Energy Finance, the researcher behind the report.

Experts blame the ideologically divided coalition for its failure to agree a coherent renewable energy policy and its, sometimes public, disagreements about low-carbon electricity subsidies and whether to introduce firm targets to reduce carbon emissions.

They say the resulting uncertainty has shaken the confidence of potential financiers who need a clear sense of their likely returns along with certainty that the government is in favour of green energy and won’t suddenly change its policy.

Michael Liebreich, head of Bloomberg New Energy Finance, said: “Yes, the coalition could have moved faster to eliminate uncertainty, especially in the past two months with the rise of the ‘dash for gas lobby’ and the sudden lurch to the sceptical which is very destabilising.”

Mr Liebreich is referring, in part, to David Cameron’s decision in September to replace pro-renewable energy minister Charles Hendry with John Hayes, a well-known opponent of wind power. Since his appointment, Mr Hayes has continued to voice his opposition to wind power – saying Britain was already “peppered” with onshore windfarms and that “enough is enough” - even though his stance contradicts the strategy of his boss, energy secretary Ed Davey, for whom the technology is key. Meanwhile, George Osborne, is set to announce formally place gas – a non-renewable, fossil fuel - at the centre of Britain’s energy strategy in his autumn statement tomorrow.

“Swapping out Charles Hendry seems pretty extraordinary, to be honest, if they want to attract investment,” said Mr Liebreich, adding that last week’s long-awaited and fiercely-negotiated energy bill was nonetheless a step in the right direction because it “establishes the principle of energy diversity and provides a good framework to achieve this.”

But although most experts agree that last week’s bill represents a progression, many are discouraged by the decision to drop a legally-binding target to make electricity generation almost entirely green by 2030. This was proposed by Mr Davey but later overruled by George Osborne and its removal has left many potential low-carbon investors unconvinced about the government’s commitment to renewable energy – although there is a possibility of an amendment to return it to the bill as it passes through Parliament.

Andrew Raingold, director of Aldersgate, an alliance of 50 major companies including Asda, BT, Marks & Spencer, Microsoft and Philips, is among those who argue that the energy bill doesn’t go far enough. “Delaying key decisions such as the decarbonisation target for 2030 risks damaging the UK’s future economic prospects and leaving the consumers over-exposed to the price and energy security risks of heavy dependence on imported gas,” Mr Raingold said.

Ditlev Engel, chief executive of the world’s biggest wind turbine maker, Vestas, was also critical of the bill, pointing out that its lack of clarity on green energy would also hit companies that supply what could be a burgeoning industry in the UK.

Mr Engel, who closed Vestas wind turbine manufacturing plants in the Isle of Wight and Southampton in 2009 and this summer pulled out of plans to set up a manufacturing plant in Kent, amid the lack of certainty, said last week of the energy bill: “The failure to establish a firm 2030 power sector carbon cap prolongs uncertainty to the supply chain where investment horizons extend well beyond 2020. This is a missed opportunity.”

His comments, in turn, come after a powerful alliance of companies including Siemens, Mitsubishi and Areva, the French nuclear giant, wrote to David Cameron, Mr Osborne and Mr Davey in October warning them that a lack of decision-making and threats to relax key green targets “have caused us to reassess the level of political risk in the UK.”

“We consider that a binding 2030 target for power sector decarbonisation would help reduce the political risk currently associated with long term UK industrial investment,” continued the letter, whose senders employ about 17,500 people in Britain and are planning “significant further development” which, they warned, was “critically dependent on a long-term stable policy framework”.

Although there has been a steady drum beat of warnings about the dangers posed to investment by what has been dubbed Britain’s “energy shambles”, the stark Bloomberg figures are the first to quantify the impact.

They show that investment in industrial-scale wind, solar, water, biomass and other renewable energy generators Such investment tumbled from a peak of $10.65bn (£6.6bn) in 2009, as potential backers felt increasingly confident that they would be eligible for significant subsidies, to $7.81bn in 2010.

The decline continued last year, as investment fell to just $5.0bn last year –  less than half of its peak two years earlier – and is set to fall again in 2012 after just $3.63bn of cash was committed in the first nine months of the year, according to Bloomberg.

Nico Tyabji, also of New Energy Finance, said: “Investors have made clear to the UK government that policy uncertainty has undermined investment.”

The highest profile low-carbon energy project that has been put on hold because of uncertainty about government subsidy levels is the proposed £10bn power plant at Hinkley Point in Somerset, which would be the UK's first nuclear energy provider for more than a quarter of a century. However, the investors, British Gas-owner Centrica and Edf, the French energy giant, will not finally commit to project until they have agreed a minimum price with the government for the electricity it will generate.”

By contrast, investment in small generators by households and small businesses such as farms, jumped to $3.80bn last year from virtually nothing in 2010 as people scrambled to take advantage of generous government subsidies for solar panels. However, investment in these small-scale generators has declined this year after the government suddenly and unexpectedly attempted to reduce solar subsidy levels, in a move that the High Court ruled was illegal and which further rocked the confidence of potential investors. The government has since succeeded in reducing the solar subsidies.

Last week’s bill more than triples of the amount that will be available for a key subsidy to support low-carbon energy generation from £2.35bn next year to nearly £10.0bn by 2021 - much of it to be funded by consumers, who will see about £95 a year added onto the average household bill as a result.

However, although such a substantial sum represents a step in the right direction, critics say that with no indication of how the pot will be allocated to different forms of power generation, and on what terms, investors are still in the dark.

A spokesman for the Department of Energy and Climate Change said it was “misleading” to blame the figures solely on proposed changes to the nation’s electricity market when the financial crisis has hurt other infrastructure investment, in the UK and overseas. Furthermore, the spokesman insisted that the government’s plans will accelerate investment and attract new low-carbon investment.

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