The government’s much-hyped Energy Bill is so far failing to live up to the expectations of businesses and households, new analysis has found.
In its Renewable Energy Country Attractiveness Indices (CAI) report, global analyst Ernst and Young notes that the high expectations of the investor community are not being met, some three months after the publication of the Bill.
A number of factors are contributing to this, including the rising cost of domestic energy, which has raised questions about the support for investment in renewables.
The very real risk of a voter backlash has led to the government providing greater clarity about raising the annual cost of renewable energy investment through consumers’ electricity bills.
Though the report says this is to be applauded, it notes that the government will need to “tread carefully” to ensure that rising electricity bills do not pose a threat to consumers’ support for renewables.
Ofgem recently warned that the renewable sector will play a critical role in securing the country’s future energy supply and ensuring that it does not fall into “an energy dark age” and this remains at the forefront of industry members’ thoughts.
Another key concern is the delay in setting the 2030 decarbonisation target until 2016, which the report says has cast a certain degree of doubt over the UK’s carbon emissions commitment.
Ernst and Young cites this as “the main source of disappointment” for investors, noting that a commitment to cut carbon emissions by 50 per cent by 2027 may become increasingly unlikely and leave investors with a sense of uncertainty.
Businesses also remain sceptical about the chancellor’s planned tax breaks for shale gas exploration and his new gas strategy, which have both caused “widespread concern”, says Ben Warren, environmental finance leader at the global analyst.
“While the promise of low cost gas cannot be ignored, environmental groups and businesses are sceptical that a gas boom similar to the one witnessed in the US can be replicated in the UK,” he explained.
“Instead, the technology should be used as an interim measure to sustain energy supply levels while the cost of renewables continues to fall.”
Rays of light
However, there are certain rays of light for the Energy Bill, quite literally, with clear signs of support for the solar sector.
DECC estimates solar capacity in the UK could reach as much as 20GW by 2020, if technology costs continue to decrease, which is likely to go some way to boosting investor confidence.
Combined with the government’s announcement that new build dedicated biomass projects subject to a new 400MW cap will receive 1.5ROCs/MWh in 2013-16, the coalition expects to unlock investment decisions worth at least £600 million, which it is hoped will go some way to reassuring investors.