Siemens, Areva Say U.K. Policy Move Risks ‘Stranding’ Investment

Siemens AG (SIE), Vestas Wind Systems A/S (VWS) and Areva SA (AREVA) said suggestions the U.K. will change policy on clean power threaten “stranding” investment in the industry.

The three, along with Gamesa Corp. Tecnologica SA, Mitsubishi Power Systems Europe Ltd. and Alstom SA (ALO), wrote to Energy Secretary Ed Davey saying they had reassessed “political risk in the U.K.” after delays, reports of government discord and speculation that preferential tariffs would be rationed.

“These investments have long timescales and carry a risk of stranding if the present policy focus on decarbonization and green growth changes,” they said in the letter published today in the Times. Future investment and tens of thousands of new jobs depend on a stable long-term policy, the companies said.

The letter adds pressure to the government after potential investors recently withdrew from low-carbon generation proposals needed to replace an aging fleet of power stations. Areva last week pulled out of bidding for a British nuclear venture, while Vestas in June shelved plans for an offshore wind turbine factory in England that depended on regulatory certainty.

Davey declined to comment on the letter at a European Union event today in London, saying it was in his “reading pile.”

U.K. plans to overhaul its energy market, set out in draft in May and including guaranteed contracts for low-carbon power, were deemed “unworkable” by the Energy and Climate Change Committee in July and criticized by Scottish Power Ltd. because of a lack of clarity over the number of contracts available.

Strong Case

The letter published in the newspaper today and dated Oct. 5 said the changes, known as Electricity Market Reform, were “not enough” to underpin large-scale industrial investments.

The U.K. needs about 110 billion pounds ($176 billion) in low-carbon investment by 2020 to replace retiring power plants and upgrade grids, according to the government.

A binding 2030 so-called decarbonization target for the industry would help reduce political risk associated with long- term U.K. industrial investment, according to the letter, also signed by Doosan Power Systems Ltd. The companies said they employ 17,500 in the U.K. energy industry.

The Aldersgate Group, an environmental alliance, published its own letter to Chancellor of the Exchequer George Osborne today saying the lack of a target undermines Britain’s low- carbon plans. The government should use secondary legislation, allowing it to make changes to the law, to introduce the 2030 goal, according to Aldersgate. Davey said on Sept. 23 there was a “strong case” for a 2030 carbon limit.

Intensity Target

The Committee on Climate Change has urged the government to introduce a target to cut the carbon intensity of generation to about 50 grams of carbon dioxide a kilowatt-hour by 2030 and meet its 2050 emissions cutting goals. The U.K. proposes in the energy bill a 450 gram limit for new fossil-fuel plants to 2045, which Davey said in June the nation was “free to review.”

The Aldersgate Group letter, with signatories including EDF Energy Plc, Friends of the Earth and Triodos Bank NV, also warned that government statements outlining plans to keep using gas generation beyond 2030 were damaging to the low-carbon transition. Osborne has pushed for natural gas to remain central to U.K. energy supply and Davey said Oct. 4 gas is “absolutely central” to efforts to curb emissions while meeting demand.

Davey, a Liberal Democrat, said today at a London conference that the rate of investment in U.K. energy needed to increase to provide security for consumers and businesses.

To contact the reporter responsible for this story: Sally Bakewell in London at Sbakewell1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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