The U.K.’s 110 billion-pound ($176 billion) effort to reform the electricity market is unlikely to deliver on 2020 climate goals, a survey shows.
The survey by law firm Freshfields Bruckhaus Deringer LLP of 101 executives and investors in the U.K. electricity industry found 77 percent do not think the power market reforms will enable the country to meet legally binding goals to curb greenhouse gas emissions. Many thought the 2020 target to cut emissions 34 percent was over-ambitious, according to the survey.
Britain is overhauling its energy market to clean up electricity generation, ensure demand is met and integrate more renewables such as wind farms into the system. Final proposals are expected before Parliament this week in an Energy Bill.
“This is a once in a generation chance to reform a market that literally feeds the U.K. economy, yet analysts seem to be struggling to make the EMR investment case understandable, let alone attractive to their clients,” Alan Rae Smith, head of energy projects at Freshfields, said in a statement. The 110 billion-pounds of investment needed for the overhaul was seen as “out of reach,” according to the research.
Most respondents were concerned their investments were at risk from a lack of financial compensation in the event of future law changes, according to the survey undertaken in October with findings announced today. British Energy Secretary Ed Davey Nov. 23 spelled out a number of measures ahead of the Energy Bill, which didn’t “materially alter the core sentiments expressed by the market” in October, the law firm said.
Among Davey’s proposals was a plan to offer contracts guaranteeing a power price for low-carbon energy producers. The government will create a company to act as contract counterparty with the generators. The government-owned body will have powers to collect funds from electricity suppliers to ensure the generators get payments for electricity they produce.
Questions including what financial backing the counterparty will receive and how the levies will be collected and funded still weigh on investors. “The answers may, or may not come in the revised draft of the Energy Bill,” Rae Smith said. “The market is holding its breath until it sees what comes next”.