U.K. Dents Energy Spending, Risking Higher Bills, Lawmakers Say

  • Investors `spooked' by government policy changes: Macneil
  • Panel calls on government to provide clarity beyond 2020

The U.K. government has dented investor confidence in the energy industry by making sudden policy changes and sending out mixed signals on carbon reduction, threatening to push up consumer bills, a cross-party panel of lawmakers said.

Decisions to cut subsidies for wind and solar power, end a program to install “green” measures in homes and scrap a competition for 1 billion pounds ($1.4 billion) of funding for carbon capture and storage “have clearly had an impact on the confidence of many investors,” the Energy and Climate Change Committee said in a report on Thursday. That in turn threatens the country’s security of power supply by delaying expenditure, it said.

“This has spooked investors and left them wondering ‘what will be next?’” said Committee Chairman Angus MacNeil. “Nervousness among investors will make it harder and more expensive to build the new energy infrastructure that we need. Any increase in the cost of project capital will ultimately get passed on to consumers through higher energy bills.”

Energy Secretary Amber Rudd is struggling to spur construction of enough new power plants to replace aging coal and nuclear facilities that are closing either because of pollution regulations or they’re reaching the end of their operating lives. On Tuesday, the energy department said it will start a program of  “capacity payments” a year early, to ensure generators guarantee enough stations are available to keep the lights on

Crystal Clear

“Our priority is crystal clear: to ensure our families and businesses have access to the secure, affordable and clean energy supplies they can rely on now and in the future,” the Department of Energy and Climate Change said in a statement. “To deliver this, we are taking the long-term decisions to tackle a legacy of under-investment in our energy system.”

Other policy changes made by the government since it won power in May include scrapping a requirement for new homes to be zero-carbon, removing an exemption for renewable electricity from an environmental tax called the climate change levy and changing the rules for its program of feed-in tariffs for renewables.

“Sudden and numerous policy announcements have marred the U.K.’s reputation for stable and predictable policy development,” the committee wrote. “Policy inconsistency and contradictory approaches have sent mixed messages to the investment community.”

The government has explained its changes by arguing its priority is to keep consumer bills down. The Treasury has established spending limits on low-carbon energy, capping annual expenditure at levels rising from 4.3 billion pounds ($6.6 billion) this tax year to 7.6 billion pounds in fiscal 2020-2021.

That’s led to what the committee called a policy “cliff edge” beyond which investors -- often making decisions on projects that can take a decade to come to fruition -- have no certainty. It called on the government say how much funding will be available beyond 2020, and to provide detail on three auctions for renewable energy capacity to be awarded before then.

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