Comment: 2012 – the year the UK Government went grey

Miles Thomas, Savills Energy

Despite its claims to be the greenest Government the UK has ever seen, the sometimes unfathomable twists and turns that we have seen in 2012 have seen the ConDems turn an autumnal brown.

At a time when the energy market is in a state of flux and uncertainty over security of supply looms large, this is extremely unhelpful, particularly when we are looking for ways to recover, why kick an industry that should be thriving?

What’s really needed is completely the opposite, for the green to be flourescent, standing out and leading the way. Instead, the back-tracking and decisions that undermine the environmental benefits that we’ve seen on issues such as ROCs, FiTs and now the mysterious mixed messages around wind energy are destabilising, particularly for overseas investors, whose early stage due diligence is often via the media.

With 2015 looking set to bring electricity shortfalls to an already beleaguered economy across the UK, what is critical is increased investment. But for that investment to be made – which requires long-term commitments running into hundreds of millions of pounds – energy companies need clear strategic guidance to ensure that they are spending in the right technologies that support Government objectives and offer long-term returns.

The industry desperately needs the long-awaited Energy Bill to deliver a framework that provides real guidance on implementation and this includes colour on the proposed Feed in Tariff with Contracts for Difference; due to come in in 2014, less than 2 years away! With ROC prices having reduced to their lowest level since January 2006, this is essential.

We’ve signed up to some tough emissions targets – 50 per cent by 2020. This is a challenging target to achieve, when the economy and politicians are juggling so many priorities, therefore we are facing a steep mountain to climb.

The impact of changing policies, political support and incentives is having a massive impact. Just see how the changes and uncertainties around FiTs have undermined prospects for the solar sector. Job losses and business closures are widely being blamed on the Government handling of FiTs and with small installations now looking at a challenging 20 year return on investment, except for self-developers, there are many potential purchasers who are now holding off making investments until the wider picture is clearer.

There was a recent piece on the UK's Guardian website that discussed the different conflict at the very heart of Whitehall – with DECC and the Chancellor’s office looking at different approaches to energy generation. DECC wants to understand what the impact of large-scale wind generation means for the gas market, whereas the Treasury is focused on whether the displacement of coal by natural gas in power generation, could reduce emissions at a much lower cost per tonne of carbon dioxide than nuclear and offshore wind power.

Further to this debating cauldron, we can add the technological issue. In many cases, the identified ways to make significant reduction in carbon emissions in this area – such as carbon capture and storage or the use of shale gas in greater gas fired capacity – are still really at academic discussion phase. Without the technologies even being off a drawing board, let alone available commercially, there is little understanding as to how the process will eventually work to enable investors to put plans in motion. In reality, this illustrates the difficulty that the Government is facing.

They are trying to write a long-term visionary strategy with so many ‘what ifs’ and uncertainties, but doing this at the expense of the short to medium-term market isn’t what multi-million pound investment decisions can and should be made upon.

The key focus right now ought to be on delivering energy efficiency and deployment of consented renewable plant capable of delivery quickly. This will enable significant achievements in terms of managing carbon emissions to be delivered in the short-term, importantly ahead of the 2020 targets and enable the industry to continue to evolve new technology to capture and store CO2 gas or even extract shale gas – two developments that are widely believed to enable the world to make a significant impact on reducing carbon emissions. In reality, all technologies are important in a balanced grid.

Preventing uncertainty needs to be a key objective moving forward. There needs to be just one voice that’s consistent when it comes to objectives and policy. The recent public debate around wind is an example of how a media circus is not a constructive way to debate policy. It’s a fragile time, and stability moving forward is critical. This could start with better public education around technologies and existing support mechanisms particularly in wind and solar, rather than obsessive focus on placating voters whose opposition to energy development often correlates with political persuasion.

Savills Energy is a dedicated real estate service created to specifically assist the inception, planning, development and continued operation of assets and infrastructure connected to the energy production and storage sector.

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