UK faces £62bn clean energy investment shortfall, Ministers warned
Investment for low carbon generation has “deteriorated significantly” in recent months, with the UK facing a potential £62bn shortfall over the next decade, industry experts have warned.
A report published by Energy UK states that without “rapid government intervention” the UK’s energy security and net zero targets will be undermined due to a lack of private sector investment, with “crippling consequences for the country”.
The report concludes that a mix of inflation, interest rates, supply chain difficulties, as well as increased competition from abroad, mean international investors are reconsidering where to allocate capital.
Additionally, it takes aim at the proposed Electricity Generator Levy (EGL), which it describes as a “poorly designed windfall tax”, and says it has “caused immediate concerns for the viability of new clean energy projects, particularly renewables”.
These factors have meant that overall costs for new low-carbon generation have increased by 20-30% and as much as 50% for some projects.
“These cost increases are compounded by systemic regulatory uncertainty, and lengthy delays to planning and grid connections which hold back new projects from being built quickly,” it added.
The trade body’s analysis reveals that failing to address these issues means the UK economy could lose out on £62bn of investment between now and 2030, leading to a shortfall of 54GW of potential wind and solar capacity and higher energy bills for consumers.
Despite the gloomy outlook, the report says it is not too late for the government to enact policies that can “safeguard the UK’s role as a clean energy superpower” and that a serious revaluation of current policy is required.
“With the Spring Budget approaching, an immediate rethink of fiscal policy is needed to secure the potential capacity that is – at this very moment – under threat. Without this action, we will lose near-term investment crucial to achieving our energy security and net zero targets,” it adds.
To this end, the report makes a number of recommendations for the government including a rethink of the EGL to make it more consistent with the Energy Profits Levy for oil and gas production.
It highlights how the draft EGL legislation would lead to oil and gas extraction facing a lower rate of effective tax than low-carbon generators.
It adds: “The preferential treatment given to the oil and gas sector through the investment allowance in the Energy Profits Levy sends the wrong signal to investors.
“Should the government choose not to offer an investment allowance, it is critical that changes to the tax regime are prioritised to incentivise new investment, such as changes to the Capital Allowances Regime.”
Elsewhere, the trade body wants to see the capacity of future Contracts for Difference (CfD) allocation rounds increased to support more generation.
This has been made more urgent by the EGL which it says has effectively redirected projects that may have pursued a merchant route to market toward CfDs.
“Unless we fully maximise the capacity from these allocation rounds, there is a strong likelihood that the UK will lose prospective renewable capacity,” it adds.
Energy UK’s chief executive Emma Pinchbeck said: “As we look to emerge from an energy crisis that has caused huge difficulties for customers, businesses and the wider economy, both the government and the energy industry have been absolutely clear that the answer lies in rapidly expanding our own sources of clean, cheap power and escaping dependence on expensive fossil fuels that has cost us dearly in recent times.
“However, the UK is in increasing danger of undermining its own ambitions and failing to deliver on its commitments. In many ways, the UK has led the way in the transition to clean energy – witness our world-leading offshore wind industry – but we risk squandering this position and driving the investment that we need elsewhere.
“We are at a pivotal point right now with other countries actively trying to attract the same companies and investors and it would be unforgivably complacent to think that we don’t need to do the same.”
Responding to the report, a government spokesperson said it has “consistently attracted investment in renewables”.
The spokesperson added: “Since 2010, the UK has seen more than a 500% increase in the amount of renewable electricity capacity connected to the grid while through Contracts for Difference we have awarded contracts totalling almost 27GW of new low-carbon capacity to date.
“We are consulting on reforms as part of the Review of Electricity Market Arrangements, including changes to the wholesale electricity market that would stop volatile gas prices setting the price of electricity produced by much cheaper renewables – cutting the cost of electricity for consumers in the long term and providing certainty for investors.”
This article appeared first on edie’s sister title, Utility Week
© Faversham House Ltd 2023 edie news articles may be copied or forwarded for individual use only. No other reproduction or distribution is permitted without prior written consent.