A new report from Energy UK warns that the UK risks missing out on the investment needed to fund a rapid expansion of clean, domestic power – scuppering plans to bolster the country’s energy security, meet its climate change targets, and cut costs for customers.
The Government has set ambitious targets for low carbon electricity and emphasised the role it will play in helping the country emerge from the current energy crisis. Yet Energy UK’s new report – titled Storms Approaching: How to prevent an investment hiatus in UK low-carbon generation – highlights that the investment climate for low carbon generation has deteriorated significantly in recent months, threatening to undermine these ambitions and damage the wider UK economy.
In particular, the report notes that a range of economic factors such as inflation, interest rates, supply chain difficulties, poorly designed windfall taxes that at present favour oil and gas extraction, and systemic policy uncertainty caused by planning and infrastructure issues, are all driving costs up for low carbon projects. Some developers have reported cost increases of 50% for certain projects, putting them at risk of not being built.
With an estimated £500 billion in additional power sector investment needed between now and 2050 to meet the UK’s Net Zero goals, private sector funding will be crucial. But the current hostile environment risks driving this money elsewhere as both the United States and the rest of Europe move to attract companies and projects to their own territories.
Analysis in the report reveals that, without taking action to address these factors, the UK economy could lose out on £62 billion of investment between now and 2030. This would lead to a shortfall of 54GW of potential wind and solar capacity, which represents enough generation to power every home in the UK. This would lead to higher bills for customers and risk the UK falling behind other countries as investment and supply chains go elsewhere.
In the report, Energy UK recommends a range of measures that the Government should urgently consider in order to reverse the current trend, including a rethink of fiscal policy to ensure the country remains an attractive location for international investment. This could include reforming the proposed Electricity Generator Levy (aka windfall tax) to ensure equitable treatment for low carbon generation; reforming the capital allowance regime to enhance investment incentives and maximising the amount of generation supported by the Contracts for Difference scheme, which has successfully delivered a vast increase in low-carbon energy projects over recent years whilst significantly reducing costs.
Over the medium term, Energy UK is making the case for voluntary Contracts for Difference which would bolster investor confidence and ensure customers could benefit more from cheaper, clean domestic power by decoupling electricity prices for existing low carbon generation from marginal prices set by gas. It also underlines the importance of a predictable policy and regulatory environment needed to attract investment over the long run.
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 a 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. This is a once-in-a-generation opportunity and if we don’t seize it now, we will miss out not just on cheaper, cleaner energy but on the huge boost to our economy such investment will bring in terms of growth, jobs and other benefits.”