‘Not optimistic’: Experts pour cold water on hopes Green Day will boost energy sector
Energy experts have raised doubts over the UK’s ability to compete with rival markets in the upcoming “Green Day” legislation.
The government is set to unveil its own reforms to boost green energy investment amid concerns companies could move projects and operations to the US following the passing of the Inflation Reduction Act.
Andy Mayer, energy analyst at the Institute of Economic Affairs, warned the government against a subsidy arms race with the US and backing hard-to-predict sectors with large funding promises.
He told City A.M.: “They have no idea what technologies will deliver decarbonisation in the next decade, let alone next century. Or whether those technologies will make commercial sense, globally or in the UK. Much will be wasted, incurring high taxes, undermining investment in real businesses by damaging UK competitiveness.”
In his view, the best option would be to create a consistent investment to develop certainty in the energy sector, to make it more appealing after years of volatility in policies.
This would include competitive carbon pricing, speeding up deployments of projects by deregulating planning and reversing recent tax rises, so that “all companies can understand the UK investment climate and regard it as stable”.
“The band Green Day warned against the ‘sound of hysteria’ and wanted to opt out. Wise words when considering government responses to the challenge of climate change,” Mayer argued.
The critical outlook from the free market think tank was reflected across the energy sector with Adam Bell, former head of energy at BEIS and now head of policy at Stonehaven, questioning whether the government could provide a substantive response without a “radical reshaping” of regulations.
He said: “There are positive steps it can take like contracts for difference for sustainable aviation fuel, and a general increase in the pace of decision making, but I am not optimistic that the government will go much beyond smaller steps.”
Bell also argued more could be done to boost offshore wind such as speeding up transmission construction and boosting the UK’s industrial strategy component – ensuring as much technology was made domestically to ensure the country has a comparative advantage.
He was gloomy, however, over the prospect of reforming key industry issues such as the windfall tax on renewables, which would require DESNZ to be “willing to swallow its pride”.
Energy sector faces huge challenges
Bell outlined his position to City PM the same week he was grilled by the BEIS Select Committee, a panel of Westminster MPs, over decarbonisation and wider energy policy.
During Tuesday’s session, he suggested the UK’s challenge was it did not have “the same fiscal firepower at its disposal” and therefore the government needed to “look at areas where the UK can specialise and generally deliver new value that is world beating”.
Alongside wind power, he highlighted carbon capture and clean energy storage as areas in which the UK remained frontrunners.
Adam Berman, deputy director of policy at trade body Energy UK, was also at the session, where he confirmed the US Inflation Reduction Act is “a key factor for developers at the moment”.
He said: “If you are a low carbon developer, you face a number of challenges – you face inflation and interest rate increases, which have obviously increased cost of capital, particularly debt financing. You’re seeing a supply chain crunch where commodity costs have increased faster than that of inflation in a lot of regulatory and political uncertainty within the UK clearly over the last sort of 12 to 18 months.”
Berman was more optimistic than Bell about the UK’s ability to compete, but warned that the government had to stop undermining technologies, citing a lack of funding for the upcoming contract for difference allocation round for offshore wind next month and a lack of investment allowances for renewable developers.
He suspected the government would target regulatory changes over subsidies, such as around grid connections and planning.
However, this would also present challenges for the government.
Berman explained: “I think the thing to stress is that the government seems minded at the moment to believe that regulatory reform comes with fewer political costs than some of the fiscal items. The reason why planning is complicated and regulatory reform around grid connection is complicated is because that they do come with political costs. So, whether you’re going to do the fiscal stuff or the regulatory stuff, you need to decide that you’re going to put the political will behind one wholesale.”
However, there were some more positive positions towards Green Day expressed during the session such as by Rachel Fletcher, director of regulation and economics at Octopus Energy.
She warned against being “downbeat” as the UK had established itself as a leading clean energy player in recent years.
Fletcher said: “I think we have got a phenomenal opportunity as a country – we’re way ahead of most of the rest of the Western world when it comes to decarbonisation. We’ve got the third biggest tech industry in the world as well. I think there’s a real opportunity to bring these two things together, and actually for the UK to place itself as a global leader in designing and running low carbon systems using state of the art technology.”
Meanwhile, Laura Sandys, chair of the government’s Energy Digitalisation Taskforce, argued that the UK’s opportunity was in developing a system for the future rather than simply trying to encourage companies to invest in domestic green energy projects .
She said: “If you look at the EU and the US, their ambitions are very big, but their plans are quite incremental. I think we need a very much, more bold in some ways, plan which is planning from the future, not the incremental pathway to that future.”