Investing in renewables: why and how

Saturday 23rd April 2016

matthew-pennycookMatthew Pennycook, a member of the Energy and Climate Change Select Committee and Labour MP for Greenwich and Woolwich

What if it’s a big hoax and we create a better world for nothing?” That was the question posed by one delegate to another at a fictional climate summit in a USA Today cartoon from 2009.

The question has stayed with me ever since because it expresses a fundamental truth about the transition to a green economy. International efforts to keep total global emissions within safe limits are important not just because of the imperative of avoiding catastrophic climate change, but because they also present an opportunity to enhance our quality of life and create a better world here and now.

The case for investing in clean, renewable electricity generation not only rests on the fact that it is a means to avert irreparable harm to our planet but that it also has numerous other benefits: energy independence and security; more liveable and sustainable cities; cleaner air and improved public health; cheaper energy in the long-run; and the preservation of our natural environment.

Furthermore, it increasingly makes sense in terms of the bottom line. With the transition to a greener economy now irreversible, it is only a matter of time before policy-making catches up with environmental necessity to burst the carbon bubble and render ‘stranded’ fossil fuel assets financially worthless.

Thankfully, the UK still remains ahead of the curve. Our renewable energy industry is now generating a record level of power. That achievement owes much to the fact that the UK still has some of the most advanced climate change legislation in the world – a testament to the ambition of the last Labour Government which doubled the UK’s renewable energy capacity and, with all-party support, introduced the Climate Change Act, mandating an 80 per cent reduction in emissions by 2050  –  the first country in the world to legislate for cuts on such a scale.

The temptation in such circumstances is for the Government to rest on its laurels, content with the fact that the deployment of renewable electricity generation is on target. That would be a mistake. The commitments that the UK Government entered into at the historic Paris summit last year will require us to be even more ambitious in the years ahead over how much of our energy demand is met through renewable sources.

That is why the Government’s seeming lack of ambition in that area is causing concern. Industry groups from across the renewable electricity sector have been raising concerns for some time that the UK is at risk of failing to meet its European Union obligations to obtain 15 per cent of its energy from renewables by 2020, primarily as a result of a lack of progress on decarbonising heat and the difficulties in delivering cross-departmental commitments with regards to transport. Unless lost ground in those areas is made up quickly, we will either fall short of our EU obligations or we will be forced to over-deliver on renewable electricity deployment to compensate.

In such circumstances, the Government’s decision to signal a change of direction on low-carbon through a series of, often abrupt, policy announcements makes little sense – and nor does the justification that these sudden policies are essential to relieve the pressure on consumer energy bills. If the burden on consumer bills is lifted in any meaningful way, it is likely only to be in the very short-term. That is because the impact of the uncertainty which has been created around energy policy will lead to increased risk premiums and damage to investor confidence, which will create higher project costs and, ultimately, higher consumer bills in the future.

As the Energy and Climate Change select committee’s recently published report on “Investor confidence in the UK energy sector” made clear, it is essential that the Government provide investors with greater certainty and stability as a matter of some urgency. That means more clarity with regard to existing policy mechanisms, including the future of the Levy Control Framework past 2020 and future Contracts-for-Difference auctions. It also means a credible and coherent long-term vision for the future of the UK’s energy system and the role of renewables within this system.

It is only by harnessing the dynamism of the market within a stable and secure investment environment, supported and underwritten by Government, that we will achieve the rapid investment in renewables which we need to avoid catastrophic climate change and create that better world.

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