Speaking at a meeting of the Energy and Climate Change Committee on investor confidence in the energy sector, Alejandro Ciruelos, Santander’s head of UK project and acquisition finance, said the framework had been a “helpful policy tool” in terms of understanding the total spend on low carbon technologies.
He said, however, an important question remained over “whether that £7.6 billion cap will be increased or upsized and then what is going happen beyond 2020/21. It’s the most important policy variable for us.”
Peter Dickson, technical director at Glennmont Partners, agreed it was a “major concern” that there was no specific target beyond 2020. He said: “Just that overall commitment that we know what we’ll be working towards is important.”
The sentiment was echoed by Chris Hullat, co-founder and chief financial officer, of Octopus Investments, who said more work could be done to establish whether the assumptions underpinning the forecast overspend were correct. He said: “That’s an area where there could be more collaborative work between the industry and Decc.”
In the summer of 2015 Decc withdrew subsidies for some forms of renewable generation following the revelation it had overspent the £7.6bn budget for the LCF by £1.5 billion.
Morgan Angus, principal at the Townsend Group, said the government should help investors understand how the LCF is calculated “so that when something happens in the market, people can understand how that is likely to feed through and start pricing that in way, way, way before any sort of government announcement is made.”
He added: “If people can understand what the ramifications of certain things are then it just provides much more stability and clarity.”
Ciruelos said the framework also needed to look further ahead than just a couple of years: “We’re talking about somewhere in between five to ten years beyond 2020.
“That is what gives the sector visibility in terms of getting geared up towards new developments.”