The government has been urged to reverse collapsing investment in low-carbon energy by reviewing the regime for supporting the sector before the next round of Contracts for Difference (CfD) auctions takes place in 2019.
A new report by the House of Commons Environmental Audit Committee, published today (16 May) recommends that the consultation into encouraging new low-carbon generation could look at other fixed price contract mechanisms like power purchase agreements that cut out the need for subsidies.
The government announced in last year’s Budget that it would offer no further support for low-carbon energy beyond the £557 million earmarked in the next round of CfD auctions, which is due to take place next year.
The report says this is one of several policy changes which have contributed to a “dramatic and worrying collapse” in clean energy investment since 2015 by undermining investor confidence in the sector and leading to a reduction in the number of projects in development.
These policy changes also include the privatisation of the Green Investment Bank and a reduction in European Investment Bank (EIB) lending following the EU Referendum, which the committee says may also have fuelled the decline in investment.
Annual investment in clean energy is now at its lowest since 2008, according to the report. It highlights “huge policy and investment challenges remain in decarbonising transport, domestic heating and industry”.
The report says the 56 per cent dip last year in clean energy investment, identified in an analysis by Bloomberg New Energy, is “of particular concern” because it comes in the run up to the fourth carbon budget. The government is already at risk of missing the statutory carbon reduction targets in its fourth and fifth carbon budgets, which cover the decade from 2023.
The committee calls on the government to publish a delivery plan outlining how it will secure the investment needed to meet the fourth and fifth carbon budgets without relying on emissions savings that have already been achieved.
“To meet these targets, low-carbon energy projects need to be in development now, given the long lead-in times involved,” the report states.
“The government needs to restore confidence and provide a stable policy environment to deliver a pipeline of projects.
“Given the disruption and policy uncertainty of the last three years, the Treasury must ensure that its attempts to keep costs down for consumers do not exacerbate the current dip in clean energy investment.”
The committee recommends the government should seek to maintain the UK’s relationship with the EIB to enable continued access to development bank finance for riskier early-stage green infrastructure projects.
And it recommends the government should issue a Sovereign Green Bond that could set a benchmark for similar financial instruments for raising low carbon investment.
Mary Creagh, chair of the Environmental Audit Committee, said: “A dramatic fall in investment is threatening the government’s ability to meet legally binding climate change targets.
“The government must urgently plug this policy gap and publish its plan to secure the investment required to meet the UK’s climate change targets. It should provide greater clarity on how it intends to deliver the Clean Growth Strategy by the 2018 Budget, and explore how a Sovereign Green Bond could kickstart its Clean Growth Strategy.”
Commenting on the Environmental Audit Report on green financing, James Court, head of policy at the Renewable Energy Association, said: “This report perfectly chimes with the reality that our members are feeling. There is a real frustration that at a time of renewable costs plummeting and other countries steaming ahead, the UK is going backwards.
“Government must now move forward quickly by implementing the recommendations of the Green Finance Task Force that reported back in March.
“Renewables are now cheaper than building new gas and nuclear generation, yet the decisions of the last three years will have an impact on not only the UK hitting our climate targets, but whether we will have a cheaper, cleaner, smarter and future-proofed energy system, and the jobs and investment that come with that.”