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THE DECLINING PUBLIC SECTOR INVESTMENT IN UK CLEAN ENERGY

Earlier this week the Environmental Audit Committee (EAC), a committee which considers the extent to which the policies of the Government contribute to sustainable development published a document which Declining investmentconcluded that the UK requires billions of pounds of infrastructure investment to make the swift transition to a sustainable, low-carbon economy. This comes in the wake of statistics which show the UK’s annual clean energy investment is currently the lowest it has been since 2008. This industry insight will summarise the findings in the publication such as:

  • The EAC view on the Clean Growth Strategy
  • The decline in public sector investment in UK clean energy
  • In conclusion

The EAC’s view on the Clean Growth Strategy

The EAC, like many commentators before it such as Greenpeace and Friends of the Earth, was impressed with the vision and ambition of the Clean Growth Strategy. This is unsurprising as the strategy does propose substantial investment into low-carbon innovation and sets lofty objectives such as establishing the UK as a clean energy leader.

However, the EAC, despite praising the aspirations of the Clean Growth Strategy, was heavily critical of its detail, or lack thereof, and the fact that the proposals set out in the Clean Growth Strategy would still lead to the UK missing out on its 4th and 5th carbon budgets.

In its submission to the EAC, the Green Alliance criticised the Clean Growth Strategy for relying on aspirational targets as they do not drive investment. This lack of detail is clearly a short falling of the Clean Growth Strategy, with the Powerstar blog article highlighting the claim that the proposed investment in smart systems could be met with some scepticism as it is unclear what exactly the investment is designed to improve. Therefore, it comes as no surprise that the EAC has found the strategy lacking in detail.

The other big issue that the EAC has with the Clean Growth Strategy is again one which Powerstar identified at the time of its publication, with the UK set to miss out on achieving its 4th and 5th carbon budgets even with the policies proposed in the Clean Growth Strategy. The importance of achieving the carbon budgets has been mentioned in previous Industry Insights, and the EAC is understandably keen to ensure that the UK achieves these budgets. The EAC has recommended that Ministers urgently publish a delivery plan to secure the investment needed to meet the 4th and 5th carbon budgets and that Ministers should set out a trajectory to gradually increase the carbon price to continue driving investment away from fossil fuel based electricity generation in an attempt to achieve the budgets in addition to meeting its decarbonisation targets

The decline in public sector investment in UK clean energy

Arguably, the key finding of the EAC publication is that the level of investment in UK clean energy is falling, with a 10% fall in cash investment in 2016 followed by a further 56% fall in 2017. On the surface, these numbers appear to be worrying and the explanations of the figures do nothing to allay these worries.

One explanation is the privatisation of the Green Investment Bank which was established to address market failures limiting low-carbon investment and to accelerate the clean energy transition. The sale of the Green Investment Bank, now the Green Investment Group, was completed in August 2017 and with the bank now being in private hands the concerns over the entity changing its objectives and priorities as a result seem to have been well founded. This is because it now has an increasingly international focus, with only one of the four investments since privatisation being based in the UK. In addition to this, the need to maintain shareholder confidence is likely to pull the bank away from its original purpose of investing in riskier and more complex projects.

Another explanation of the fall in UK clean energy investment lies in the UK’s departure from the European EIB investmentUnion and particularly the UK’s relationship with the European Investment Bank (EIB). The EIB is an EU development bank owned by Member States that provides finance for sustainable investment projects that contribute to EU policy objectives. Of course, as the UK is in the process of exiting the European Union it will no longer automatically have an ownership stake in the EIB and its policy objectives may differ.

The scale of importance of the EIB to clean energy investment in the UK is perhaps best summarised in the statistic that for the fiscal year ending in 2016, the EIB committed £1.2 billion in renewable energy investment in the UK, larger than the Green Investment Bank’s £700 million over the same period. Although the terms of the UK’s departure from the EU are undecided and, as set out in the Clean Growth Strategy, the Government aims to make the UK a low-carbon leader, the prospect of losing this level of investment may have provided other investors with a sense of unease about investing in the market and contributed to a downward trend in investments overall.

In conclusion

This decline in clean energy investment from two significant public sector sources means that private sector companies must take even greater responsibility in ensuring that the energy transition occurs smoothly and successfully. As both the Green Investment Bank and the EIB were more predisposed to invest in the riskier technology that can lead to step-level changes in infrastructure than private sector businesses, it is increasingly important that the energy transition can progress without major infrastructure overhauls financed by the public sector. In this respect, energy storage technologies such as Powerstar VIRTUE , which can be implemented with consequential beneficial results without wider infrastructure upgrades are vital to achieving the energy transition and ultimately helping the Government achieve its goal of transforming the UK into a worldwide low-carbon leader.

In addition to being able to be implemented without any wider upgrades to infrastructure, the benefits of Powerstar VIRTUE can be gained with no capital expenditure. The financial constraints to a business can be overcome through the usage of the flexible funding option Storage as a Service or STaaS®. The StaaS® option offers a fixed payment service for the delivery of Powerstar VIRTUE. This enables the customer to match use with benefits to lead to a cash positive position, whilst de-risking the investment.

It is clear that despite the good intentions of the Government as set out in the Clean Growth Strategy, wider political issues could lead to lesser investment from the public sector into clean energy in the UK. This requires a robust response from the private sector, both to increase its own level of investment and to develop solutions which remain practical in the event that declining public sector investment leads to a lesser infrastructure overhaul than previously imagined if the energy transition is to progress as planned.

To learn more about Powerstar VIRTUE contact us on 01142 576 200 or via info@powerstar.com

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https://www.parliament.uk/business/committees/committees-a-z/commons-select/environmental-audit-committee/role/

https://publications.parliament.uk/pa/cm201719/cmselect/cmenvaud/617/61702.htm

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