The U.K.’s search for 100 billion pounds (US$127 billion) to maintain electricity supplies is likely to become tougher after the Conservative government lost its parliamentary majority in an election last week.
Prime Minister Theresa May, who is leading a minority government, will need to focus more than ever to get consensus from lawmakers on Britain’s exit from the European Union. That leaves little time for setting new policies that could bolster the case for investing in new energy infrastructure, industry officials said.
“There’s not going to be an energy policy,” Guy Madgwick, managing director of Northern Europe for wind turbine manufacturer Senvion SA, said in a phone interview. “It’s nowhere near the top of their list.”
With more than a dozen power plants due to close in the next decade, Britain’s grid is creaking under growing volumes of power from wind and solar farms. The government is also under pressure to meet legislated targets to reduce fossil fuel emissions. And those challenges won’t disappear during the debate over Brexit.
“We’re at a point in the U.K. where we probably need to redefine some of the targets and goals we want to achieve over the next 10 to 15 years for the whole of the energy sector,” said Keith Anderson, chief executive officer of ScottishPower Plc, a utility that’s also developing renewable energy plants.
There’s already evidence that investment in Britain’s energy industry has slowed as the government focused on fighting three separate campaigns with voters in the past three years, including general elections this year and 2015 and the Brexit referendum in 2016.
Investment in clean energy plunged in the first quarter after falling on an annual basis for the first time in six years last year, according to Bloomberg New Energy Finance. Developers are seeking certainty on how their payments will be structured after the U.K. leaves the EU, a move that may allow it to drop renewable energy targets for 2020 that have served as a guide to how policy will evolve.
“Climate and energy policy has largely been on pause for the best part of a year,” said Louise Kingham, chief executive officer of the Energy Institute, a London-based institution that tracks energy policy. “There’s some catching up to do.”
The government has already delayed key decisions affecting energy, including:
- A clean-growth plan, which indicates what technologies the government endorses to meet its 2030 climate targets. The program that unfolds in the aftermath Brexit will send a signal on how the government wants the energy mix to evolve for segments covering everything from electricity to building heat and transport.
- Whether to subsidize a tidal lagoon project off the coast of Wales, which could spur further investments in as many as five other lagoons around the U.K.
- A change to the way renewable energy is supported, a move that might reopen a way for onshore wind farms to be built in the countryside.
- Policies that would boost investment in fracking for shale gas in the U.K.
- A decision on how to fund carbon capture and storage technology.
- A competition to spur investment in small modular nuclear reactors.
The election further unsettles the outlook for energy policy by adding to the governing coalition the Democratic Unionist Party, which opposes policies to fight climate change. The Conservative election manifesto said Britain should have the lowest energy costs in Europe while also meeting greenhouse gas targets.
“Uncertainty from the election result and coming Brexit negotiations may make it harder and more expensive for renewable energy developers to secure financing,” said Victoria Cuming, analyst at Bloomberg New Energy Finance.
Bills, Bills, Bills
May’s government also may have to shelve measures aimed at reducing consumer electric bills if only because it doesn’t have a firm command of votes in the House of Commons, said Elchin Mammadov, analyst at Bloomberg Intelligence. While both May and the opposition Labour Party have promised to tackle rising household energy bills, each proposed different ways forward. The result may be a weak compromise that changes little.
“They will probably just kick the can down the road for major energy policies,” said Mammadov.
It doesn’t help that the Conservatives ended subsidies for new onshore wind farms, the cheapest form of new power generation. Developers such as SSE Plc want the government to offer “subsidy free” contracts that would allow them to build projects in windier parts of the country like Scotland, where public support for the technology is higher.
“We see a bright future,” said Maf Smith, deputy chief executive of trade association RenewableUK. “Government needs to get a grip in terms of creating that stable framework.”
Plans for a new fleet of large nuclear power stations are also stalling.
After signing a contract to buy power from Electricite de France SA’s 18 billion-pound Hinkley Point project at twice the current market rate, the government wants to build another five new atomic plants.
Nuclear offers electricity without the greenhouse gases damaging the climate. But the financial woes of Toshiba Corp., the controlling stakeholder of a major atomic development at Moorside in Northwest England, leave doubts about the future of that plant. Labour has said it might back underwriting part of the 3.4-gigawatt atomic plant in order to spur private investors to take part, and unions are pushing for action.
“We need to have a proper energy policy,” said Justin Bowden, national secretary of the GMB union, in a phone interview. “We don’t have anything that could be reasonably called an energy policy in this country.”
©2017 Bloomberg News
Lead image credit: Chris Ratcliffe | Bloomberg