Posted by

Tom Nolan, Policy Adviser

18 Jul 2012

For weeks we were lead to believe the government would announce the new subsidy level for renewable energy before Parliament went into recess. Those looking to invest in this sector have had to contend with numerous media stories about alleged disagreements within government over the extent of the cuts to the onshore wind power subsidy. In a consultation launched last year the government proposed to cut the subsidy by 10% but the media speculated that they had changed their mind and the cut was going to be 25%. So it was possible that there was going to be yet another sudden policy shift to follow those on solar power and the CRC (to name just two). These stories do not help build investor confidence in the long term direction of UK energy policy. However, if the government was planning a policy shift we were at least going to find out about it sooner rather than later.

Just last week Edward Davey, the Secretary of State for Energy, told Parliament to expect a decision shortly. But yesterday Parliament went into recess and no announcement was made. The energy secretary is now saying that a decision will be made as soon as possible, with the end of September as the new deadline.  So just like the delay to the aviation consultation it will probably be late in the autumn before we find out.

After the delay to the aviation consultation we said that aviation had become a political plaything. Unfortunately the same could now be said of energy policy. The UK faces huge energy challenges over the coming years. Overcoming these challenges requires tens of billions of pounds in investment. The private sector is willing to come forward with the necessary funds but they are not going to invest unless they feel they are operating within a stable policy framework. These type of delays only fuel the impression that the UK might not be the most stable place to invest.

The delay may also undermine the government’s position across the energy sector. The apparent difficulty in making a decision on this subsidy begs the question, are the government going to deliver swift and coherent reforms to the electricity market? Currently in the early stages of undertaking, the wider reforms proposed in the energy bill are incredibly complex. The wind power subsidy should be a relatively straightforward decision compared to the changes the energy bill is proposing to introduce.

At least there was one piece of good news this week for renewable energy. An agreement was signed between the National Grid and an Irish company that should see a large amount of wind energy generated in Ireland feed directly into the UK grid. Connecting the UK grid to other countries is good for the economy and vital for energy security. It is something the government should focus more on over the coming years.