DECC’s Five Year Plan Does Little to Boost Generation Investors’ Confidence

DECC’s Five Year Plan Does Little to Boost Generation Investors’ Confidence

  • 05 Mar 0

The Department of Energy and Climate Change (DECC) has published a new departmental plan detailing its energy and environmental policy priorities for 2015-2020 and outlining how it will spend the annual budget of £3.3bn in 2015/16. DECC has pledged to help the UK deliver an energy infrastructure fit for the 21st Century whilst contributing to ambitious international action on climate change to safeguard long-term economic security. The department has declared that it remains committed to achieving an 80% reduction in the UK’s greenhouse gas emissions by 2050 and will do so in a way that ensures value for money. DECC is very clear that its four key objectives are to:

  • Ensure the UK has a secure and resilient energy system;
  • Keep energy bills as low as possible for households and businesses;
  • Secure ambitious international action on climate change and reduce carbon emissions cost-effectively at home;
  • Manage the UK’s energy legacy safely and responsibly.

A specific focus for DECC is to ensure the UK has a secure and resilient energy system by driving investment in new nuclear generation to replace the aging generators in the UK that are coming to the end of their lifecycle. There will also be greater focus on new smart technologies such as energy storage and demand-side response, support for fracking to supplement gas production from the North Sea and a doubling of funding for energy innovation.

In the report the changes made to the Renewables Obligation (RO) and Feed-in-Tariff (FiT) subsidy schemes are highlighted. These form part of a package of measures that the Government claims will reduce the projected cost of green policies on the average annual domestic energy bill by £30 from 2017. DECC has also stated that it can support up to 10GW of offshore wind in the 2020s if the technology moves quickly to cost-competitiveness.

DECC also is resolute that there remains significant and untapped potential for energy savings in the commercial sector, particularly in light of the Business Energy Tax Review which is the Government is expected to respond to in the 2016 Budget next week. It will be spending £295m in public sector energy efficiency over the next five years to cut energy costs, save carbon and free up resources for other priorities.

A key challenge outlined in the plan is decarbonising the UK’s heating supplies. The Department says it will be providing more than £300m of funding for local heat infrastructure over the next five years and funding will be increased to £1.15bn by 2020/21 for the Renewable Heat Incentive (RHI).

Internationally, DECC has committed to continue working with the EU to ensure the ongoing development of the Energy Union. The Government’s £5.8bn pledge to the International Climate Fund to help poor nations cope with climate change will be scaled up so that by 2020 the annual finance is £1.76bn, or close to double the current yearly funding.

A notable omission from the report is Carbon Capture and Storage (CCS). Throughout the 5000-word plan, CCS is only mentioned in one sentence; DECC stated it will consider the advice from Lord Oxburgh’s CCS Advisory Group as it explores its future approach to the technology.

It is promising to see demand-side response at the heart of DECC’s five-year plan and industry experts generally agree that there continues to be significant, untapped potential for energy savings in the business sector. The Government and energy suppliers must do more to engage businesses about the impact of energy and help mitigate the risk of rising prices, maintain UK business competitiveness, and even turn energy into a commercial opportunity where possible.

The challenge still remains with regard to generation.  The UK energy sector quite simply needs rejuvenating. Whilst older nuclear stations are having their working lives extended, there is a limit to how far this can be stretched. Coal is due to be phased out over the next decade and, with the absence of support for carbon capture and storage in the UK, must be eliminated. The UK needs a range of supply sources and a modernised grid if it is to meet its energy demand and carbon emissions targets and, as it is the Government’s intention to continue to pursue private investment to support this, there has to be stakeholder confidence that there will be a reasonable return. The five year plan presented by DECC has again missed the opportunity to provide financiers with the assurance that is required to attract investment in energy generation in the UK.


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