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Summary

Since its election in May 2015 the UK's Conservative Party has pulled subsidies for wind and solar projects and refused planning permission for a new offshore wind farm. Its policies appear to pander to short-term goals of winning votes from anti-renewables voters in marginal seats rather than to long-term energy objectives, and they create a great deal of uncertainty for investors in energy projects. The UK would benefit from a bipartisan, long-term approach to energy policy, providing investors with the visibility they need.

Conservatives fail to be the greenest government ever

The UK's Conservative Party has adopted a curious approach to fulfilling Prime Minister David Cameron's claim to be the "greenest government ever." Among its recent policy shifts is its premature slashing of solar subsidies. Solar prices have been falling steadily over the last decade and subsidies have been a useful tool to encourage adoption while the technology remains expensive. Installation costs continue to fall, yet the technology remains expensive. Observers expected the cost of large-scale solar to reach grid parity (when installation costs are equal to the costs of more traditional forms of generation such as natural gas) by 2020, with small-scale domestic installations to follow suit around five years later. By cutting available subsidies, these timescales will lengthen as demand drops.

Also on the Tories' kill list is the wind industry. In June 2015 the government announced that it would end onshore wind subsidies in April 2016, a year earlier than was promised under the last administration. More recently it has turned its attention to offshore wind and has refused planning permission for the 121-turbine Navitus Bay offshore wind farm. The proposed wind farm was to be located off the Jurassic Coast, a Unesco World Heritage site, so opposition was strong. Planning refusals are uncommon, and the Navitus refusal could set a worrying precedent.

Finally, the Conservative Party has scrapped its own Green Deal home insulation program, citing poor uptake. It has pulled its funding of the company set up to provide homeowners with loans for energy-saving home improvements. Conversely, it has continued its support for fracking for natural gas, and for nuclear new build (the latter requires much higher subsidies than large-scale wind).

The government's policies have clear environmental ramifications, but the impact on potential investors in the UK's energy infrastructure should not be ignored. Investors need clarity, and changing policies on subsidies helps no one, except for local politicians hoping to gain votes from powerful "nimby" ("not in my back yard") lobbyists. Instead of knee-jerk reactions that play to the right-wing press rather than to long-term energy objectives, the UK will benefit from a bipartisan, long-term approach to energy policy that provides investors with the visibility they need.

Appendix

Author

Stuart Ravens, Principal Analyst, Utilities Technology

stuart.ravens@ovum.com

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