MPs warn of energy price hikes as renewable subsidy cuts alarm investors

German coal fired power station with wind turbines

Old and new: a German coal-fired power station with wind turbines behind

MPs have warned that the government’s cuts to renewable energy subsidies could put off investors in the sector and lead to higher energy bills.

The Energy and Climate Change Committee said the government’s convoluted messages and policy shifts were undermining investors’ confidence.

But ministers have said they need to cut the subsidies to force energy bills as low as possible. The government originally promised a new deal to be made for renewable subsidies by the end of 2015, but this has been pushed back until the end of 2016, further adding to investors’ uncertainties.

The Energy and Climate Change Committee chair Angus MacNeil said: “Billions of pounds are needed to replace ageing energy infrastructure, maintain secure energy supplies and meet climate change targets.

“The government made a number of sudden and unexpected changes to policy. This has spooked investors.

“In the same way that someone with a poor credit rating will have to pay higher interest rates when they take out a bank loan, so an energy project that is perceived to be higher risk will have to pay a higher risk premium.

“Any increase in the cost of capital will ultimately get passed on to consumers through higher bills.”

The committee pointed out several problematic government decisions, including cutting subsidies for offshore wind and solar power, ending the Green Deal energy efficiency programme, cancelled the carbon capture storage programme David Cameron had previously described as “absolutely crucial”, and the introduction of the carbon tax levy to the renewables industry – the very industry it was designed to support.

German engineering company Siemens also contributed, pointing out the UK government’s confusing messages. According to the BBC these include:

  • Decarbonising at lowest cost, while halting onshore wind
  • Giving local people a say in wind farm consents, but not shale gas
  • Claiming to “let markets decide” when the energy market is heavily influenced by government

Former CBI chief Lord Turner criticised the government’s handling of the situation: “It’s fairly obvious that investors look to politicians for a clear and stable policy framework, especially when they are making investments in large projects that can take years to pay off.

“It’s so obvious that one wonders why a select committee has to point this out to the Treasury - but apparently it is necessary, given the continued sense that UK energy policy is drifting aimlessly.”

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