Ten steps towards greening the UK\\\'s infrastructure
2 Jun, 2011
Tom Young argues 10 measures are essential in delivering the low-carbon infrastructure the UK needs....
Politicians, business leaders and eco-warriors are all in agreement: private capital must be forthcoming if the UK is to green its infrastructure, as the government and utilities alone cannot foot the bill.
But the UK recently fell from 5th to 13th in the global ranking for low-carbon investment, while the CBI last week turned its fire on the government arguing that policy uncertainty was undermining investor confidence.
Investors are not favouring low-carbon projects because they believe that the returns are either not sufficiently attractive or too uncertain.
As such, the government urgently needs to take action to improve the investment climate for low-carbon power infrastructure. But what measures do businesses want and need? BusinessGreen sets out its infrastructure wish list for the months ahead.
1. Set an overall vision for growth
The Committee on Climate Change\\\'s 2010 innovation report said that potential investors would benefit from a plan that outlines the government\\\'s broad intentions for the UK\\\'s low-carbon transition through to 2050.
The plan should provide sufficient predictability and certainty for investment decision-makers without becoming overly prescriptive. The National Infrastructure Plan, Carbon Plan and recent growth review are steps in the right direction, but they do not stretch far enough into the future.
Research by the Committee on Climate Change suggests that venture capitalist confidence in early-stage technologies - such as marine and tidal power - would benefit from a plan that outlines the government\\\'s broad intentions for the UK\\\'s low-carbon transition out to 2050. The sooner we get to see this document the better.
2. Ensure a stable price on carbon
It is widely accepted the EU Emissions Trading Scheme will not deliver an effective carbon price for some time. The recent UK budget announcement introduced a proposal for a carbon floor price, designed to provide greater long-term certainty around the cost of polluting.
Removing the existing Climate Change Levy exemptions for the use of fossil fuel-based generation and introducing a new \\\'carbon price support rate\\\' tax on fossil fuel supplies would help firms factor a stable long-term carbon price into the planning of their finances 10, 20, and 30 years down the line.
3. Introduce technology neutral feed-in tariffs
Feed-in tariffs on long-term contracts could provide greater certainty on revenues for low-carbon generation and make investment more attractive. Recent abrupt changes to feed-in tariffs in the UK, Germany and Spain have made investors jumpy about their reliability.
The government\\\'s proposed \\\'contract for difference\\\' model, whereby generators would enter into long-term contracts on a fixed price basis with variable payments to ensure the generator receives stable returns, must be introduced without delay to assuage investor fears on this front.
4. Reform the electricity market
A forthcoming government white paper on electricity market reform needs to deliver the proposed emissions performance standard for coal-fired power stations. This will reinforce the government\\\'s promise that no new coal power stations are built without accompanying carbon capture and storage technology.
Another set of useful measures are capacity payments - targeted payments to firms providing security of supply through the construction of flexible back-up plants such as gas to ensure enough baseload supply as the amount of intermittent low-carbon generation increases.
5. Remove some risk for investors
The government should aim to reduce some of the risks associated with low-carbon investments. In doing so, it should reduce risk already under its control, i.e. policy risk. In a survey by Accenture for the CBI, this was cited as by far the greatest barrier to investment.
Investors often see policy as susceptible to change, either through ad hoc tinkering or a major change in political objectives. Recent examples of this include the decision to remove the revenue recycling element of the Carbon Reduction Commitment Energy Efficiency Scheme, and a decision to conduct an early review of feed-in tariffs for solar PV. Avoiding these kinds of surprise changes will help create a stable investment climate.
6. Sort out the planning system
Infrastructure projects are greatly hampered by bureaucratic local authorities. The last Labour government made some steps in the right direction by establishing the Infrastructure Planning Commission which began operating in 2009 as the decision-making body for nationally significant infrastructure projects.
But the Coalition abolished the Commission and is to replace it with the Major Infrastructure Planning Unit. There has been some accompanying rhetoric from the government on putting planning power back into the hands of local communities, but developers are concerned this will mean more planning delays.
In addition, National Policy Statements, the government\\\'s future infrastructure blueprints, will now be subject to ratification by parliament, a move that will further slow the already glacial pace of their production.
If progress is to be made, the Major Infrastructure Planning Unit must have exactly the same powers as its predecessor to fast track crucial infrastructure decisions. In particular, it is essential to keep to the three-month sign-off period, as recommended by the CBI, to help maintain investment confidence.
7. Make sure the Green Investment Bank is effective
A Green Investment Bank, to be set up in 2012, will help channel capital towards low carbon infrastructure projects. But the bank should not be seen as a cheap and easy source of capital, and should only intervene when the market fails to deliver conventional funding.
It must also have a broad portfolio of investments and the power to raise capital quickly. The bank must operate independently and without political interference and must not be subject to abolition by a future government in the manner of the Infrastructure Planning Commission, otherwise any bonds it eventually issues will be valueless.
8. Prevent carbon leakage
Energy and climate change policies must not undermine the UK\\\'s manufacturing base to the extent that it cannot support the low-carbon revolution. If industries key to low-carbon infrastructure - such as cement and aluminium manufacturers - move overseas it will be more expensive to build low carbon projects, and policies will have been counterproductive. Therefore, all new climate change and energy policies must result in limited costs for the sectors most at risk of this \\\'carbon leakage\\\'.
9. Improve the Green Deal
The Coalition\\\'s Energy Bill last year includes provision for a new \\\'Green Deal\\\' which aims to improve the energy efficiency of British properties by enabling private firms to offer consumers energy efficiency improvements and be paid at a later date via charges on energy bills. The idea is that the energy savings will pay for the upgrades.
With the government having made clear that the private sector will finance the scheme, it is essential that a viable financial model is designed which is attractive to investors. The CBI and the building industry remain unconvinced that the current proposals are sufficiently attractive.
The government must ensure that financial risk is spread equally between parties, and that demand is stimulated by the mandating of Display Energy Certificates for all properties.
10. Make the consumer case for low carbon
Part of the problem with selling low carbon technologies to the public - and thus encouraging demand - is that their deployment makes no material difference to the consumer. Electricity is electricity, wherever it comes from.
Helping to inform consumers about the benefits of low carbon products in a way that directly highlights their advantages is therefore crucial. Using smart meters to see how much energy an appliance actually draws helps consumers to understand what they\\\'re really paying for a product.
And carbon labelling systems on goods and services will help people make better-informed decisions on a range of products, but only if they are standardised and mandated by government.