Construction News: Policy doubts risk energy investment, finds report29/10/2012
Investment in energy is at a 20-year high but is at risk of a slowdown because of doubts over Government policy, according to a new report.
The Powering the UK report, compiled by consultancy Ernst & Young for trade body Energy UK, found that over £10bn was invested in 2011 on power generation, networks, and gas storage and other facilities.
Employment in the sector has risen even during the recession, but concerns over the economic climate and policy are now slowing decision-making and delaying new projects, the report said.
Energy UK chief executive Angela Knight said: “The UK needs to move swiftly to give certainty to the industry and its investors by putting in place the right policies and the right regulations to ensure that the investment that is needed in new power generation and in the transmission network goes ahead.”
Tony Ward, head of Ernst & Young’s energy team, who co-wrote the report, said the present high level of investment in construction by the energy industry had been the result of a “historically clear path in energy policy”.
But he warned: “Confidence is vital. With electricity market reform still to be delivered in final form, and short term expedient seeming to drive many recent statements, delivering that confidence cannot be taken for granted.”
A lack of clarity in energy policy has been widely blamed for difficulties surrounding energy schemes like Feed-in Tariffs and the Green Deal, launched earlier this month.
Energy UK’s concern came only weeks after the CBI warned that the Government had to provide more certainty for investment in low-carbon energy.
Its deputy director-general Neil Bentley said then that “the policy future looks too much like a blank canvas.”
A Department of Energy and Climate Change spokesman said:
“We know investors want and need certainty and that’s why we’ll publish the Energy Bill on schedule next month. Our reforms will improve revenue certainty in low carbon generation, making it easier and cheaper to secure finance.
“For renewables we’ve taken care to ensure stable transition from the Renewables Obligation to reassure investors and investment continues to come forward – with £12.7bn announced in the last year.”
He said the department had had “approaches about some half dozen wind and biomass projects, as well as new nuclear [but] we do need to see more new gas plant, and the Gas Generation Strategy is looking at whether there are any barriers to that”.
Meanwhile construction consultant EC Harris has said that better supply chain engagement could save European offshore wind industry some £1.2bn a year by 2020.
It said this equated to a 15 per cent reduction to be achieved through increased levels of competition; better vertical collaboration; greater economies of scales; further horizontal co-operation; more incentive-based contracts; and deeper appreciation of uncontrollable risks.
But the firm said much of the investment needed would stall unless costs could be lowered.
The next generation of offshore wind farms, for example, was likely to more expensive as it would be built further from shore and in deeper water.
EC Harris head of renewables Isabel Boira-Segarra said: “To enable the supply chain to secure the necessary capital to build new manufacturing plants, port facilities and vessels, governments and the relevant public bodies across Europe must succeed in creating and sustaining a viable policy environment that offers greater certainty on financial support mechanisms, expected volume of work and proposed development timeframes.”