Welcome to the renewables industry’s summer of discontent

The frustration contained in today's letter from green firms to Cameron and Clegg is palpable - ministers must unite behind their low-carbon plans

09 Aug 2012, 13:01

There is an old Fleet Street story, possibly apocryphal, about a newsroom's response to reports of a coup that came in just a couple of hours before deadline. This was back in the Cold War days when a coup in a far-flung country was big news; the front page was duly cleared and reporters were assigned to deliver the story. One of the paper's top columnists was also instructed to produce 800 words on the attempted revolution's implications, but he is purported to have balked at the assignment. "Wouldn't it be better," he mused, "to come back tomorrow when we've all had a bit of time to think about what this means."

It is a vignette that has become all the more instructive over the ensuing decades as the digital revolution has compressed the time between breaking news and supposedly informed reaction to such a level that the only constraint on a commentator is the speed with which they can type.

As a result most important stories now follow a predictable cycle whereby an immediate reaction, often characterised by knee-jerk sound and fury, is followed a few days or weeks later by a more measured response courtesy of those commentators who have heeded the advice of our Cold War era columnist.

Every now and again, however, this model can work in reverse, as people look more closely at the detail and the implications of a story and realise that things are more shocking than they perhaps first thought. This is precisely what has happened in response to the government's recent decision on support levels available through the Renewables Obligation and the high-profile row over the future direction of green energy policy that preceded it.

The initial response to last month's confirmation of renewable subsidy levels was largely defined by relief that a decision had finally been taken and the worst-case scenario of deeper than anticipated cuts had been avoided. As a rule green businesses welcomed the fact they could once again start planning projects for the 2013 to 2017 period while enjoying a degree of certainty over the financial returns they could expect. Yes, there was huge disquiet over the revelation Chancellor George Osborne wants to turn the UK into a "gas hub" and there was on-going concern over the complete lack of clarity that defines the electricity market reform process, but there was also relief that further delays had been avoided and the kind of deep cuts to incentives threatened by the Treasury had been successfully resisted by the Lib Dems.

Now, however, the industry has had time to consider the small print of the government's renewables obligation review and the full implications of the inter-departmental stand-off that caused its numerous delays. The caveats that were first aired in the immediate aftermath of the coalition's renewables announcement are flocking home to roost.

Today's letter to prime minister David Cameron and deputy prime minister Nick Clegg signed by more than 200 business leaders, investors, union representatives, academics and campaigners lays bare the mounting frustration (perhaps even desperation) of a growing renewables sector that has been brutally undermined by more than two years of policy instability.

As the letter makes plain, the promised clarity eventually delivered by the Renewables Obligation banding review actually translates into eight new consultations impacting a host of different technologies. Add in fears the level of support for emerging technologies such as hydro-electric and anaerobic digestion is not sufficient to drive development, the continuing confusion over how the renewables obligation mechanism will transition into the new support schemes promised by electricity market reforms, and the apparent political battle with the Treasury over the entire make-up of the future energy mix, and you can see why the renewables industry remains so nervous.

The industry's reaction is entirely understandable. Despite what its critics will say, it is not putting out the begging bowl and requesting yet more subsidy, it is simply asking for a greater degree of clarity and predictability across the policy landscape. Investment cannot flow at the required level unless firms are confident about the future direction of both the government's green energy strategy and its specific policies.

The sector may still be growing fast, but, despite the national Olympic feel-good factor, this is in danger of becoming a summer of discontent for the renewables industry.

Confusion and uncertainty continues to characterise the electricity market reform process, optimism over the Green Deal is tempered by nervousness over the prospects of a successful launch, the Green Investment Bank looks underpowered and remains held up by the need to gain EU state aid approval, and everything is overshadowed by the knowledge the chancellor and his acolytes want to see gas, gas and more gas investment without even the slightest acknowledgement that the indefinite expansion of fossil fuel infrastructure is incompatible with the need to cut carbon emissions (I have some sympathy for the government's argument gas will still be required in the medium term as a transition fuel, but let us be clear, this is not what the chancellor is planning – he wants unmitigated gas at the heart of our energy mix for the next 30 years at least). Of all the government's flagship green energy policies, only the feed-in tariff is now offering any sort of medium-term predictability, and that was only secured following a series of U-turns and snafus that businesses are just starting to tentatively recover from.

Ministers had said that by this stage of parliament its green strategy would be moving from policy development to deployment. But while we have seen a fair few encouraging announcements as green companies step up investment in low-carbon infrastructure, this is categorically not what full-scale green deployment looks like.

Clegg attempted to reassure investors earlier this week that the "entire government" was fully committed to the green economy and that the tensions within the coalition over renewable energy policy were the figment of journalists' imaginations. But he reassured no one – how could he when the very next day Osborne delivered a paean to fossil fuel investment, spelling out in public what we already knew thanks to the leaked letter that attempted to bounce energy and climate change secretary Ed Davey into signing up to his vision for Gas-land UK.

You can understand why the Lib Dems do not want to rock the boat too hard over energy policy when to do so could risk the issue being pulled into the game of three-dimensional coalition chess that is being played over Lords reform, boundary changes and the entire future of the coalition. With Tory ministers muttering about exacting "revenge" for Clegg's decision to block boundary changes there will be fears the recent battle over energy policy will escalate still further over the autumn, even as businesses implore ministers to grow up and stop using such a nationally important issue as a political football.

But at the same time Clegg will be left looking very foolish if he keeps insisting there is a cross-government commitment to the green economy, while failing to deliver both public demonstrations of support from Osborne and co, and clearer policy victories to back up his rhetoric.

Looking at this inherently unstable political and policy landscape, renewables companies can comfort themselves with the fact the falling cost of clean energy, the volatile cost of fossil fuels and the looming reality of climate change pressures means they will win out in the end. They can also continue to defy the imperfect political backdrop by seizing the all-too-rare periods of policy clarity to deploy clean energy projects that are financially viable and can be completed far, far quicker than any nuclear reactor or carbon capture and storage plant.

But they also need to step up the calls for a predictable policy environment, of which today's letter is an important part. Plenty of big names signed the letter, but it is my bet that thousands more business leaders could be convinced to endorse a campaign that asks for nothing more than a reasonable degree of investor certainty. At the very least the Treasury and Number 10 should be forced to break their deafening silence on the future direction of the UK's energy policy and explain where they stand and how they justify the behind the scenes decisions that have condemned the sector to this period of continued uncertainty.

The summer is approaching its end, and after taking time to reflect the renewables sector is as concerned about its short to medium-term prospects as it was in the spring. This frustrating scenario simply cannot continue indefinitely if the UK is to meet its carbon targets, maintain its green growth and keep the lights on. The autumn party conference season promises to be even more intriguing than usual for a green economy in desperate need of some genuine political leadership.

  
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