Investment to be impacted by UK White Paper

Reports Rebecca Tunstall, 22nd July 2009

This very eagerly awaited White Paper and accompanying strategy for renewable energy sets out how the UK aims to become a low-carbon economy. This includes meeting a UK national target of slashing greenhouse gases by 34% from 1990 levels by 2020 and, in addition, meeting its EU obligation to produce 15% of energy from renewable sources by the same date. This is very encouraging support for the future of Climate change Investment.

In order to achieve these goals the new measures will touch on every aspect of life, setting out how we use carbon in the provision of energy across every sector of the economy from homes to transport, agriculture and business. The most far-reaching changes will arise from the delivery of half of the total carbon reduction from the following:

- 15% from making homes more efficient

- 10% from workplace improvements

- 20% from changing how we travel; and

- 5% from agriculture and land use.

These changes, however, do not come free; Ed Miliband (Department of Energy and Climate Change) warned that domestic energy prices would rise by 2020 to pay for some of the required changes. This rise would, he hoped, be offset by increased energy efficiency savings in 7 million homes.

Wind energy is at the heart of the Government measures. Up to £180m will be made available by 2020 to promote wind and tidal power generation, including money for up to 3,000 offshore wind turbines. However, all the turbines the Government has committed to install will be manufactured overseas, mainly in Germany, Denmark and China. Indeed, today’s White Paper was overshadowed by the announcement from Vestas - the only wind turbine manufacturer in the UK - that it plans to close its factory on the Isle of Wight.

The UK wind environment remains extremely problematic. According to The Times “Local groups opposing wind farms on the grounds that they are visual intrusions have managed to block almost half of the 93 applications made in the past three years and delayed the remainder for as long as two years.” Not only this, wind power costs five times as much to produce as nuclear, which makes it very difficult for investors to decide whether to support the Government plans.

Questions therefore still remain over the Government’s ability to raise the expected £100bn required to finance these proposals - most of which will come from individual investment - as well as their ability to meet the climate change targets when public sentiment is not whole heartedly supportive. A persuasive case does remain, however, as was emphasized by Ed Miliband,  in that the proposals could lead to the creation of 400,000 “green jobs” by 2015 as well as contributing to the security of the UK energy supply by halving the need to import gas from Russia.

Other policy measures include:

- The Government will be taking control of the national grid and will use its authority to favour renewable electricity and oblige the regulator, Ofgen, to deal with carbon pollution. It will also force the energy companies to help poorer families meet energy bills.

- The Government will encourage individual households to generate their own clean energy by using, for instance, solar panels and combined heat and power units (CHP), selling the surplus to the national grid.

The implication for investors is that there is an assured support from the UK Government to a move to a Green economy. Investors, nevertheless, need to be cautious as to which stocks they select for their investment portfolio.

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