Economy

The green levies review: when is investor reassurance not reassuring?

Published

11 years ago

November 7, 2013

James Beard

Ed Davey has finally confirmed that renewables policies are not at risk in the ‘green levies’ review. James Beard of the Renewable Energy Association (REA) asks, “What’s next?”

It has been a very difficult few weeks in the world of renewables. Project developers have been turning up to investor pitches, months of hard work summarised into USB-loaded PowerPoints, only to have their audience give their answer before the pitch even starts – that answer being to throw today’s newspaper onto the table and say “You seriously expect me to invest with headlines like this flying around?”

As REA press officer, I’ve had a front row seat to watch this Halloween horror show unfold. Ed Miliband is the man who threw the match into the fireworks box with his promise at the Labour party conference to freeze energy bills for 20 months if elected.

Impossible! Unworkable! Anathema to investor confidence. So cried the business community and the government. However, the price freeze was exactly what the electorate, fed up of endless energy bill increases, wanted to hear. David Cameron had to respond and his response was two-fold: a competition inquiry into the big six, and a review of the ‘green levies’ on energy bills. This latter element is possible, and workable, but an absolute abomination to the entire green economy.

Hat-tip to Jim Pickard and Elizabeth Rigby of the Financial Times, who first scooped the ‘green levies’ review way back on October 6 – more than two weeks before David Cameron stood up in prime minister’s questions on October 23 and said, “We need to roll back some of the green regulations and charges that are putting up bills.”

There were two crucial differences between the FT scoop and Cameron’s statement, though. First, they said that renewables support was excluded from the review; Cameron did not. Second, they said it was a “review”, while the PM’s words gave the impression of a foregone conclusion: some green levies are going to be “rolled back”.

This was clearly a riposte to Ed Miliband’s opening gambit, but also rumoured to be revenge for Nick Clegg coming out against free schools the previous weekend. Heaven forfend the nation’s energy and climate security should come between a bit of point-scoring and hatchet-settling between our political leaders.

Within minutes, our phones were ringing off the hook. Industry and investors were well and truly rattled. We got on the blower to the Department of Energy and Climate Change (DECC) and were given verbal reassurance that renewables funding was not at risk. We passed this information on to members in our weekly newsletters.

The following weekend, Ed Davey vowed to “fight like a tiger” to preserve the green levies in an interview with the Guardian: “I am not going to give up on renewable energy, they are not going to touch it… That for me is a complete red line… The green taxes [are] not being touched and they won’t be touched. It’s incredibly important for investors that they hear that.”

Unfortunately, this may have had the opposite outcome to what Ed Davey intended. The article framed the issue as a coalition power play, with the Lib Dems sticking up for green levies and the Tories trying to scrap them. Although for pure greens it was refreshing to hear such passion for the environment from a cabinet minister, green investors don’t actually want to hear that Ed Davey will “fight like a tiger” because, after all, sometimes tigers lose. They needed a guarantee from Davey the energy secretary, not a rallying cry from Davey the Liberal Democrat.

Sure enough, the phones kept ringing on Monday (October 28) as our members kept on pushing us to extract that unequivocal, government-badged assurance they needed to show their jittery investors. We were able to get a statement in writing, which we shared with our members, and which the Solar Trade Association publicly welcomed on October 30:

“The government is looking at how to get people’s energy bills as low as possible to help hard-pressed families. We’ve already increased competition, brought new players in to the market to offer consumers real choice and the most vulnerable are getting direct help with their bills this winter. We’ll continue this work to make sure consumers are getting a good deal.

“No one is talking about changing investment incentives for renewables, such as the renewables obligation, contracts for difference and feed-in tariffs, which are essential for investor confidence in the renewables sector and our commitments to a low-carbon economy. Between now and 2020, the support we give to low carbon electricity will increase year-on-year to £7.6 billion – a tripling of the support for renewable energy.”

It would have been helpful if the renewable heat incentive (RHI), which is tax- rather than levy-funded, had also been listed above, because with ‘green tax’ and ‘green levy’ being used interchangeably in the media, green heat investors were starting to wobble as well. Nevertheless, this was very helpful, and even more so was Lady Verma’s use of this statement in the House of Lords energy bill debate that afternoon: “No one is talking about changing support for large-scale renewables or feed-in tariffs.”

We didn’t have a statement on the DECC website, but we’d had it direct from a minister’s mouth, which was just as good – or at least would have been, were it not for an exchange on October 30 between Messrs Whitehead and Fallon in the environmental audit committee evidence hearing on energy subsidies.

The former, a committee member (and top energy and environment expert) asked the latter, an energy minister, to clarify the scope of the ‘green levies’ review. Fallon replied, “We are looking at each of these levies and all of the various options associated with them. We are looking at all these things now and I’m not taking any one as a particular preference or priority.”

Oh dear! Back to square one. One energy policy expert posited on Twitter that perhaps Michael Fallon, who also doubles as a business minister, was “having a BIS day”. Maybe, but the tenacious Alan Whitehead wasn’t satisfied. So on Halloween, with investors yet again spooked, he asked Ed Davey after his annual energy statement to clarify which of his ministers was correct.

The reply: “The honourable gentleman will have to await the outcome of the review. It will be announced at the autumn statement or before.” Meanwhile, shadow energy minister Tom Greatrex wrote to DECC to yet again ask for the clarity which by this time was sorely lacking.

It could be that Ed Davey’s ducking of the question was more about politics than policy. Most likely, he simply did not want to openly concede that one of his ministers had said something wrong. Still, clarity was again lacking.

Intriguingly, somebody with access to DECC’s Twitter account tried very hard to keep getting the message out there, and retweeted this tweet from Alex Blackburne of Blue & Green Tomorrow: “Good news for consumers/investors, as @DECCgovuk confirms green levies review will not affect renewables incentives http://bit.ly/HgGBFN”. But a retweet is not the same as a website statement or even a direct tweet – it doesn’t have the DECC logo on it. If DECC was so confident in its statement, why wouldn’t they formally publish it?

Energy journalists diligently continued in their quest for clarity, with Business Green getting the same statement as usual from DECC, but E2B Pulse unable to get a clear answer from the prime minister at the CBI Conference.

Yesterday, on the anniversary of a famous attempt to blow up the Houses of Parliament, Ian Swales and Ed Balls again raised the issue in Treasury questions. Danny Alexander replied to the former: “We will not compromise on our commitment to renewable energy and green infrastructure investment. That means we remain absolutely committed to the renewables obligations and the contracts for difference, and that will not change as part of this process.”

George Osborne reiterated to the latter, “I believe we should roll back some of the levies and charges that have been imposed on energy bills.” Hmm.

Finally, yesterday afternoon, Ed Davey gave us the unequivocal reassurance we all craved in a speech to the RenewableUK annual conference, when he said, “The current review is not about changing investment incentives for renewables, such as the renewables obligation, contracts for difference or the feed-in tariffs scheme. These are essential for investor confidence in the renewables sector and our commitments to a low-carbon economy.

“But we do need to make sure that support is paid for in a way that is fair to consumers. And that is what the current review is about, not the level of support – that has already been agreed – but how it is paid for.”

That’s good enough for me! It gives the reassurance investors need, and it also moves the debate where it needs to go.

So what’s next?

Now we know that the review is not questioning how much green funding is raised, but simply how green funding is raised, the debate needs to shift to the realm of tax and social policy experts. I can’t claim to be either, but I do have some thoughts to hopefully push the debate forward a bit.

For too long now, certain politicians and parts of the media have all too easily been able to dress up their anti-renewables agenda as a pro-consumer agenda. “Renewables are sending bills spiralling and pushing people into fuel poverty”, they cry, when their objections are in reality based on aesthetic dislike of wind power, connections to the fossil fuels industry or a downright contrarian, anti-science stance on climate change.

The renewables industry’s primary concern on incentive mechanisms has historically been more about levels and stability of funding rather than where it comes from. But if the renewables levies are being raised indiscriminately – or worse, they are being loaded on to customers who are least likely to switch (often the most vulnerable e.g. the elderly without access to the internet) as was recently suggested by Ovo Energy’s Stephen Fitzpatrick – then there clearly exists a problem which would gnaw at anyone with a social conscience.

In my view, and I must stress I have not consulted REA members on this (although I would be keen to hear their views), government needs to give clear guidelines on how green levies are raised so that ability to pay is a material factor in how much a consumer pays for a sustainable society and a green economy.

The fuel poor should not pay the same percentage as the large corporations. If the rich pay a higher tax rate, they should pay a higher green levy rate, too. If possible, this should be done without moving the levies into taxation, as taxation is reviewed regularly, which can leave funding vulnerable, as we witnessed with the tax-funded RHI in this year’s spending round (painfully ironic how the RHI underspend can lead to a reduced future budget but not a degression deferral for the one green heat technology, biomass, that is enjoying healthy growth).

While the electricity policies are able to plan on the basis of a pot of money that is set out to 2021 (albeit one with many competing claims on it), renewable heat will have to wait until after the election before it finds out funding beyond March 2016.

Those energy-intensive businesses who claim the UK’s high energy costs are making British industry uncompetitive would not like this. To them I say what I always have: you are much better placed than domestic consumers to take advantage of renewables to shield yourself from high energy costs. You are more likely to use return on investment as a deciding factor rather than simple up-front cost, because you think longer term and you have more available capital to invest.

So do it: put solar PV and thermal on your roof, switch from oil to biomass for heating, replace your mineral fertiliser with greener, cheaper biofertiliser from anaerobic digestion, sell your own waste products as renewable energy feedstocks or contract directly with renewable generators. The opportunities really are endless for cost savings with renewable energy.

If the government can arrive at a means of raising green levies more fairly, without (further) undermining investor confidence in renewables (and energy efficiency), then that’s something I would welcome (although again, I must stress, this is a personal opinion, not a formal REA position).

Because it would take away one of the sticks with which renewable energy critics so love to disingenuously beat us, when they are well aware that volatility in wholesale energy markets has been a much bigger driver in forcing up bills over the last decade, and will continue to be so unless we get off the fossil fuel hook. And because, like most of us in the environmental sector, a strong sense of social justice is exactly why I do what I do.

James Beard is press officer at the Renewable Energy Association. What do you think? Let him know via Twitter or by email: jbeard@r-e-a.net.