In recent months, investment in low carbon generation has “deteriorated significantly,” Industry experts have warned that the UK could face a £62 billion deficit over the next decade.

According to Energy UK, without “rapid government intervention,” the UK’s energy security and net zero targets will be undermined by a lack of private sector investment, with “crippling consequences for the country.”

The report concludes that a combination of inflation, interest rates, supply chain issues, and increased international competition is causing international investors to reconsider capital allocation.

In addition, the report criticises the proposed Electricity Generator Levy (EGL), describing it as a “poorly designed windfall tax” that has “caused major concerns for the activity of new clean energy projects, especially renewables.”

As a result of these factors, the overall costs for new low-carbon generation have increased by 20-30%, and in some cases, by as much as 50%.

“These cost increases are exacerbated by systemic regulatory uncertainty and lengthy delays in planning and grid connections, which slow the construction of new projects,” the report continued.

The analysis of the trade association reveals that if these issues are not addressed, the UK economy could lose £62 billion in investment between now and 2030, resulting in a shortfall of 54 gigawatts of potential wind and solar capacity and higher energy bills for consumers.

Energy UK

Despite the gloomy outlook, the report asserts that it isn’t too late for the government to enact policies that will “safeguard the UK’s role as a clean energy superpower” and that a thorough reevaluation of current policy is necessary.

“As the Spring Budget approaches, an immediate reassessment of fiscal policy is required to safeguard the currently threatened potential capacity. Without this action, we will lose near-term investments essential to achieving our energy security and net-zero goals,” the report continues.

In this regard, the report makes several recommendations to the government, including rethinking the EGL to make it more compatible with the Energy Profits Levy for oil and gas production.

It describes how the proposed EGL legislation would result in a lower effective tax rate for oil and gas extraction than for low-carbon generators.

It continues, “The preferential treatment given to the oil and gas sector through the Energy Profits Levy investment allowance sends the wrong signal to investors.”

If the government chooses not to offer an investment allowance, it is imperative to prioritise changes to the tax regime, such as the Capital Allowances Regime, to encourage new investment.

Aside from that, the trade group desires that the capacity of future Contracts for Difference (CfD) allocation rounds be increased to accommodate more generations.

The EGL, it is claimed, has effectively redirected projects that might have pursued a merchant route to market to CfDs.

“There is a high likelihood that the UK will lose prospective renewable capacity if we do not maximise the capacity from these allocation rounds,” the report adds.

Emma Pinchbeck, chief executive of Energy UK, stated, “As we look to emerge from an energy crisis that has caused enormous difficulties for customers, businesses, and the wider economy, both the government and the energy industry have been crystal clear that the solution lies in rapidly expanding our sources of clean, affordable power and escaping dependence on expensive fossil fuels that have cost us dearly in recent years.”

“However, the UK faces an increasing risk of undermining its ambitions and failing to meet its obligations. In many ways, the UK has been at the forefront of the change to clean energy, as evidenced by our world-leading offshore wind industry. However, we risk squandering this leadership position and diverting the necessary investment elsewhere.”

It would be unforgivably arrogant to believe that we don’t need to compete with other nations for the same companies and investors.

A government spokesperson stated in response to the report that the nation has “consistently attracted investment in renewables.”

The spokesperson added, “Since 2010, the amount of renewable electricity capacity connected to the grid in the UK has increased by more than 500%, and through Contracts, for Difference, we have awarded contracts totalling nearly 27GW of new low-carbon capacity to date.”

“As part of the Review of Electricity Market Arrangements, we are consulting on reforms, including changes to the wholesale electricity market that would prevent volatile gas prices from determining the price of electricity produced by much cheaper renewables – reducing the cost of electricity for consumers over the long term and providing certainty for investors.”