UK’s green agenda needs selling to investors

By Alexander Smith
May 14, 2010

– Alexander Smith is a Reuters Breakingviews columnist. The opinions expressed are his own –

Britain’s new coalition government wants to cut the country’s carbon footprint as well as its colossal deficit. But the alliance’s more ambitious green policies sound expensive — especially for an administration whose priority is fiscal discipline. Private sector involvement will be critical. And investors may take some convincing.

UK energy regulator Ofgem predicts that up to 200 billion pounds of investment is needed over the next 10 years in new infrastructure to maintain secure supplies and meet climate change targets.

Many of the new government’s ideas are recycled hand-me-downs from the former administration. The roll-out of smart electricity meters had already been put in train by the former Labour government. A smart grid, which allows users with, say, solar panels to sell electricity back in, is a logical next step. Both will probably need heavy taxpayer subsidy to encourage consumer take-up.

The bigger capital projects appear to need extensive external funding. There is a fresh commitment to build a high-speed rail network. Combined with the nixing of a third runway at Heathrow and refusing to build additional ones at Gatwick and Stansted airports, this could offer a viable alternative for inter-city travel.

The new government is also promising measures to promote energy generation from waste and the sea, requiring investment in research, technology and infrastructure. New restrictions surrounding the construction of coal-fired power stations — which must include carbon capture and storage technology — present a further private-sector opportunity. But power companies will be unsettled by the coalition’s fudge on new nuclear power stations.

Then there is the proposal to establish a national network for recharging electric and plug-in vehicles. With car-makers ploughing money into manufacturing battery-powered cars, there may be plenty of interest in developing such a system.

But these are mainly very speculative, long-term projects. Persuading private investors to share the funding burden of all this could be a stretch given the extreme uncertainty over the future returns. The government may have to give some hard medium-term guarantees. It all looks like a huge challenge. Perhaps that explains why Conservative prime minister David Cameron has given the task of making it happen to a Liberal Democrat MP from his coalition partners.

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