Spending review quells green technology sector anxieties

Some of the green sector’s worst fears were set aside today as the chancellor’s spending review revealed funding for upgrades to the UK’s ports and feed-in tariff rates would be maintained.

George Osborne told members of parliament today £200m would be set aside for low-carbon technologies including offshore wind technology and manufacturing infrastructure at port sites.

This put an end to rumours the government might scrap a £60m competition that would involve UK ports bidding for money to rejuvenate their facilities. The investment is viewed as strategically important for the development of the offshore wind industry.

Siemens, General Electric and Mitsubishi indicated their investment in offshore wind turbine manufacturing in the UK was conditional on a ports upgrade.

Osborne’s comprehensive spending review (CSR) also indicated support for the feed-in tariff (FiT) would remain but savings would be made by refocusing it on the most cost-effective technologies, saving £40m in 2014-15. The changes will be implemented at the first scheduled review of tariffs in 2013 unless massive uptake forces the government to carry out an earlier review.

The chancellor also told MPs the government would be putting aside £1bn in funding for the UK-wide Green Investment Bank (GIB) with hopes more funds would be added by the private sector and future government asset sales.

These sales could be from a range of assets including the Channel Tunnel rail link, which the previous government believed could raise £1bn for a green bank. 

Other spending promises for environmental groups include a £1bn investment to create one of the world’s first commercial-scale carbon-capture and storage demonstration plants.

A total of £860m has been set aside for the Renewable Heat Incentive, which will be introduced from 2011-12.

The chancellor’s CSR received responses of pleasant surprise from the green sector.

‘My initial reaction is it looks like Chris Huhne and his debt ministers have done a good job to come up with some ways of cutting their budgets but maintaining the core thrust of what they’ve been trying to do,’ said Juliet Davenport, chief executive of Good Energy, one of many companies that lobbied ministers ahead of the review to resist proposals to scale back the FiT scheme.

‘So we have a Renewable Heat Incentive and it looks like they should be pushing that through in 2011, which is excellent news, and the feed-in tariffs, it looks like they are not going to touch them — unless there are particularly extenuating circumstances — until 2013, which sends a very positive signal back to the investment community.’

Maria McCaffery, chief executive of RenewableUK, shared a similar enthusiasm for the chancellor’s promise to retain the ports fund.

‘Retaining the ports fund will give the industry a huge boost and establish the UK as a major force in renewable energy manufacturing,’ she said. ‘Signals from government are positive that the £60m will be retained as part of the £200m for the development of low-carbon technologies including offshore wind technology and manufacturing at ports sites in part 1.4 of the spending review.’

The business community also reacted warmly to the chancellor’s proposals for the GIB. The Aldersgate Group, a business lobbyist that includes BT and Jaguar Land Rover, had pre-emptively called on the government to capitalise the bank by at least £4bn to 6bn over the next four years through a combination of public and private funding.

‘We very much welcome the chancellor putting the GIB in the centre of his plans for investing in the country’s future,’ said Andrew Raingold, deputy director of Aldersgate Group.

‘Although there is £1bn of direct capital funding, there is also potential to build on that with asset sales and private-sector investment. You can see the level of capitalisation approaching the £4bn to £6bn that business leaders were recommending. Also if it has the remit to issue bonds and raise capital from institutional investors then it could have a huge role in producing the financing gaps in green technologies.’

Raingold said another potential revenue stream for the GIB could be the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme. While it was initially announced the scheme would be revenue neutral and its funds would be recycled to participants, the government reversed its decision.

‘It will actually now raise £1bn in the first phase and the government said that money should be directed towards investment in green technologies,’ he said. ‘That, we believe, is the kind of funds that should be going into the GIB.’

Gordon Edge, director of policy for RenewableUK, agreed the announcement of the GIB is an important signal of the government’s commitment to developing a low-carbon economy, but he expressed some misgivings.

‘It’s important to recognise that at the proposed level of capitalisation the GIB will not have sufficient funding to support the hundreds of billions of pounds of investment necessary to construct the energy infrastructure the UK will require over the next two decades,’ he said. ‘It’s crucial that a stable policy framework is put in place to secure that investment from the private sector.’