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UK: The new government's green-energy agenda

RENEWABLE energy firms struggling to find both private- and public-sector funding will have perked up on news of the new UK coalition government's extensive environmental agenda

But they will not be making significant investment decisions until they know more about the fine print and the timetable.

The establishment of a UK floor for the price of carbon on the European Emissions Trading System (ETS) and the extension of feed-in tariffs for renewable energy are among the more eye-catching policies outlined in the early days of the country's new government, formed in May after an indecisive election. But analysts say the industry will be anxious to see the details fleshed out.

"A floor price [for carbon] would lead to higher electricity prices, but could reduce risk for people examining possible low-carbon investment," says Angus McCrone, chief editor of Bloomberg New Energy Finance, a consultancy. But he warns that getting the pricing right on a floor imposed unilaterally by the UK would be a delicate business. If it were too low, it would have little effect on investment decisions, but if it were set too high, international firms could shift more of their production to European countries where there was no carbon floor price. The government also said it would try to persuade the EU to move towards full auctioning of ETS permits.

The full establishment of feed-in tariffs for electricity from renewable sources – partially implemented since April 2010 – would give power generators more certainty over future income streams than the existing Renewables Obligation Certificates (ROCs), whose value varies according to the level of supply and demand.

However, a lack of clarity over exactly how all the various options – feed-in tariffs, ROCs and the carbon price floor – would work could mean developers put off investment decisions until they see what is available. "It is important that the coalition spells out what it has in mind and when it will happen," says McCrone.

The leading opposition party, the Conservatives, won the most seats in the UK's general election in May, but entered a coalition with the country's third party, the Liberal Democrats, to command a parliamentary majority and oust the previous Labour government. The Conservatives were keen to stress their environmental credentials in the run-up to the election, but analysts say it is the influence of the Liberal Democrats – traditionally strong on green issues – that has pushed environmental policy up the political agenda. The appointment of Chris Huhne, a leading Liberal Democrat, as energy and climate change minister, has reinforced the junior partner's influence on environmental issues.

Other measures put forward by the coalition include a commitment to encourage marine energy technologies – a potentially large source of power for the UK – and the creation of a green investment bank, which was also supported by the previous government.

Plans to put public investment into carbon capture and storage technology at four coal-fired power stations, a policy of the previous government, are to be retained. There is also an agreement to seek an increase in the UK's target for carbon-emissions cuts, although this has yet to be quantified and is subject to advice from a climate change committee. Before the election, the Conservatives supported the previous government's target of a 34% reduction by 2020 from 1990 levels, while the Liberal Democrats have been calling for a 40% cut.

Several policies could have a big effect on the transport sector. New runways at London's Heathrow, Gatwick and Stansted airports have been ruled out, while existing proposals to create a national high-speed rail network are to be developed further. The electric-vehicle sector was given a lift by news that the government intends to mandate a national recharging network for electric and plug-in hybrid vehicles.

Nuclear power is one area where differences between the pro-nuclear Conservatives and the anti-nuclear Liberal Democrats could not be ironed out. But with an agreement by the Liberal Democrats to abstain in parliamentary votes on legislation paving the way for more nuclear generating capacity, rather than voting against, a new wave of construction remains possible. But the Liberal Democrats claim they have a commitment from the Conservatives that no public money would be used to subsidise the programme, which could prevent development.

Question marks also remain over where the money for extensive publicly funded measures to support renewable energy are going to come from, with the government outlining austerity measures across the economy and state funding for the green-energy sector being scaled down in big renewables markets elsewhere in Europe.

The German government has resisted pressure from the solar-power industry to make more than minor modifications to new legislation, which slashes subsidies for new solar installations. Meanwhile, in Spain, renewable power producers have been concerned that cuts to subsidies there could be backdated (PE 3/10 p29).

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