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Policy U-Turns by Governments Undercut Investor Interest in Renewables

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The Energy Mix is a Canadian non-profit that promotes community awareness of, engagement in, and action on climate change, energy, and post-carbon solutions. Each week, we scan up to 1,000 news...

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  • Jun 11, 2020

While the last year has seen a surge of interest in renewable energy among potential investors, many of them are being deterred by concerns about policy U-turns from governments.

That conclusion comes from a poll of more than 200 G20 business leaders by international law firm Ashurst, Greentech Media reports. The study “found 88% of companies have pivoted their investment strategies toward low-carbon energy in the last year,” Greentech says.

“Much of this was in response to tougher government stances on climate change and decarbonization,” the industry newsletter adds, citing Antony Skinner, Ashurst’s global co-head of power and utilities. “However, 31% of respondents said a lack of government support poses a significant barrier to low-carbon investment,” and much of that support has to do with the stability of regulatory frameworks.

“Consistency and certainty, for any investment, [are] a really important element,” Skinner said. Greentech adds that “this appears to be more important even than maintaining subsidy schemes in the long term, since many investors are likely willing to bet on the gradual removal of subsidies, provided it happens in a predictable way.”

Greentech cites the United Kingdom, Australia, Saudi Arabia, and Spain as four of the jurisdictions that offered strong support for renewable energy development, only to scale it back soon afterwards. Skinner pointed to Spain as an instance where project risk pricing increased overnight because investors “had no longer any certainty or confidence that, if the government wanted to, it would change its mind on something.”

So “while renewable energy is now booming again in Spain, many plants are being built on a merchant basis, reflecting lingering mistrust in the government. It’s a similar story in Italy, which also reneged on an early subsidy scheme,” Greentech writes. In developing markets, where companies count on governments’ willingness to underwrite projects, “investor appetite will largely depend on the nature of the state.”

In Dubai, for example, a project announcement last month promised a record-low price of just US1.35¢ per kilowatt-hour for solar “because you’re selling to the Emirates government, which obviously has a very strong credit rating, and the load factor [for solar generation] is very high,” Skinner told Greentech. “In the UK, bizarrely, you’re taking a much higher risk.”

Ashurst found that business leaders’ concerns about government policy support were highest for China, at 46%, followed by India, at 43%.

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Bob Meinetz's picture
Bob Meinetz on Jun 11, 2020

Renewables investors approve of a gradual reduction in subsidies, the same way natural gas investors approve of their product's gradual replacement by renewables. Seems neither can happen slowly enough.

Matt Chester's picture
Matt Chester on Jun 11, 2020

This is such an important point for energy policy, and even the best intentioned of policies can fail because of how sensitive the markets are to uncertainty. It's an argument for not adopting half measures, but sending clear signals that will last many years and allow the clean energy investors and markets to work their magic

Bob Meinetz's picture
Bob Meinetz on Jun 11, 2020

"It's an argument for not adopting half measures, but sending clear signals that will last many years and allow the clean energy investors and markets to work their magic..."

After many years of sending clear signals and not getting results, maybe it's an argument against believing magic can solve climate change.

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The Energy Mix on Jun 11, 2020

It's an interesting point. Years ago, in a jurisdiction that had introduced quite a generous subsidy in the hope of jump-starting a local renewables manufacturing sector, I remember some producers being quite miffed when the subsidy was scaled back, even though that had already been the plan. (I can't remember offhand whether there was a fixed schedule, but the intention had always been clear.) What made the moment memorable was the response from others within the industry, who you might have expected to support continuing high subsidy levels, but came back arguing that a strong, competitive, subsidy-free industry was what everyone should want.

I agree, Bob, that you'll never hear that from gas. Or oil. Or coal. And certainly never from nuclear. And I'll add that it's a reasonable expectation of the renewables and efficiency because they're supposed to be about replacing the old system with something better, economically and socially as well as environmentally.

One of the many fascinating shifts in our coverage over the last year has been the fast-growing emphasis on subsidy-free renewables. As the technologies get better, cheaper, and less in need of any kind of backstop, it becomes clear that taxpayers' are being put in the position of underwriting the technologies we need to get rid of, to the tune of trillions of dollars per year.

(An interesting side thought for Energy Central's story lineup: I wonder what part of the budget for the often attack-style industry spin coming from Energy In Depth traces back to taxpayer subsidies? But I digress slightly.) 

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Bob Meinetz on Jun 11, 2020

Mitchell, if a "nuclear industry" even existed, you certainly wouldn't hear its purveyors complaining about eliminating subsidies. Why? They would be last on the list:

"The constant pressure to eliminate old nuclear plants will continue to burden the taxpayers if federal and state governments continue their crusade for “clean” energy sources. Solar and wind subsidies have been driving nuclear energy out of the market and the subsidies must stop in order to protect our nation’s nuclear generation capacity. The world will always need an energy source independent of weather and geology, and nuclear is the only power supply able to meet the baseload demand with zero emissions."

Nuclear Power vs. Renewable Subsidies

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