By Sam Phipps in Edinburgh

In October the Treasury’s purse strings will tighten over every government department bar health and international development, with budgets slashed by up to 30%.

The Department for Energy and Climate Change (DECC) can expect to be included in the purge, raising the question of what impact it might have on the UK’s commitment to major expansion of its renewables sector.

Though private investment has always been seen as the key driver in delivering the rapid growth of low carbon energy that is necessary in the next 10 years if Britain is to meet its targets, few deny that government has a vital role in terms of policy framework, training and infrastructure.

Some of those areas are now under threat, analysts say, as the UK tries to narrow a record budget deficit. Full details will be published in the comprehensive spending review (CSR), covering 2011-12 to 2014-15.

Scrapped SDC a taste of things to come

Last month’s scrapping of the Sustainable Development Commission (SDC), an independent agency that advised government across the board, could prove to be a mere taster of the new regime.

Nigel Burton-White, technology director of Renewables East, a publicly funded agency covering the east of England, said education and marketing at local and national level were crucial if the UK was to ramp up clean energy production in the coming decade.

“Otherwise business people might not be aware of what opportunities are out there and might not make the right decisions,” he said.

“I cannot believe the SDC was not performing a valuable role – many of its reports were robust and timely. Who will performing that role in future?”

Government intervention crucial, but unlikely

The scale of investment required for the UK to source 15% of energy from renewable sources by 2020 (up from about 3% today) could be as high as £550 billion (US$860bn), according to a report by the Green Investment Bank (GIB) Commission, which was set up by former chancellor Alasdair Darling in June.

It identified lack of capacity in the debt capital markets, perceived risk round policy support frameworks, risk around the new technologies and difficulties in financing many smaller projects as the main barriers.

The commission called for “scaled up” government intervention, including the formation of the GIB, which would focus on lowering risk for investors rather than just providing capital. Green bonds and insurance projects for low carbon technologies and infrastructure are among its proposals.

However, a plan by the former Labour government to fund the GIB from asset sales including the Channel Tunnel has been rejected by the Conservative-led coalition.

Ken Rumph, director of Cleantech Research at Nomura Code Securities in London, said the direct impact of any government spending on renewables was small. Changes to the UK’s cumbersome planning system were more important, together with the availability of debt finance, both issues that have hampered development to date, he said.

“Support for renewables is not through public money; we pay through higher electricity bills [for fossil fuels] via ROCs or feed-in tariffs in order to support wind or solar or whatever.

“There might be elements of public spending in onshore wind but again, it’s mainly private sector money.”

Cuts threaten domestic supply chain

However, he admitted that supply chain bottlenecks would ease more quickly with greater public sector involvement in terms of training and grants.

Also, UK manufacturers were more likely to lose out to overseas companies in the huge expansion of renewables. Similarly, inward investment from the likes of GE and Mitsubishi – both of which intend to build turbine factories in the UK – were dependent on regional funding authorities.

Burton-White echoed this view. “If you look at the wind industry 15 or 20 years ago in the UK, we had a reasonable technological lead in certain areas. We are now playing catch-up with global areas that responded to the opportunity.

“Any cuts that move us away from the necessary trajectory on energy efficiency for a low carbon future are short-sighted.”

There are significant market opportunities, he added. “It’s not just about cost, it’s a potential revenue stream for UK plc and will become more cost effective in the long term.”

Trade organisation RenewableUK is preparing a submission to government in the next few weeks to highlight its needs before the CSR is finalised.

“We’ve been conducting a review of all the government spending schemes and the support our industry is dependent on and trying to assess what’s effective and what’s not,” said Charles Anglin, the group’s director of communications.

“We need to demonstrate value for money – the tangible benefits that government spending is delivering in particular areas.

“The overwhelming issue for us is the policy framework, including financial mechanisms. We’re not in favour of the move from ROCs to feed-in tariffs because that will be unduly disruptive and discourage investors at a time when we need people to be spending.”

A fairer and more effective planning system is vital, Anglin said, likewise a “dramatically expanded and improved” grid system. He welcomed the news that from this month local authorities may sell any excess energy they produce to the National Grid, overturning a ban that has been in force since 1976.

“The private sector is willing to invest if they get the right signals from government that there is a long term commitment to the market,” he added.

A spokeswoman from DECC said it was committed to a low carbon future but declined to speculate on the spending review. 

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