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UTILITY WEEK | 21sT - 27Th NovEmbEr 2014 | 21 Finance & Investment T he most encouraging aspect of the surprisingly positive recent UN climate change summit in New York was the number of pension funds, insurance companies and others who committed to greater invest- ment in clean energy. But despite the need for capital in low-carbon investment, the conundrum for those inves- tors is where to put their money. The fact is that clean energy companies of a size to rival the oil, coal and traditional utility companies are few and far between, and even when there are big new clean energy investments to be made, state-owned enterprises dominate. Take the UK, where the first new nuclear power sta- tion is to be built by a consortium of French and Chinese state companies. Or dig around in the debt of many large clean energy pro- jects in Europe and you will find an array of state debt guarantees, export credit support and other state banking institutions. So why is the rhetoric that of a transformation in private sector investment, and the reality an investment universe dominated by state-backed enterprises? One could surmise that either private investors don't mean what they say or that state actors are crowding out private sector enthusiasm. More likely, are two other related reasons. First, we do not present clean energy investment opportunities in a way the investment community understands and can digest. Buying and selling a coal company's stock requires a different skill set to structur- ing the construction of a nuclear or offshore wind power station, for instance. If we don't create the clean energy companies that look and feel like companies investors are used to, then we will not see the promised move- ment of capital. Second, perhaps we never have mobilised private capital into energy infrastructure investment, and this is a first-of-a-kind problem for a sector where the state has historically done it. Perhaps private capital has only ever entered the market at scale to own things already built. Whatever the reasons, in these austere times, the energy investment challenge seems beyond the state alone, and so we have to rise to the challenge of turning the good words in New York into reality. Ian Temperton is head of advisory at Climate Change Capital "If we don't create the clean energy firms that look like firms investors are used to, then we will not see the promised capital." Investor view Ian Temperton The energy investment challenge seems beyond the state alone the main driver of investment decisions and around half of respondents suggested that an increase in the level of policy risk had led them to defer investments over the past year. This is particularly important because an increasing proportion of energy investment is set to be underpinned by specific policy- driven incentives. August 2014 saw the Electricity Market Reforms reach the statute book. This has served to intensify the debate around energy policy and energy costs. As major investment decisions are awaited, and with the general election on the horizon in 2015, the ques- tion remains whether this and subsequent governments will hold their nerve and allow the markets to adjust, learn and deliver, or whether we will see post-implementation tinkering with the policy framework that could frustrate investors and asset owners alike. Successfully decarbonising energy gen- eration while ensuring secure and affordable supplies of energy involves a complex and interconnected set of issues that demands a commitment from across society. For many years, the energy sector has risen to this chal- lenge through significant investment across the value chain. However, a contribution from government – to deliver a transparent and stable policy framework and by ensur- ing that the most vulnerable members of society are protected – is also vitally impor- tant. It is only through concerted action that we will meet the UK's energy objectives to 2020 and beyond. Tony Ward is EY's Head of Power & Utilities for the UK & Ireland and Jamie Torrens, Assistant Director of Economic Advisory at EY B: Mining and quarrying D: Energy E: Water and waste J: Information and communication L: Real estate M: Professional and scientific C: Manufacturing F: Construction H: Transport and storage N: Administrative and support services G: Wholesale and retail trade; repair of vehicles A: Agriculture, forestry and fishing Source: EY analysis VAT on sales of electricity and gas £1.5bn Corporation tax £1.2bn Employee NI contribution £0.4bn Employer NI contribution £0.5bn Income tax £0.7bn CPF and CCL £0.9bn 0 100,000 200,000 300,000 400,000 Annual GVA/employee (£) Source: EY analysis/Office of National Statistics comparison of productivity bEtwEEn sEctors tax rEcEipts from dirEct activitiEs of thE EnErgy sEctor, 2013