Utility Week

UTILITY Week 16th September 2016

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The Topic: Funding decarbonisation FUNDING DECARBONISATION THE TOPIC 8 | 16TH - 22ND SEPTEMBER 2016 | UTILITY WEEK I t's 2008, energy secretary Ed Miliband has overseen the development and signing off of the Climate Change Act committing the UK to cut its carbon emissions to 20 per cent on 1990 levels by 2050. The global financial crisis is still months away and the finances of the major energy companies, global investors and hedge funds are healthy. Fast-forward eight years and there has been a global crash with its resulting reces- sion. Then came the first coalition govern- ment in a generation, the first Conservative victory in more than two decades and a his- toric vote to leave the European Union. This We've got to cut emissions, but who pays? And for what? turbulence has le finances squeezed and investment capital at a premium. Yet the climate change commitments of 2008 stand strong and have been reinforced by the COP21 meeting in Paris in 2015 where the ambition to limit global warming to 1.5C was agreed. This means the need to decar- bonise the British economy is higher on the agenda than ever, as is the need to find the money to fund the transition. Coupled with this, the collapse in whole- sale energy prices makes expensive low-car- bon options (see graph) unattractive – even lower-cost, traditional generation options, in particular gas, are struggling to find investors. LEVELISED COST ESTIMATES FOR PROJECTS STARTING IN 2013 Pre-development costs Capital costs Fixed O&M Fuel costs Variable O&M Carbon costs 200 180 160 140 120 100 80 60 40 20 0 £/MWh CCGT OCGT Nuclear Onshore Biomass Offshore R2 Offshore R3 Large-scale FOAK >5MW UK conversion photovoltaic • The UK's green investment was £12.6 billion in 2009/10. • This is less than 1% of UK gross domestic product; half of what South Korea currently invests in green technologies annually; and less than what the UK presently spends on furniture in a year. • The UK needs to at least double its annual green investment levels if it is to meet its 2020 emissions targets. GREEN INVESTMENT GAP UK green investment in 2009/10, £m Public subsidy 3,035 Government loans 45 Levies 3,640 Total public investment 6,720 Asset finance 5,617 Public markets 60 Venture capital/private equity 223 Total private investment 5,900 Overall total £12,620m Levies Public subsidy Government loans Venture capital/ private equity Public markets Asset finance Source: Public Interest Research Centre (PIRC)

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