The UK’s government’s announcement to build new gas power stations to improve energy security is sending a “negative signal” to investors on its net-zero goals, and there are ways to tackle the climate crisis alongside national security, investors have argued.
On Tuesday 12 March, the UK government committed support to the building of new gas power stations to “maintain a safe and reliable energy source for days when the weather forecast doesn’t power up renewables”.
Prime minister Rishi Sunak noted the UK’s net-zero goals and highlighted the need for continued unabated gas generation into the 2030s as a back-up to “ensure energy security and reduce costs”. He flagged this has been recognised by the government’s Climate Change Committee.
“I will not gamble with our energy security,” the PM said in a statement. “I will make the tough decisions so that no matter what scenario we face, we can always power Britain from Britain.”
See also: – Warning letter to Rishi Sunak: UK at risk of losing head start on sustainable finance
However, sustainable investment professionals have criticised the plans and said the government doesn’t need to choose fossil fuels over renewables to improve energy security.
“The UK’s energy security must be tackled alongside the climate crisis,” said Damien Lardoux, head of impact investing at EQ Investors.
“The next government must steer a course through that will strengthen global security and ensure we have a reliable, liveable future. That path must involve reducing our dependency on fossil fuels, diversifying the energy mix to increase the use of renewables, which in turn will boost energy security.”
James Alexander, CEO at the UK Sustainable Investment and Finance Association (UKSIF), added the announcement risks sending a “negative signal to investors that the UK is prioritising fossil fuels over new investment into renewables”, at a time when UK energy companies are relocating away from the UK market to regions more supportive of their sustainability goals.
Research carried out by UKSIF found 63% of UK energy companies plan to move out of the UK for this reason.
“The UK government should be taking bolder action to signal its commitment to renewable energy in order to attract essential private investment,” Alexander said.
“The UK does need some base load energy provisions, but we should be focussing on attracting the billions in private investment which we know is waiting in the wings to deliver home-grown renewable energy. In a time of escalating global tensions, minimising our reliance on gas imports is essential, and only private capital has the investing power to drive the transition and make the UK a green powerhouse.”
However, Premier Miton’s James Smith, manager of the Global Renewables trust, said this is not “new news” and has positive implications for companies such as Drax Group – a stock that makes up 5.6% of the portfolio as at 31 January.
“I think the policy is sensible,” Smith said. “Open Cycle Gas Turbines are quick and cost effective to build. They can be expected to operate at relatively low loads, producing only modest amounts of electricity.
“The point is that they are there just in case they are needed. There are cheaper, and more environmentally friendly, ways to generate electricity in bulk. As more renewables come on the system, the generation from gas plants should continually fall away.”
Private investment
Smith added the “government will not actually build anything” but the mechanism is in place to encourage private sector investment.
Meanwhile, UKSIF’s Alexander reiterated private investment is what is needed to accelerate renewable infrastructure, but noted UKSIF’s UK energy research found a number of policy barriers that are preventing private capital from being deployed in this area.
The organisation identified three areas that could ensure greater investment and faster delivery of the UK’s future energy infrastructure:
- Overhaul planning rules to remove obstacles and reduce the time taken to bring large energy projects online
- Ensure there is adequate grid capacity to reduce connection times
- Reform energy pricing mechanisms to incentivise long-term investment in UK low carbon power capacity, including the Contracts for Difference (CfD) auction process to better support UK supply chain investment
