Written evidence submitted by Smartestenergy Limited (ICE0040)
Executive Summary
1.1. Founded in 2001, SmartestEnergy is an active participant in the UK energy market and is a part of the Marubeni Corporation, a Japanese company with investments elsewhere in the UK energy sector (for example the Westernmost Rough Offshore Wind Power Project, a £370m project which commenced operation at the end of June ) and other parts of the world.
1.2. SmartestEnergy is the UK’s leading purchaser of energy generated by the independent renewables sector. We are also one of the largest independent electricity suppliers to large industrial and commercial customers. Our customers include the John Lewis Partnership (including Waitrose stores), Toyota’s car manufacturing plant in Derby, and Barnardo’s. Our Power Purchase Agreement (PPAs) customers range from blue chip companies with large-scale power plants to community organisations operating a single wind turbine.
It is in the interest of consumers to ensure that the necessary investments are made in the most cost effective manner. Independent players within the market provide necessary competition for the incumbent utilities in ensuring that this principle is maintained. Widening DECCs exposure away from the “Big 6” utilities will provide DECC with the insight necessary to encourage investment in the UK and will ensure a diverse source of potential investors on which to draw.
Investment in the UK energy sector is likely to come from overseas corporations (such as SmartestEnergy’s parent company Marubeni Corporation), as well as pension funds and other financial investors. These global investors have a choice as to where the put their funds and will be looking not just to maximise returns but for policy certainty (legislative and regulatory) as to the receipt of such returns without undue concern with regard to changes in government policy or the regulatory framework impacting long term investment strategies and timelines.
3.1. Historically the UK has been viewed as a stable country for investment, with political certainty and a general expectation that investments will benefit from grandfathering such that retrospective changes will not be made to committed investments. This is critical for investment confidence.
3.2. With regard to general attractiveness compared to other global opportunities and with particular focus on renewable investments it is pertinent to note that in the most recent publication of EY’s Renewable Energy Country Attractiveness Index the UK has fallen out of the top ten for the first time since records began in 2003 (http://www.ey.com/GL/en/Industries/Power---Utilities/Renewable-Energy-Country-Attractiveness-Index).
4.1. Whilst DECC does seek to take into account the needs and consideration of investors as they develop policy, it is not always clear that the actual commercial/financial implications upon businesses are always recognised or fully understood.
4.2. Over the past three months, the announcements in regard to the projected overspend in the Levy control Framework were a surprise to many investors and the subsequent policy announcements have been detrimental to the sector’s overall confidence in DECC, in its delivery of policy and ultimately its achievement of its policy objectives. In particular, industry has been given limited time to either amend its business practices to deal with the change in policy or not been given sufficient time to consider and respond to government consultations.
4.3. Co-ordination between DECC and other governmental departments is critical to ensuring that the needs of investors are fully considered. Announcements with regard to the removal of Levy Exemption Certificates (by HM Treasury) at short notice was unexpected and had a wider impact on confidence in the UK, calling into uncertainty other related schemes and putting a question mark over the expectation of grandfathering.
5.1. Investments in energy and the associated infrastructure are necessarily long term. As such, any investor must assess the risk to their capital covering multiple economic and election cycles. Ultimately a lack of investor confidence can lead to one of two situations, either a lack of investment or a higher return requirement which is reflective of the perceived risk associated with the investment. It is critical that DECC creates a stable environment and in particular we would wish that the principle of grandfathering is maintained, as an effort in part to negate the impacts of government and policy change on existing investments.
5.2. Cooperation across government departments is also critical where they have a shared responsibility or shared control of mechanisms that are in place to encourage investment.
5.3. The transition from a technology that requires subsidy to one that can operate under normal market conditions is sensitive and the process by which assessments are made must be transparent and based on robust data and information. An open and consultative response will support this and help to build investor confidence in the UK generally, and in the energy market in particular.
6.1. Demonstrating the robustness of decision making is critical to maintaining investor confidence. It is not always clear that DECC are willing to engage widely enough to gather the requested evidence; indeed in a recent meeting on the FiT Review DECC stated that they had reduced FiT tariffs because they had not got much feedback from industry. This is in the context of the timetables set by DECC which do not allow sufficient time to gather and consider evidence, and the view of participants that time is not sufficient to properly consider the evidence provided.
SmartestEnergy would be happy to elaborate on any of the points raised in this submission and give oral evidence to the Select Committee’s inquiry.
October 2015