Isra-Mart srl:Snap Analysis: Uncertainty still clouds UK green investment

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Green investors breathed a sigh of relief after Britain cut clean energy funding by less than the average overall in its spending review this week, but many were still cautious about the country's low-carbon future.

Conservative finance minister George Osborne unveiled some 80 billion pounds ($126.3 billion) of cuts on Wednesday to reduce the budget deficit but committed over 3 billion pounds to green growth.

Overall spending on climate and the environment will fall by 5-8 percent, compared with overall spending cuts of around 20 percent over the next four years, HSBC analysts calculated.

The Green Investment Bank (GIB) and carbon capture and storage (CCS) were the hardest hit by the austerity measures, but businesses will also be surprised by changes to the corporate carbon trading scheme, the Carbon Reduction Commitment (CRC).

"The chancellor's statement leaves an air of uncertainty across a range of technologies, which will make investors wary until greater clarity is provided about which technologies will receive support," said Steve Lang, head of UK clean energy at Ernst & Young.

In its review, the government earmarked 1 billion pounds for the GIB, much less than the 4-6 billion experts say is necessary to help plug a 370 billion pound funding gap for a low-carbon economy.

It pledged a further 1 billion for just one commercial-scale CCS demonstration plant, out of a competition to fund four projects by 2020, just after E.ON pulled its facility from the competition.

HANGING CLOUD

The government has said CCS, which is still unproven on a commercial scale, could help it meet an ambitious goal of cutting emissions by 34 percent by 2020 from 1990 levels.

It said it was still committed to funding all four CCS demo projects and would re-consult on funding plans for future projects.

"(This) represents yet another delay and considerable uncertainty over future investment prospects," said Jeff Chapman, chief executive of the CCS Association.

The government also delayed changes to small-scale renewable electricity incentives after rumors of cuts.

Jeremy Leggett, executive chairman of UK solar company Solarcentury, said the government would not be disappointed by its decision to maintain the so-called feed-in tariff when it sees job growth in this sector in two years.

The threat of change still remains, however, as the tariffs will be reviewed by 2013 or earlier, with the aim of saving 40 million pounds by 2014-15.

"In addition uncertainty still remains around the tax implications of feed-in tariffs, and clarification is eagerly awaited by the industry," said Roman Webber, head of Deloitte's UK renewable energy practice.