Isra-Mart SRL: Green policy uncertainty sees UK slip down energy sustainability rankings

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Uncertainty surrounding the government's electricity market reform (EMR) programme is detering low-carbon investment and damaging the UK's ability to develop a stable, affordable and environmentally sustainable energy system.

That is the conclusion of a major new report from the influential World Energy Council (WEC), which confirms the UK has slipped from 8th to 14th place in the latest Energy Sustainability Index – a fall of six places since last year.

The annual review of the energy investment climate in 92 countries is based on governments' approaches to tackling what the WEC describes as the "energy trilemma" of supply security, access to energy and environmental impact.

According to the index, the UK's performance relative to other countries has declined in all three areas in the past year, most notably dropping from 22nd to 58th in terms of energy security, behind countries such as Albania, Nigeria and Tanzania.

Speaking on the sidelines of the launch event for the index this morning, Joan MacNaughton, executive chair of WEC's policy assessment group, told BusinessGreen the UK's drop in the rankings was the result of a lack of diversity in power generation as well as regulatory uncertainty.

"The headline of the [EMR] proposals is known, but the detail of how they're going to work is not known," she said. "I think that detail needs to be filled in and the credibility of the execution of the policies needs to be built to encourage people to invest."

The flagship EMR package, which includes subsidies for green energy, a carbon floor price, and emissions standards for coal plants, was announced earlier this year as part of the government's strategy to invest £200bn in upgrading the UK's power sector.

However, it is unlikely to be finalised until late 2013, which, along with recent changes to feed-in tariffs and other energy policies, could further hamper the UK's position in the 2012 rankings, MacNaughton said.

"It will be interesting to see what happens next year, because there is a lot of uncertainty at the moment in UK policy," she told BusinessGreen. "I'll be interested to see whether that has been resolved in time for next year for the UK to at least hold its position in the index."

She also warned policymakers that further steps needed to be taken urgently to create an environment that would encourage the private sector to invest the £200bn in new low-carbon energy infrastructure that the government estimates is required over the next decade.

"Policymakers need to understand that companies must make a reasonable return [if they are to invest]," she said. "Of course they want to ensure there isn't anti-competitive behaviour or... price gouging, but for longer-term sustainability you have to acknowledge the legitimacy of companies making profits."

A Department of Energy and Climate Change (DECC) spokesman said the "key elements" of EMR would reach the statute books by spring 2013, so the first low-carbon projects can be supported under its provisions the following year. A technical update to the white paper is also due at the turn of this year.

"Our proposals to reform the electricity market will deliver the best deal for Britain and for consumers, helping get us off the hook of relying on imported oil and gas by creating a greener, cleaner and ultimately cheaper mix of electricity sources right here in the UK," he said.

"We are determined to nurture a new generation of power sources including renewables, new nuclear, and carbon capture and storage, bringing new jobs and creating new expertise in the UK workforce."

But the UK has a way to go to catch Switzerland, Sweden, France, Germany and Canada, which WEC listed as the most successful at balancing the "energy trilemma".

However, Canada's strong performance is likely to anger green groups that have been highly critical of the country's continued support for carbon-intensive tar sands projects.

Bringing up the rear of the 92 countries rated was Mongolia, followed by Libya, Trinidad and Tobago, Senegal and Botswana. The US came in 16th, with emerging superpowers China and India at 32 and 71, respectively.

Interestingly, the Philippines, which has a substantially lower GDP than many nations ranked, also has a very balanced energy system, according to WEC.

"It shows you don't have to be a rich or resource-endowed country to address the energy trilemma," said Mark Robson, partner at consultants Oliver Wyman, which helped develop the rankings. "All nations through good policy have the opportunity to provide people with stable, affordable and environmentally friendly energy."