A tale of two governments

“This is a call to the marketplace: the biggest energy customer you’ll find is ready to put our money where our mouth is when it comes to renewable power.” So said New York City mayor Bill de Blasio, speaking like a true New Yorker, when he recently outlined his plans to power 100 percent of city government operations using renewable energy.

New York City currently spends between $600 million and $650 million a year on electricity. De Blasio is now telling the private sector that if it can provide renewable energy to power more than 4,000 government facilities and all of the city’s street lights and traffic lights, he will buy it. And if they are really successful in coming up with these solutions, he will also consider having renewables power the public housing projects that some 400,000 New Yorkers call home.

What’s more, he’s dangling the city’s purchasing power as a catalyst for new renewable energy generation – De Blasio has stressed that he isn’t interested in diverting existing clean energy sources for this purpose.

Of course, having just been announced, it’s hard to gauge whether the mayor’s initiative will be successful – or what price he’s prepared to pay for all that clean energy. But as an example of government’s power to bring about change, having a potential $650 million a year channelled to clean energy seems like a great way to further lower its cost. As incentives go, that’s a lot of carrot.

By contrast, on the other side of the Atlantic, the UK is giving renewable energy investors a lot of stick, demonstrating just how damaging it can be when a government discards its commitment to the ongoing low carbon energy transition. In addition to ending onshore wind subsidies a year earlier than expected, the recently-elected Conservative government has now decided that clean energy producers have to start paying the Climate Change Levy (CCL) as of this August. That’s a one-month notice period for a tax exemption that was supposed to last roughly another half-decade.

WREAKING HAVOC

As is becoming usual with the new UK government, there’s a touch of the bizarre to this latest decision. After all, the CCL was introduced in 2001 to help cut emissions. Clean energy producers were exempt because, by dint of what they do, they are already helping achieve this goal. Apparently, the government wants them to help a little bit more.

Being what one investor aptly called “a full-blown retrospective cut”, the CCL exemption end has swiftly wreaked havoc across the industry.

Drax, the biomass plant operator, said it will lose £30 million in revenue this year, as its share price fell by 28 percent. Terra Firma’s Infinis, suffering a similar share plunge, announced its profits would shrink £7 million in the year ending 31 March 2016. Almost all of the UK’s listed renewable energy funds posted hits to their net asset value.

Whether you believe in subsidies, tax breaks, or preferential power purchase offers, a simple, inescapable fact emerges: no energy transition of any kind – clean or dirty – can take place without government incentives.

Bruno Alves is editor of sister publication Low Carbon Energy Investor (www.lowcarbonenergyinvestor.com). He writes a monthly column on private capital’s engagement with new energy markets