UK election: Coalition best for wind


April 10, 2015

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This time next month the UK election will be over and investors will be able to get back to planning their investments in the UK.

At least, that’s the theory. The problem is, this is one of the most difficult UK general elections to predict in the last 100 years, which is mainly due to the growing influence of small parties.

We are likely to see a coalition government again and so, even after the votes have been revealed, the talks between the parties will continue with compromises undoubtedly having to be made. These parties would all bring very different energy policy priorities into a coalition government. It is difficult to see how wind will fare.

But let’s try.

Neither of the two main parties — the Conservatives or Labour — is set to win an overall majority. This is good news.

The Conservative Party has committed to a ban on subsidies for all new onshore wind farms if it wins an outright majority; and pledged a referendum in 2017 on whether the UK stays in the European Union. Exiting the EU would weaken the UK’s international renewable energy targets and its business ties with Europe.

Meanwhile, the Labour Party is a bigger supporter of renewables, but is also regarded as being more anti-business. It has pledged to freeze the prices utilities can charge for energy until 2017, which would eat into these utilities’ profits and therefore reduce how much they could invest in onshore and offshore wind farms.

The party has also pledged tougher rules on financial institutions, which could have unforeseen impacts on energy investment.

In coalitions, both would see some of their extreme policies reined in. The problem is that none of the coalition options are good for wind investors. And any sort of tie-up involving the Green Party looks highly unlikely given their stuttering campaign thus far.

The two likeliest options are a Labour coalition with the Scottish National Party; or the Conservatives again entering a coalition with the Liberal Democrats.

This week Guy Hands, chairman of private equity group Terra Firma, came out in support of a Labour-SNP coalition because it would enable the UK to move away from the anti-wind rhetoric of the Conservatives. The SNP has an interest in backing Scotland’s wind industry, and that should lead to an investment climate friendlier for the wind sector. But Labour has not convinced people that it can run the economy or support businesses.

Meanwhile, a Conservative-Lib Dem coalition might mean the continuation of mechanisms like Contracts for Difference, although there have been some rumours that a second CfD round may not go ahead. Whether they could work together for another five years depends on the extent to which familiarity has bred contempt.

That said, the Conservatives may be anti-wind, but they are also generally more supportive of business and investors.

So it’s a neat problem. Both scenarios have significant downsides — either a government that’s anti-wind or anti-business — and gaining clarity on the final policy intentions in the long term is tricky.

The most likely outcome of another coalition of some sort looks most promising for wind. The major parties will have to adapt or abandon their more ideological ideas, and compromise to meet somewhere in the middle.

At present, this looks like the best-case scenario for investors, utilities and developers alike.

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