Investors in UK energy grid threatened by political risks

Investors in UK energy grid threatened by political risks

Industry leaders have announced that foreign investment into the UK’s energy sector may be at risk due to the uncertain political climate, as well as concerns over regulations on the sector.

The chief executive of the National Grid, John Pettigrew, said particularly US investors were worried about the prospect of the Labour’s plans to renationalise the energy sector, as well as further government intervention in the sector and Brexit.

“US investors are now warning there are too many uncertainties,” Pettigrew told the Financial Times. “It is important that the UK is seen as a place that is attractive to inward investment. In terms of the energy sector, a lot of infrastructure needs to be built in the UK over the next few years. Post-Brexit, it is important that it is coming in.”

The Energy Networks Association also raised concerns from the US when its members, that represent distributors of electricity and gas, said they were “very concerned about the response they have seen from US investors” to the current climate in the UK.

A spokesman said: “Ultimately, investor uncertainty risks translating into higher costs of capital and so higher costs to British bill-payers.”

In the past, the UK energy sector has receive significant amounts of foreign investment due to its reputation as one of the most stable and liberal markets in Europe, however in recent times this perception has shifted.

Uncertainty grew following the introduction of new legislation that will allow energy regulator Ofgem to put a price cap on standard variable tariffs (STVs), with investors concerned this could be extended to network charges.

This was furthered by the promise of Jeremy Corbyn to renationalise the energy grid if his Labour party was elected into government. Last month Corbyn said: “We need a publicly owned grid to act as the great leveller… guaranteeing that everyone has access to clean, affordable energy all of the time.”

Pettigrew said there was “no evidence that the large cost and distraction of nationalisation would deliver the stability and long-term investment our energy networks need”.

Brexit is another concern due to the role the UK plays in the European energy market, which allows electricity and gas to be traded tariff free.

Tens of billions of pounds are needed to strengthen the energy grid as it undergoes significant changes to its infrastructure.

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