The political risk of Reform
It has certainly been a good few days for the Reform Party, with Nigel Farage returning to the fray, and, by all accounts, winning his first TV debate hands down.
The effect on the polls seems clear, with the party now on the verge of overtaking the Conservatives. There is now even speculation that the upstarts might be able to form the opposition after the election, setting them up to enter government in 2029.
That's a long, long way off, of course, but it's interesting to think of what the rise of an overtly climate sceptic party means for the renewables industry.
If you are thinking of building an offshore windfarm, for example, it's at least a five-year process before any electricity is generated. You then enjoy fifteen years of subsidy, and then hope to continue on a merchant basis for perhaps as much as fifteen more.
In other words, someone planning a windfarm today might imagine that final decommissioning might not happen until 2060. Renewables developers need political consensus, and it’s that consensus that Mr Farage’s ravenous hordes aim to break.
In the case of windfarms, the Reform draft manifesto reveals that the current plan is to tax those all-important subsidies.
This is a canny idea. While governments can effectively cancel the Renewables Obligation whenever they like, simply by reducing the value of the certificates to zero, newer windfarms operating under the Contacts for Difference scheme have a contractual right to their fixed prices. A tax gets round this quite neatly, although looking at the contract terms, the lawyers will need to ensure the legislation is carefully targeted.
So, the rise of Reform should be concentrating the minds of windfarm investors. It's already clear that the Net Zero bandwagon is grinding to a halt. But the rise of Reform means that there is a major political risk on the horizon. 2029 is a long way off, but anyone looking to start planning work for a windfarm today will realise that it coincides roughly with the expected commissioning date.
Green investors are going to need nerves of steel if they want to go ahead.