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Politics Pushing Up the Cost of UK Energy Investment

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The political storm on energy continues with the latest rhetoric coming from the conservative party. In what perhaps could best be described as a faux pas where the Prime Minister may have ordered government aides to “get rid of the green crap”, in reference to the policy/environmental costs.

We can argue that the Prime Minister is addressing one of the three key issues as to why energy prices are rising, (commodity, policy and transmission costs). An unnamed senior Tory source has been quoted as saying: “The Prime Minister is going round Number 10 saying ‘We have got to get rid of all this green crap’. He is totally focused on it. “We used to say ‘Vote Blue, Go Green’, now it’s ‘Vote Blue, Get Real’.”

This is more realistic and a more practical approach to address the rising energy prices showing that the government has identified an issue that they can hopefully act upon. We should hope to see a comprehensive plan that they could implement if they remain in government from 2015.

Ed Miliband’s somewhat knee jerk ideology of freezing prices for two years, which is simply unfeasible, has caused devastation to the valuation of UK energy suppliers as well as the investor appetite into the UK energy infrastructure.

“The perception of political risk for upstream parts of our business has increased over the last few weeks,” said Tony Cocker, chief executive of E.ON UK. “To me it’s not nearly so much (a question of) ‘Would we invest?’, as ‘What’s the cost of capital?’,” he said at an industry conference last week.

Credit ratings agencies say increased political risk has also made energy companies vulnerable to rating downgrades. If a company’s credit rating falls, it can cost more to borrow money to finance a project. SSE which has lost 12per cent on its share price since September could find itself in a vchallenging position in the near future.


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