Political risk “is alive and kicking” and nowhere more so than within the UK electricity sector, star fund manager Neil Woodford claims.
The manager of the £2bn CF Woodford Equity Income fund highlights that the industry needs to attract billions of pounds of new investment if secure supplies of low carbon and affordable, predictable power are to be delivered into the future.
However, Woodford argues that the electricity industry has for “too long been the victim of a misguided, short-term and politically inspired policy mess”.
He says: “Unfortunately, despite the fact that achieving these aims is in the best interests of the UK economy, regulatory uncertainty in this industry runs the risk of undermining confidence to such an extent that it has the potential to deprive the sector of this essential investment.”
He highlights that only last week the Government demonstrated a willingness to change its mind again on important subsidy issues, with no prior warning. Woodford asserts that such action has “profound consequences for public listed companies”.
The Department of Energy & Climate Change surprised the market and the industry by issuing a consultation on changes to the grandfathering policy for future biomass co-firing and conversion projects under the Renewables Obligation.
The surprise announcement had the knock on impact of causing a fall of almost 10 per cent in the share price of Drax, which represents 1.64 per cent of the Woodford’s portfolio.
Woodford adds: “For a sector characterised by large capital investments with long payback periods, it is worrying that DECC feels that it has carte blanche to amend existing policy in the name of budget management.”