Inconsistency of Policies and Regulations

Significant changes of regulatory regimes can lead to uncertainty and lack of clarity regarding the applicable regulations. Regulatory uncertainties can appear in countries that are moving from traditional schemes, such as feed-in-tariffs and green certificates, to market based schemes. These changes can have a significant impact on the viability and return calculations of a project.

It is true that all energy projects are subjected to regulatory risks, but it appears that low carbon and renewable technologies are particularly vulnerable to significant policy changes. As conventional energy sources tend to be superior in terms of cost competitiveness, the viability of low carbon technologies is often dependent on supportive regulations, such as priority grid access, investment guarantees and commitments to pay premium prices. If these supportive mechanisms are taken away, investors become far less interested in a project that will diminish their returns.