Crucial subsidies to ensure continued investment in renewable energy have been secured by Ed Davey today, but at a potential cost to long-term UK carbon targets.
The Energy Secretary
had been locked in a battle with the Chancellor of the Exchequer George Osborne
over onshore wind subsidies
, but it ended in victory for Davey today as he announced that they would be cut by only 10 per cent under new bandings for the Renewable Obligation
(RO), the Government’s main mechanism for supporting large-scale renewables
. But the win could prove costly to UK decarbonisation targets, as Davey conceded today that if gas "proves cheap" it will continue to play a major role in the energy mix beyond 2030.
Today’s changes to subsidies for renewable electricity means new bandings were set for more than 30 technologies including wind, solar, biomass and wave and tidal. The changes are largely in line with original expectations and Davey said they could incentivise between £20 billion and £25 billion of new investment in the economy between 2013 and 2017.
And he added they would reduce the impact on consumer bills, "saving £6 off household energy bills next year and £5 the year after".
But Davey also gave a firm backing for gas today, including announcing a funding boost for the fossil fuel, in the form of a £500 million field allowance for large shallow water gas fields.
And, in a move that is likely to cause investor jitters, it emerged that the Department of Energy and Climate Change (DECC) will undertake official reviews into the costs of onshore wind and solar later this year.
"Renewable energy will create a multi-billion pound boom for the British economy, driving growth and supporting jobs across the country," said Davey.
"The support we’re setting out today will unlock investment decisions, help ensure that rapid growth in renewable energy continues and shows the key role of renewables for our energy security."
Having successfully resisted Treasury calls for deeper cuts, today’s changes will see onshore wind subsidies cut by just 10 per cent from 2013, from one Renewable Obligation Certificate (ROC) to 0.9 ROCs, as consulted on with industry in Autumn 2011, instead of the 25 per cent cut Osborne had been looking for.
Call for evidence
But instead of being guaranteed until 2017, this level will only be guaranteed until 2014, DECC said. The department will launch a call for evidence onshore wind industry costs this Autumn and report in early 2013. " If the findings identify a significant change [in generation costs], the Government will initiate an immediate review of ROC levels with any new support arrangements taking effect from April 2014, with grandfathering and grace periods for projects already committed," DECC said.
Likewise, large scale solar will also be subject to further consultation this year on reducing support levels if the cost of solar falls further.
The reviews have raised alarm bells in the renewable energy sector, which sees them as destabilising investor confidence.
"Government has re-affirmed its commitment to the renewables industry, but we are concerned about the further reviews facing many technologies, which is likely to inhibit investment," said Martin Wright, chairman of the Renewable Energy Association.
Seb Berry head of public affairs for Solarcentury added: "The last thing this industry needs is yet another consultation on support levels. Ministers keep promising this industry "TLC" – transparency, longevity and certainty – but today's decision does the very opposite. The consultation response confirms that PV is already a more cost-effective technology than offshore wind and yet investors in the cheaper technology are now in limbo land awaiting yet another consultation and unable to commit to projects beyond March 2013."
But there was good news today for both marine energy and biomass, with DECC confirming that support for tidal stream and wave projects of under 30 megawatt would increase from 2ROCs to 5ROCs, while a new band would support existing coal plant converting to sustainable biomass fuels.
DECC said today’s package of changes could deliver 79 terrawatt hours (TWh) of renewable electricity per annum in the UK by 2017, which would be put it almost three quarters of the way towards meeting its 2020 renewable energy target of 108TWh.
Threat to decarbonisation target
Today’s victory for Davey and the Liberal Democrats over renewable subsidies is set to create a fierce debate in the autumn over the UK’s 2030 decarbonisation targets, when the Government sets out its gas strategy. The Government climate change watchdog, the Committee on Climate Change, has recommended a 2030 target, which would mean fitting all gas stations with carbon capture and storage, but some Tory MPs, including Osborne, want to abandon the target, claiming it will be too restrictive. However, green groups have warned this will create a "dash for gas".
DECC said today that it was committed to securing investment in gas generation and that it did not expect the role of gas to be restricted to "providing back up to renewables".
It added: "Through the 2020s, and beyond if gas proves cheap, we expect it to continue to play a key role ensuring that we have sufficient capacity both to meet everyday demand and complementing an increasing amount of relatively intermittent and inflexible generation".
Leading business group the CBI welcomed the decision the Government had taken on supporting onshore wind, but said it was right to also back gas.
"The level of support the Government has agreed for onshore wind will help to encourage investment into our energy sector, creating jobs and supporting growth," John Cridland, CBI director-general, said. "Companies must be able to invest with confidence so that we can have secure, affordable and low-carbon electricity in the decades to come."
And he added: "The Government is right that gas should play a crucial role in any future energy mix. We have argued that there is no need for a false choice between renewables, nuclear, gas, and carbon capture and storage. It’s clear from the evidence that we need a diverse supply."
But Friends of the Earth's head of Campaigns Andrew Pendleton said: "Ed Davey has won the battle over wind subsidies - but at what price?
"Treasury arm-twisting has forced him to give his backing to new gas-fired power stations, which is completely at odds with his fuzzy rhetoric on clean British energy.
"The Government's climate advisors warn that UK climate targets won't be met unless our electricity system is almost entirely decarbonised by 2030 - Ed Davey must insist that this target is included in the Energy Bill when it enters Parliament later this year."
Like this story? Please subscribe to our free weekly e-newsletter at the top of the page for more content like this.