Changes to renewable energy support could save £600m a year

by Search Gate staff. Published Tue 02 Jun 2016 11:21, Last updated: 2016-06-03
UK solar farms could deliver subsidy-free energy by 2020
UK solar farms could deliver subsidy-free energy by 2020

The UK can reach its 2020 renewable energy targets at a significantly lower cost by introducing more competition between technologies, according to new research conducted by Baringa Partners on behalf of Green Hedge Renewables.

The Government’s annual auction for “Contracts for Difference” (CfDs) introduces an element of competition to reduce the level of support for renewable electricity generation. By ring-fencing 80% of the overall budget for technologies that are more expensive, however, consumers overpay significantly.

Creating a truly free market without the government picking winning technologies, consumers could save over £600 million per year while still achieving the 30% of electricity generation from renewables that is expected to be required for the UK to meet its target of 15% of energy from renewable sources by 2020.

Green Hedge, one of the UK’s most experienced solar farm developers and operators, has engaged award-winning management consultancy Baringa to analyse what would happen if the Government removed the current constraints between the budgets allocated for ‘established’ (cheaper) and ‘less established’ (more expensive) technologies.

The analysis shows that in a hypothetical re-run of 2014’s first CfD auction, removing the barrier between different technologies would have resulted in 3.68 gigawatt (GW) of renewable projects being awarded a contract compared to only 2.14 GW awarded in the actual auction. This would have resulted in 1.2 terawatt hours (TWh) more renewable energy generation per year for the same budget, equivalent to the consumption of 360,000 typical UK households.

Extrapolating this to future annual auctions to 2020, Baringa’s analysis shows that removing the barriers between technologies would allow the Government to trim the budget for renewable energy by over £600 million per year, from an annual budget of £1,353 million to just £719 million, and still meet the 2020 renewable energy targets.

Alternatively, by awarding the same budget as under current rules, a technology neutral auction would lead to 46% more green electricity from CfD projects (41 TWh vs. only 28 TWh under the current allocation), equivalent to the consumption of just under 4 million typical UK households.

Even if the government wants to continue to favour certain technologies and protect them from full competition, limiting this to only 35% of the overall budget (as opposed to the current 80%) would still lead to better value for money for consumers through a budget saving of £590 million.

Commenting on the analysis, Green Hedge Renewables' Managing Director Niels Kroninger said: “The CfD system works well to reduce the level of government support for low carbon energy by introducing competition. But it appears at odds with the idea of a competitive allocation that 80% of the budget is ring fenced for the ‘winners’ chosen by government, even though they are - and are forecast to remain - substantially more expensive.

"Baringa’s analysis shows that this decision comes at a substantial cost to consumers: an additional spend of £600 million per year for fifteen years. Reforming the system to make it technology neutral, or at least limit the amount earmarked for more expensive technologies, should be a priority before the next auction.

“We expect solar farms bidding for CfDs at or below the wholesale market price by 2020, which shows that ground-mounted solar power without subsidies can happen over this parliament. Having a reliable technology, which relies on neither subsidies nor fuel imports and is 100% carbon neutral is within reach. Making it happen should be a priority for the new government.”

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