Renewable energy industry gives lukewarm reaction to subsidy shake-up

by Search Gate staff. Published Thu 20 Oct 2011 16:20, Last updated: 2011-10-20
Onshore wind to lose out on government support

Renewable energy industry leaders have given the government's shake-up of subsidy support a lukewarm reception, with many saying they feared deeper cuts.

RenewableUK, the country’s largest renewable energy trade association, said it welcomed the government’s commitment to boost financial support for wave and tidal projects but urges caution over plans to downgrade the level of financial support it provides for onshore wind from 2013 onwards, and offshore wind from 2015.

Maria McCaffery, Chief Executive of RenewableUK, said: “Any reduction in financial support will have an impact on the industry, reducing deployment, and potentially jeopardising momentum as we strive to reach our carbon reduction targets. However, we recognise the need to drive down costs across the sector, especially offshore.

“Any changes need to be carefully balanced as the proposed onshore reduction would have a disproportionate impact on small community-based wind energy projects, as they don’t enjoy the economies of scale which larger projects can harness”.

The consultation on banding levels for Renewables Obligation Certificates (ROCs), announced by the Department of Energy and Climate Change, proposes lowering the amount of support which onshore wind generators will receive from 1 ROC per megawatt hour (MWh) to 0.9 of a ROC.

For offshore wind, the support level would be reduced from 2 ROCs to 1.9 ROCs from April 2015, and to 1.8 ROCs in April 2017. Wave and tidal projects will receive 5 ROCs, with no overall cap.

Research by RenewableUK shows that this cut of 0.1 of a ROC for onshore wind could reduce deployment from 12 gigawatts (GW) to 10.4 GW by 2017. The lost 1.6 GW could have provided electricity for nearly a million homes.

A reduction of 0.2 of a ROC for offshore wind in 2017 would make more projects in the ambitious Round 3 marginal. Developers are already seeking cost reductions to make them viable under the current 2 ROC banding.

Consumer bills are likely to remain unaffected by these changes. In the average annual domestic electricity annual bill of £5811, the total cost of the RO is just £20. Wind receives less than half of that £20 (or 1.8% of current consumer bills). By 2017, the RO will cost some £50 with the cost of supporting going up to around £30 a year or 60p per week, which would be the equivalent of 5.2% of electricity bills if other fossil fuels remain flat.

McCaffery added: “We are determined to continue working with Government to ensure that the industry is operating as efficiently as possible by reducing our costs, not least through the Offshore Wind Cost reduction taskforce.

The measures to support Wave & Tidal energy are particularly welcome and will help build a domestic market big enough to drive innovation and lower cost. Onshore Wind is already the least expensive form of renewable energy on a mass scale and is currently providing the largest share of renewable electricity. These measures must not put its future deployment in doubt”

Per Hornung Pedersen, the recently appointed chief executive of Pelamis Wave Power, unsurprisingly welcomed the shift of support towards marine energy.

He commented: “The new Renewable Obligation Certificate banding announced today is a major boost for the wave energy industry. We are on the cusp of making wave energy a commercial reality and this new Government commitment will be warmly welcomed by investors and customers alike, as it broadens and stabilises the market substantially.

“Industry is always looking for transparency and a consistent, long term outlook and this news brings renewed certainty to our marketplace. We already have the technical platform to deliver the first wave farms, and the new support announced today will allow us to expand and accelerate our plans.”

Juliet Davenport, founder and CEO of Good Energy, said today's announcement could have been a lot worse but still warned the consequences could have a detrimental effect on the targets set in the government's renewables' roadmap.

She said: “These changes aren’t as bad as many of us had feared, but it’s clear there is a need for a more nuanced approach from DECC in the face of pressure from the Treasury.

“Onshore wind is the most cost-effective renewable technology out there, which is great news. But everyone knows that developers are now looking a lot more at smaller sites, since the biggest and best ones are now gone. Those sites require more support than the bigger ones.

“At the levels proposed today, we think around a fifth of those sites in planning could be seriously impacted by these changes. That’s not good news for the Government if it’s to hit the targets set out in the Renewables Roadmap.

“There are some winners from today, however. Solar levels have been largely maintained, and it’s good that the Government has recognised the potential of our wave and tidal resources.

“The RO has and will continue to play a vital, and cost effective role in speeding up investment in renewables and delivering energy security. That will help move us away from the very fossil fuels that are causing families and businesses serious headaches about how they are going to pay their energy bills.”

Ecotricity founder Dale Vince said: “Yes the need to switch the bulk of our energy supply to renewables over the next 10 to 20 years is going to add a small cost onto all our energy bills. The Government estimates that the Renewables Obligation will add to our energy bills, from the current level of £20 a year per household to £50 by 2017.

“But the reality is .. the massive competition for oil, coal and gas on the international energy markets just added over £100 to everyone’s bills within the last three months. And will do so again. By 2017 when Renewables might be costing us all £50 a year extra - fossil fuels could be costing ten times that much. Spending on Renewables is a shrewd investment as well as an environmental imperative.

“While in opposition this Government’s released a report which showed that subsidises to the oil and gas industry in Britain cost £1,000 a year, per household.

“We already spend over £50 per year per household cleaning up toxic nuclear waste.

“In that context - when we're spending £1,000 each household supporting fossil fuels (the energy of today), £50 spent cleaning up nuclear (the energy of yesterday) - the projected £50 to build Renewable Energy sources (the energy for tomorrow) - is a bargain. We will save far more than we spend.”

Vince added: “Britain needs huge investment in new sources of green energy to cover the looming gap in generation capacity.

“This is bad time to be cutting the support for inshore wind, because it has to deliver the lion's share of renewable energy in the years to come - and the best onshore wind sites are already developed. None of this will matter if the government fails to deliver on its promise to reform the planning system.

“These two issues aside - the truly big problem with driving a switch to renewables on the scale that we need is the Big Six’s reluctance to spend their money building new green energy sources – rather than pay shareholders.

“Ofgem say the Big Six are making £125 per customer, but they spend less than £5 of that on building new green energy sources – that’s a scandal.

“The reason for this lack of investment is not just weak regulation but because the interests of the big energy companies are not aligned with the interests of the British Public - they want quick shareholder returns, but what we need is long term investment in energy infrastructure that will make Britain energy independent again.

On cutting the Renewables Obligation by £2 per household and reducing onshore wind support by 10%, Vince said: “If we assume that inshore wind will take half the £50 by 2017 - the 10% reduction for onshore wind support will save us all two quid a year (per house) - is it really worth it?

“Jeopardising enough clean energy for 1 million homes for the sake of such a pitiful sum. When compared to the £1000 fossil support, £50 nuclear bill and the several hundred pounds bill rise from global energy markets that will have hit us by then – this makes no sense. It's a false economy, will cost more than it saves.”

Despite fears of sweeping cuts, Rick Eggleston, Managing Director of REpower UK, believes today’s ROC banding announcement by DECC is welcome and will ensure growth remains healthy across the wind sector.

Eggleston said: “The level of cut in the case of onshore wind is to the lower end of industry expectations, with many of us having predicted something deeper. The reality is that in the case of onshore wind, the industry has achieved significant cost reductions in recent years as the industry matures and becomes more competitive. The cut in ROC level for onshore wind was inevitable, and at 0.9 is at an appropriate level to encourage the industry to drive towards further cost cuts, while reaffirming the UK Government's commitment to renewables.”

"For us, as a leading turbine manufacturer, this gives us the clear visibility we need over the next 5 years. I also believe DECC’s phased approach to the new levels should result in a degree of stability.”

"In the case of offshore wind, the industry is less mature and cost reductions will take longer to achieve, both in hardware terms, and in installation and operation costs. The delay in reductions to 2015/16 will go some way towards addressing this. The industry is already working with the Government to achieve cost reductions in offshore wind, and this must remain a priority.”

Andrew Horstead, risk analyst at energy and carbon management specialists Utilyx, commented on the speculation of a cut in FiTs: “The Coalition cannot continue with the pretence of being the greenest ever government when it is constantly putting hurdles in the way of renewable investment.

“What matters to investors are clear, credible and long-term policy frameworks that incentivise investments in low-carbon technologies. What they don’t want is policy u-turns, which is exactly what we have got.

“In a matter of days we’ve heard that subsidies to domestic solar will be cut by up to 75%, suggestions that the government’s flagship electricity market reforms will be delayed and an announcement that the Government will not proceed with the £1bn Longannet carbon capture and storage project in Scotland.

“This comes on the back of an earlier reduction in subsidies to large scale solar and indications from the Chancellor saying that the UK would no longer press for greater emissions reductions faster than any other country in Europe. Is this really the work of the ‘greenest ever Government’ or is the government’s indecision on energy policy making us the laughing stock of Europe?

“All the while consumers are being hit with soaring price rises and told to invest in home efficiency improvements and renewable generation. Where are the incentives if the Government can’t get its own house in order?”

On today's RO announcement, Horstead, added: “It’s right that government is lowering subsidies for more mature technologies and raising those for technologies that need greater assistance; we would expect that.

“However, these levels are now to be consulted on, which means further delays and a hiatus in investment until the rules are clarified. The Government is fast losing its green credibility following its u-turn on solar support through the domestic and large scale feed in tariff scheme and Scottish Power pulling out of the Government’s flagship carbon capture and storage project.

“Through this consultation period the government must ensure it listens and engages with industry. If it doesn’t, it can kiss goodbye to its climate change ambitions.”

Renewable energy analyst Phil McVan, of Myriad CEG Power, said: “The Government is effectively abandoning the UK’s post 2020 carbon emissions targets and the Prime Minister’s claim to be the ‘greenest Government ever’.

“Continued Government dithering and changes to policies and support is set to strip away investor confidence and it hasn’t just hit the brakes but stuck everything into reverse.

“This leaves the Prime Minister’s ‘greenest Government ever’ boast looking fairly hollow.

“All the uncertainty has created a wave of frustration and bemusement across the industry, which will mean investors will sit on their hands because of the lack of transparency and clarity over what is actually happening.”

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