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Supporting renewables

By Dave Elliott

The UK government’s long-awaited revision of support level under the Renewables Obligation (RO) was delayed by, it seems, battles between the Department of Energy and Climate Change (DECC), who wanted a 10% cut in support for on-land wind, and the Treasury, who it was said wanted a 25% cut. But with even the CBI complaining about the cost of what it called the ‘political deadlock’, DECC evidently won out and, just after Scotland unilaterally announced a 10% cut, it also opted for 10% .

So, on-land wind support will be cut to 0.9 ROCs/MWh, guaranteed until at least March 2014, although DECC will review it early in 2013, and change the ROC level in 2014 if costs have fallen significantly.

The wind lobby had said that, while a 10% cut was reasonable, given the improvement in perfomance, cuts beyond 10% would destroy the industry. It was also pointed out that, if costs were the issue, it was odd to attack on-land wind, which was cheaper than offshore wind. Then again, the offshore wind resource is much larger, with much less potential for environmental objections. A DECC public-opinion survey found that, 76% of those asked backed offshore wind projects, while 66% were in favour of onshore wind farms.

In the RO revisions, support for offshore wind has been left at 2 ROCs/MWh for 2014-15, but reduced to 1.9 ROCs in 2015-16 and to 1.8 ROCs 2016-17. DECC says ‘This is consistent with our consultation proposals, and reflects our expectation that the costs of offshore wind will fall as mass deployment takes place and industry innovates’.

DECC was clearly worried about increased fuel bills – consumers pay the extra cost of the RO. The wind cuts, and other smaller cuts in the ROC system, will lower bills by £6 p.a in 2013/14, $5 pa in 2014.15, but DECC says costs will rise after, by about £3 pa., as new projects emerge.

In addition to the RO re-banding, DECC issued details of the mechanism for avoiding overspend on the new Renewable Heat Incentive. It will introduce a flexible price degression-based system, with quarterly tests to see whether cuts were needed. They clearly are still smarting from the problems they had with the PV solar Feed In tariff.

The non-domestic strand of the RHI was launched in Nov 2011, to help meet the ‘15% by 2020’ renewable energy target. DECC says that renewable heat will contribute about a third of this overall energy target, so that around 12% of total heat demand in 2020 will have to come from renewables, up from under 2% now. The interim demo scheme apart, the full domestic strand doesn’t start until next summer.

DECC has also announced details of the new Feed In Tariff (FiT) levels for electricity micro generation, in the final stage of a review of the scheme, begun in Feb 2011, covering support for anaerobic digestion (AD), hydro, wind and micro combined heat and power (micro CHP). They will come into force in December. This follows on from the controversial cuts in the solar PV FiT, which are now in place.

For the other FiTs, DECC says ‘having reviewed the consultation responses and further industry data, the final tariffs will in most cases be implemented as proposed in the consultation’. These include cuts in wind tariffs and a small rise for micro CHP, reflecting its very low uptake to date.

As with solar PV, cost control will be achieved by price degression at fixed annual time points from April 2014, with a baseline (i.e. expected) degression of 5% each year, but adjusted according to deployment in the previous year, with a minimum reduction of 2.5% annually in the event of very low deployment, and a maximum of 20% for very high deployment.

DECC also offered some backing for community projects, but no new separate Tariff. It said ‘Although we do not believe it is justifiable to offer a separate tariff level to such projects at the moment, we are clarifying that this would be technically possible in future, if we find that to be justified’.

Meanwhile though, FiT-backed solar PV on schools and community energy projects on non-domestic buildings will be exempt from the current energy-efficiency requirements ‘as long as they produce a valid Energy Performance Certificate (at any level).’ DECC says ‘This exemption for schools is in recognition of the role that the microgeneration can play in educating young people about climate change and energy issues. To allow for the additional time needed by community organisations in setting up projects, we will also introduce a tariff guarantee system for community solar PV projects under 50kW on non-domestic buildings.’ More generally they say they will also ‘continue to work closely with the community energy sector where possible’ to help with finance and other barriers that are separate from FITs’.

However they add ‘we will not be implementing the proposal for the solar PV multi- installation tariff to be reduced to the stand-alone level for commercial aggregators. There is no evidence to support any financial difference between social housing PV projects and commercial “rent-a-roof” projects.’ Fair enough (some see the latter as a rip off), but shouldn’t co-ops and community groups etc get more?

Thankfully, given the likelihood of it being a major uptake hurdle, there will be no energy efficiency requirements for technologies other than solar PV, although DECC says ‘we will consider the introduction of minimum energy efficiency standards for buildings with other technologies’. But they will raise the export tariff from 3.2p to 4.5p/kWh for new installations from the time of the tariff changes. That will be welcome.

All in all, despite its parallel commitment to high-cost nuclear arguably making it hard, DECC do seem to be trying to respond to the various pressures on them, not least from the Treasury. The nicely timed pre-emptive action by Alex Salmond no doubt helped tip the balance: if DECC had opted for a 25% cut while Scotland went for 10%, that would probably have meant the end to new on-land wind projects in England and Wales. However DECC clearly wanted 10%, and most of the other final ROC allocations (e.g. for marine renewables), like those for the RHI and FiTs, have ended up being pretty much what was proposed in the consultation documents.

Much of the debate over support levels reflects uncertainties about how the technologies will progress in the years ahead. In my next few blogs I will be looking at what the prospects for each of them might be, starting with PV solar – after a short break!

DECC announcements: www.decc.gov.uk/en/content/cms/meeting_energy/renewable_ener/renew_obs/renew_obs.aspx

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