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UK renewables hit 19% – but are hit back

By Dave Elliott

The output from the UK’s 24 GW of renewables was 64.4 TWh in 2014, 19.2% of annual UK electricity supply, overtaking that from the UK’s troubled nuclear fleet, at 63.8 TW in 2014. Wind led, at 31.6 TWh, 9.4% of UK electricity, solar supplied 3.9 TWh (1.2%), hydro 5.9 TWh (1.8%) and bioenergy 22.9 TWh (6.8%). And Scottish renewables supplied the equivalent of 49.6% of Scotland’s electricity use, led by on-shore wind.

However there are some post-election uncertainties on the horizon. The Conservative Party manifesto opposed on-shore wind farms, which were said to be ‘unable by themselves to provide the firm capacity a stable energy system requires’. PM David Cameron said ‘we will remove all subsidy for on-shore wind’, and with the Department of Energy and Climate Change (DECC) now Lib Dem-free, we can expect policy changes. Amber Rudd, the new Secretary of State of Energy and Climate Change, has a track record of support for local solar but will no doubt stick with the Tories’ opposition to large solar farms over 5 MW. She has indicated that she will ensure that legislation is introduced next year to end subsidies for onshore wind, while giving local opposition more reign. That was confirmed in the Queen’s Speech.

There may be problems with this. If the UK is to meet its legally binding EU requirement to get 15% of UK energy from renewables by 2020, something will have to expand to make up the reduced solar and wind input, and since on-shore wind is the cheapest new renewable, and big solar is also getting cheap, that will cost more. However, there is a cap on spending, set under the Levy Control Framework (LCF), which already looks likely to be breached – see below. Will it be expanded, or will renewables get an overall cut? If the latter, the (actually untrue) claim that they and nuclear were getting equal treatment will look even weaker, and the EU may renege on its agreement to the generous Hinkley CfD. Quite a minefield….with Brexit lurking too!

The promise to let local views determine whether on-shore wind projects went ahead may also backfire. Public opinion (even Tory!) is still overall pro on-shore wind: Ministers may yet regret allowing locals to have the final say – previously they decided on projects over 50 MW. Tim Yeo MP, past Tory chair of Energy and Climate Change Select Committee, urged the Prime Minister to rethink: ‘There are some parts of the UK where they seem to be happy with onshore wind. If people are happy to see some wind turbines in their area, and the cost of subsiding those is significantly lower than the subsidy we are offering for offshore wind, I would urge him to let the local view prevail’.

15 new on-shore wind farms (with a total of nearly 750 MW capacity), were awarded contracts under the first full round of the new Contracts for a Difference (CfD) support system, which is taking over from the existing Renewables Obligation (RO) fully from 2017, with large solar farm already having been blocked from using the RO. Presumably the 15 CfD wind awards can’t be revoked. There are also over 5 GW of on-shore wind projects in the pipeline with planning permission given, and presumably that can’t be withdrawn retrospectively. Some may have RO contracts, and if so that will presumably be honoured but, if they do not have RO contracts, they will, it seems, not get CfD contracts in the next CfD round, under the new policy. So what mainly remains in contention is the fate of the 7 GW or so of other wind projects still in the pipeline, without planning permission. Most of them are below 50 MW so in fact not much will actually change – they will still be decided by local planners as now: Many of them (3.8 GW) are in Scotland, which jealously guards its devolved planning powers and won’t take kindly to new policies being imposed from Westminster. Interestingly, the new Energy and Climate Change Select Committee chair is to be from the Scottish National Party, which may liven up Westminster politics, given its strongly pro-renewables and anti-nuclear views.

One of the more urgent strategic issues concerns the levies related to renewables and their position under the ‘Levy Control Framework’. The LCF was agreed between DECC and HM Treasury in 2010. The LCF cap was set at £4.3 bn for 2014/15, rising to £7.6 bn in 2020/21. The Policy Exchange says that the LCF cap ‘was exceeded in all of the last three financial years’ with the bulk of this overspend relating to the small-scale Feed in Tariff (mainly used for domestic solar PV) which it says ‘exceeded its original budget by 100% (or £450 million) in the last financial year’. It claimed that ‘DECC is vastly underestimating the cost of the small scale Feed in Tariff – which appears to be growing out of control. DECC assumes that the cost of the scheme will increase by around £60 m per annum to 2020, but the cost of the scheme has been growing at £160 million per annum to date’.

It also has a go at offshore wind, but had to admit the problem was that they have turned out to perform better than expected, thus increasing the likely subsidy payments, which are based on output: ‘it appears that DECC has systematically underestimated the subsidy payable to new offshore wind farms. DECC assumes a ‘load factor’ (a measure of energy output per unit of capacity) for new projects of 38%, based on the current fleet average. However, recent improvements in technology mean that the new generation of offshore wind farms being built over the next few years is likely to achieve much higher load factors – e.g. potentially 45%+. The higher the load factor and output of the project, the greater the subsidy payable under the current mechanism. This overspend has not been factored into DECC’s budget calculations’.

The LCF cash problem will be made worse if more expensive projects have to be supported to fill the gap left by the attempt to block new on-shore wind projects. However, even given the attempted block on wind, as noted above, there could still be many projects going ahead. So either way there will be an extra cost under the LCF.

DECC (in its Annual Energy Statement) suggests that the remaining LCF budget amounts to £1 bn p.a in 2020/21. That may not be enough, especially if the Policy Exchange is right in its assertion that costs will rise significantly. For example it says that, although ‘the outlook for wholesale electricity prices has reduced substantially over the past year as a result of falling commodity prices… this increases the subsidy payable to renewables projects under the new ‘Contract for Difference’ subsidy model’.  That’s because, under the CfD, projects are topped up from the market price to a pre-agreed ‘strike price’ so, perversely, it costs more if prices fall. Of course, you might blame the haste to find a way (via the CfD) to insulate Hinkley from market competition for this! But the Policy Exchange seems more concerned about knocking renewables.

The right-of-centre Policy Exchange clearly thinks the whole thing is a shambles and claims that the entire budget remaining under the Levy Control Framework (assuming no further changes in policy) may have already been spoken for: ‘DECC may have already committed the entire budget out to 2020, which will make it difficult or impossible to proceed with any additional projects, unless actions are taken to stem the rise in other costs’. They could be (partly) right. More cash or cheaper projects are needed! That is unless you adopt the view, shared evidently by Renewable Energy Foundation, that the whole thing has gone too far and should be stopped:



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  1. Trackback: Daily dispatch: UK onshore wind subsidy cut, oil giants want to help with climate policy -

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