Government sticks with controversial change in solar farm subsidies, but promises £95m increase in support for renewable energy projects
The government has today announced it has increased the budget for supporting the UK’s next wave of renewable energy projects by £95m, arguing that the shift to a system of auctioning support contracts to renewables developers will curb costs by billpayers while mobilising clean energy investment.
However, Ministers risked the ire of the solar industry as they also confirmed they were sticking with controversial proposals to bar solar farms with more than 5MW of capacity from taking part in the existing Renewables Obligation (RO) subsidy scheme from next April.
The latest shake up to the RO scheme and the contract for difference (CfD) mechanism that is designed to replace it will see the budget for the first round of CfD contracts increase from £205m, as originally planned to £300m.
The Department of Energy and Climate Change (DECC) said so-called mature technologies, such as onshore wind and solar farm projects, would compete at auction this autumn for contracts worth £65m, an increase on the £50m that was originally proposed. However, the distribution of the new budget will be phased with £50m available for projects commissioning in 2015/16, and an additional £15m for projects commissioning from 2016/17 onwards.
Meanwhile, less mature technologies, such offshore wind and marine energy projects, will be awarded contracts from a budget that has been increased by £80m to £235m. But again the budget awards will be phased with £155m for projects commissioning from 2016/17 onwards, and an additional £80m for projects comming online from 2017/18.
The department said the increase in budgets was made possible after “because the latest estimates of the overall costs of other policies, in particular the Renewables Obligation, are lower than expected”. It added that some additional budget had been held back to cover the risk of overspending in other renewable energy policies and ensure that the government’s clean energy support programme does not exceed its Levy Control Framework (LCF) cap.
“We are transforming the UK’s energy sector, dealing with a legacy of underinvestment to build a new generation of clean, secure power supplies that reduce our reliance on volatile foreign markets,” said Energy and Climate Change Secretary Ed Davey in a statement. “Average annual investment in renewables has doubled since 2010 – with a record breaking £8bn worth in 2013. By making projects compete for support, we’re making sure that consumers get the best possible deal as well as a secure and clean power sector.”
The increase in the budgets is likely to be welcomed across the renewables industry, but significant concerns remain about the transition from the established RO scheme to the new CfD mechanism.
Trade association RenewableUK has repeatedly warned that the initial £155m budget for less mature projects would only provide support for one offshore wind project, when five or six are currently in the pipeline and approaching a position when they could apply for support. The increase in the budget by £80m partly addresses this issue, but is likely to still leave several project developers disappointed.
Similarly, onshore wind and solar project developers have voiced fears that the budget for auctioned contracts is too small and risks freezing smaller, independent developers out of the market, reducing competition in the sector. Again, an increase in the budget will allow more projects to proceed, but is unlikely to ease developers’ underlying concerns.
Moreover, many solar farm developers remain angry at the government’s plans to exclude them from the RO from next April – proposals which were confirmed today.
The government did attempt to ease the impact of the changes on the industry, confirming that there will be a “grace period” for solar farm projects that had made “significant financial commitments” before May 13 this year, when the proposed changes were first announced. And DECC also announced that it will consult on an additional grace period to protect projects that are expected to meet the 1 April 2015 deadline for RO qualification, but miss the date through no fault of their own as a result of delays in getting connected to the grid”.
“After consulting the industry, the eligibility criteria [for the grace period] have been amended so that they are better aligned with the practicalities of solar project development processes,” DECC said in a statement.
In addition, the government said it would introduce a new support band for rooftop solar projects with more than 50kW of capacity through the feed-in tariff scheme. And it announced that it would consult on changing FiT rules to make it possible for businesses to take panels with them when they move premises, effectively making it easier for firms to justify solar investments that can take between five and 10 years to deliver a return on investment.
Ministers had said they wanted to see the focus of the solar industry shift from solar farms to large rooftop arrays on warehouses, offices and supermarkets. However, the industry has warned that support levels for rooftop projects are not yet sufficient to drive mass deployment of rooftop installations. The new proposals appear designed to boost the large scale rooftop market in response to concerns that that solar farm market will experience a significant slowdown following next year’s subsidy changes.
However, it remains to be seen if the solar industry will be won over by the increased CfD budget and tweaks to the feed-in tariff scheme. A number of solar farm developers have already launched legal action against the government alleging that the proposed changes to the subsidy scheme are unlawful and are currently waiting to hear if the courts will hear the case.
Industry insiders also remain deeply frustrated at the repeated changes to solar policies, particularly given this week’s report from the International Energy Agency detailing how plummeting solar costs and rapidly improving conversion efficiencies could make solar the world’s biggest energy source by 2050.
Paul Barwell, chief executive of the Solar Trade Association, condemned the changes to the solar farm subsidy scheme, rejecting government claims that a boom in solar farm development could put pressure on the RO’s budget.
“To curtail [soloar indusry] growth now is just perverse and unjustified on budgetary grounds – solar has only consumed around one per cent of the Renewables Obligation budget,” he said. “This is not a good outcome for consumers either. Why remove support for solar power when it could be the first low carbon power source to become subsidy free by the end of this decade? British Solar needs a stable policy framework to retain its growth to drive down costs so consumers see a direct reduction in their future electricity bills.”
The STA has today launched an online petition, backed by Greenpeace, Friends of the Earth, 10:10 and Green Party MP Caroline Lucas, in a bid to highlight public support for the sector and increase pressure on the government for a rethink.
“Pulling the rug on the technology the International Energy Agency says could be the biggest global power source by 2050 is crazy,” added Barwell. “This is unfair and unjustified discrimination against large scale solar. A fair outcome would be an RO banding review based on up-to-date costs, which we have provided to DECC. Our message to Ministers is simple: Let us compete on a level footing with the other technologies that still get RO support.”