EU approves UK’s renewable subsidy scheme and capacity market

The EU has approved the UK’s capacity market, which aims to prevent blackouts, and and the Contracts for Difference (CfD) scheme, which will support renewables.

The CfD scheme is due to be launched later this year. CfDs offer a guarantee to generators of an agreed price for electricity. If the market price falls below the agreed ‘strike price’, then generators are subsidised. The scheme aims to give investor certainty and encourage more investment within the renewable sector.

The capacity market provides a regular payment to reliable forms of energy, in return for generating capacity when the system is tight.

The European Commission concluded that both schemes meet competition rules and labelled them as a “fine example” of how to promote the decarbonisation of the economy.

In response to the news, Ed Davey, energy and climate change secretary, said, “This is great news, and shows that our major reforms to the electricity markets are urgent and needed to turn around the historic neglect of the sector.

“We are the world leader in investment for low-carbon energy and energy security. The average annual investment in renewables has doubled since 2010 – with a record breaking £8 billion worth in 2013.”

CfDs have received some criticism. Last month, the National Audit Office questioned whether eight renewable projects that have been awarded early contracts have been overpaid. Consumer group Which? has also argued that the subsidy scheme does not offer value for money because offshore wind could be prioritised ahead of cheaper alternatives.

The Renewable Energy Association (REA) has also raised concerns because the government’s draft budget allocates a large portion of the funds to less well-established technologies. The organisation noted that whilst supporting early stage technologies is important, well-established renewables are better placed to have an immediate impact and create value for money.

REA chief executive Dr Nina Skorupska said, “The limited funding for several key technologies will send shockwaves through the industry. It’s really important not to lose sight of the bigger picture today. Ultimately all renewables, not just in power but in heating and transport too, are really competing with fossil fuels that are mostly imported from overseas and damage the climate. 

“With many people struggling with their energy bills, cost-effectiveness is every bit as important, and DECC cannot say that this planned budget delivers value for money for the consumer. The best way to square the circle is by properly funding the cheaper technologies and introducing minima for all technologies.”

WWF has also criticised the clearance for the UK to establish a capacity market, which they say does not represent value for money for consumers and poses a threat to the decarbonisation of the power sector.

Jenny Banks, energy and climate change specialist at WWF UK, said, “The capacity market risks pushing up bills and holding up progress towards a decarbonised power sector by throwing money at the UK’s old, dirty coal plants.

“It’s hard to believe that a country which has just affirmed its commitment to tackling climate change by choosing not to amend the fourth carbon budget is about to introduce a policy which could lock in vast payments to its oldest and dirtiest power stations until the 2030s.”

She added that the capacity market is skewed in the favour of large existing generators.

Photo: Kim Hanson via Flickr  

Further reading:

Which? criticises renewable energy subsidy scheme

Renewable energy sector set for £64bn investment by 2020

Reform and uncertainty sees UK slip down EY renewables investment index

DECC plans to scrap solar farm subsidy will ‘undermine investment’

NAO questions government’s £16.6bn renewable energy contract