Industry reacts with shock and anger to renewable energy subsidy cuts

Industry leaders and campaigners have reacted with shock and anger at Government plans to overhaul subsidy support for the renewable energy industry with a series of cuts and rule changes,

RenewableUK, the trade association representing the wind, wave and tidal energy industries, has expressed dismay at the announcement by Energy Secretary Amber Rudd of fresh retrospective changes in the levels of financial support for clean energy.

The Minister has announced that the Government intends to change the rules governing the Feed-In Tariff, so that the level of financial support for medium-scale onshore wind projects can no longer be guaranteed in advance.

The renewables industry argues that this vital measure, known as “pre-accreditation”, provided certainty to projects while they were being developed, as they could bank on a certain level of support which would not be cut. Ms Rudd also announced a wider review of the Feed-in Tariff which also supports small-scale renewables.

RenewableUK’s Chief Executive, Maria McCaffery said “This announcement is yet another hand brake turn on energy policy. It will cause dismay in Britain’s medium-scale wind energy sector. Removing certainty will worry energy investors and can only increase the cost of developing renewable projects. Government knows this, but is pressing ahead regardless.

“The Feed-in Tariff is a British success story, but continual rule changes and policy swerves will hurt. Local communities, farmers and small businesses will be hard hit by today’s announcement, and are being denied their opportunity to generate their own clean power and cut their energy bills.

“The renewable energy industry is ahead of the Government in its desire to bring down costs – these have fallen dramatically and will continue to plummet. Onshore wind is already cheaper than new nuclear power and is on course to be cheaper than new gas by 2020. Offshore wind costs have fallen by 11% in the past 5 years.

“We need the industry and Government to agree on a long term strategy with financial support being reduced gradually and appropriately over a clearly set out timescale – not short-term changes coming out of thin air.”

RenewableUK also argues that the Government is trying to justify its changes by citing statistics which over-estimate the amount of financial support needed for renewable energy under the Levy Control Framework. Ministers are quoting the OBR’s Economic and Fiscal Outlook, which published estimates on the costs of all environmental levies earlier this month, but did not explain its methodology.

Maria McCaffery commented: “If investors are to have confidence in forecasts then the Government needs to show its workings. Industry is committed to delivering much-needed low-cost carbon energy within the available budget and the Committee on Climate Change agrees that there is enough funding in the Levy Control Framework to meet our renewable energy targets, so Government needs to be clear about its own calculations as well as how many renewable projects it expects to connect between now and 2020.”

The Department of Energy and Climate Change today also published proposals to reduce Renewables Obligation support for solar on both roofs and in solar farms.

The proposals cover both the Renewables Obligation for bigger projects, and changes to rules on the Feed-in Tariff for smaller projects.

The Renewables Obligation, which currently supports rooftop and solar farm projects between 1MW and 5MW in size, is according to these plans set out today to be closed from 1 April 2016, as well as a planned reduction in levels of support for projects currently in the pipeline.

Critically, DECC is also proposing to end ‘grandfathering’ within the scheme from now on, the guarantee that a certain level of subsidy will be provided throughout the lifetime of a solar farm once built.

This follows a similar move last year which already excluded solar farms of more than 5MW in size – about 25 acres – from receiving support from the scheme as of 1 April 2015.

The Solar Trade Association’s Head of External Affairs Leonie Greene commented: “This is damaging for big solar rooftops as well as solar farms, both very cost-effective ways of generating solar power. This contrasts with repeated commitments from Government to boost the commercial solar rooftop market.”

“The possible removal going forwards of the guarantee on a set level of support throughout a project’s lifetime once built is a real blow to investor confidence.”

“There is no pledge in the Conservative manifesto about cutting support for solar, so we are disappointed by this move. Solar is the nation’s most popular form of energy, as the government’s own opinion polls have shown.”

“We recognise that Government wants to shift the emphasis to larger solar rooftops, but we have explained to the Department that these are just 5% of the UK market. More work is needed urgently to unlock larger solar roofs.

“There is a danger if Government pulls the rug on solar farms too early, the market will have nowhere to go. This could be further compounded by changes to the Contracts for Difference auctions. What we need is a bridging strategy and we are very keen to work with DECC to achieve that.”

“We also regret this move because solar farms are close to competitiveness with new gas generation and they account for a very small proportion of expenditure on the Renewables Obligation. We’re hearing a lot of big figures from Government, but they should know it is just a few quid more on energy bills to deliver nothing less than a solar power revolution in the UK.

“We think the British public would support that. We’re very close, but we’re not there yet. Support for solar under the Renewables Obligation currently costs just £3 per year on each household bill, and solar on makes up only 6% of the Renewables Obligation budget.”

The grace periods put forward for projects currently in pipeline is similar to that for the previous closure.

With regards to the Feed-in Tariff, which supports small-scale rooftop and solar farms, the proposal is to remove ‘pre-accreditation’ to a fixed tariff level, meaning that complex community and commercial projects that can take longer to complete could have to deal with constantly reducing tariff levels between the start and finish of the project.

The Solar Trade Association’s Head of External Affairs Leonie Greene commented: “Again, the removal of the ability to pre-accredit a project and lock in at a set level of support, will make it harder to do both commercial rooftop and community solar schemes. We understood that DECC wants to support growth in these areas so we’ll be asking them to think again.

“However it is important to note that this is not an issue for residential or domestic solar on people’s homes – these are quick to install and do not depend on pre-accreditation.”

The Government has also committed to give visibility with regards its low carbon energy budget as a whole, the Levy Control Framework, beyond 2020 and to set out its plans Contracts for Difference, its new subsidy support scheme, in the autumn.

This follows the Solar Trade Association’s publication last month of its ‘Solar Independence Plan for Britain’ report, a fully costed proposal which sets out how the government can double the amount of solar and get solar as cheap as fossil fuel electricity by 2020, all for a modest amount of extra funds.

Chief Executive of the Anaerobic Digestion and Biogas Association, Charlotte Morton, commented: “FIT pre accreditation is vital for the ongoing success of the anaerobic digestion sector. Even smaller AD projects are relatively complex, and take over a year to develop – pre accreditation helps to make the development risk acceptable to funders.

“Tariffs for AD are already being reduced, and deployment is falling as a result – so this change is unnecessary from a cost control perspective. The industry’s long development times mean these changes would move the goalposts after the game has kicked off for projects in progress, which will have a severe impact on investor confidence.

“With support, AD can deliver cost effective greenhouse gas savings – potentially as high as 4% across the economy as a whole – and grow a UK supply chain which helps deliver economic productivity and exports. These proposals put that potential at risk, preventing the development of the very technologies that will lower consumer bills in the long term.

“How will the government be able to maintain rhetoric on meaningful climate change commitments at December’s Paris conference, while hitting our green economy at home?”

Michael Grubb, Professor of International Energy and Climate Change Policy at University College London, says that announcements on renewable energy by the Government over the past few weeks were retrospective changes that inject uncertainty and drive away investment in the energy sector.

Professor Grubb was commenting on new proposals announced today on cutting support for renewable energy. He said: “The entire energy industry is now concerned about the risk of a capricious and politicised UK energy policy, driven more by Treasury intervention than by the Department responsible.”

He said: “The falling costs of both renewables and gas create the ideal opportunity to build a modern energy system that combines both at scale without driving up overall energy bills from present levels. The major risk for the energy sector is uncertainty and instability sharply driving up the cost of doing business in UK energy. Stability cannot be delivered by ignoring the realities of climate change, the global Paris negotiations, or existing legal commitments on renewables and the UK carbon budgets.

Professor Grubb said that the renewables industry is “being penalised for success”. He said that the installed solar energy capacity has grown to five times the level projected, at half the cost per unit, and wind turbines have been producing more than expected; both increase the volume of renewable energy receiving subsidies. At the same time, the Treasury’s earlier decision to freeze the carbon floor price, the subsidies to conventional power through the capacity mechanism, and the falling gas price have all combined to increase the bridge that the renewable subsidies have to span.

He said: “This is a pivotal moment in UK energy policy, on which it is beginning to look like the UK has two Governments. One is that pressing for strong international action on climate change, which signed an unambiguous cross-party pledge to phase out unabated coal, reiterated its carbon targets and which committed in its manifesto to deliver clean renewable energy as cost-effectively as possible.

“The other is a Government which has moved to prematurely end supports for the cheapest of the UK’s main renewable resources, which has injected fear and uncertainty into renewable energy investors – and which seems set to also scrap energy efficiency programmes which have helped to cut consumer bills and avoided the need for billions of pounds of new fossil fuel investments.

“Sooner rather than later David Cameron must clarify which Government he is really leading.”

Former Shell Chairman Lord Oxburgh of Liverpool agreed that constant changes to policy increased costs. He said: “The changes that the Government is announcing in the name of affordability will have the perverse effect of increasing the cost of clean energy. Constant changes to energy policy undermine investor confidence and increase the cost of capital for renewable energy projects.

“At a time when North Sea oil and gas is in terminal decline, we should remember that it took consistent Government support to get that industry off the ground. If we’re serious about building a new, clean energy industry in the UK, including our unique offshore wind resource in the North Sea, that also needs stable, long-term support from Government.”

Friends of the Earth energy campaigner Alasdair Cameron said: “This latest attack on the green economy will cast a long shadow over the UK solar industry, and undermine efforts to tackle climate change.

“This won’t lower electricity bills – all new energy is being subsidised to some extent and solar is already cheaper than nuclear and will soon be cheaper than gas from new power stations.

“This is entirely a problem of the Government’s creation. The Treasury has placed arbitrary limits on clean power, but solar has proved too popular and efficient, and the Government seems to lack the imagination to adapt.

“If David Cameron wants to have any credibility ahead of this year’s crucial climate talks, he must end his support for dirty fossil fuels, such as fracking, and stop his government destroying the UK’s burgeoning renewable sector.”

However, Friends of the Earth welcomed news that curbs were being placed on converting large coal plants to burn biomass, wood fuel.

“We welcome Government moves to stop some forms of biomass from getting support,” Cameron added. “Burning wood for fuel can be worse than burning coal, and energy sources that cannot show significant carbon reductions shouldn’t get support.”

Daisy Sands, Greenpeace Head of Energy campaign added: “The government is set on destabilising the booming but young solar industry. If the proposals to the consultation are implemented the government will be choosing to protect subsidies to EDF whilst withdrawing support for the communities, businesses and households’ efforts to install solar panels.

“No-one should be getting easy money at a time of financial stress, but this is a moment where a huge opportunity to deliver subsidy free clean energy exist.

“Cutting the subsidies now will see businesses go bust and investment dry up. The timing couldn’t be worse as the sector is on transition to subsidy free and is cheap form of renewable energy. It is galling when tax breaks and subsidies have propped up the oil, gas and nuclear industries for decades.

“Jobs will go and emissions will stay higher at a time when policies and funding should be in place to ensure that people can participate in contributing to the UK’s diverse energy mix.”

Kerri Ashworth, legal director at law firm TLT, commented: “The latest raft of announcements are wide-reaching and another hammer blow to the renewables sector.

“The proposed changes remove the very principles designed to promote deployment of and investment in renewable energy projects, impacting developers, investors and lenders alike.

“With a wider review of the Feed-In Tariff scheme already underway, the sector should perhaps remain braced for further bad news.”