Govt. publishes Rudd’s new rules to control the cost of renewable energy by reducing subsidies

Amber Rudd, UK Energy Minister
Amber Rudd, UK Energy Minister

The UK Government has today published details of its measures to deal with a projected over-allocation of renewable energy subsidies

British Energy Minister Amber Rudd said that reducing energy bills for consumers and businesses and meeting climate goals in the most cost-effective way are Government priorities. She added:

“The measures set out today will provide better control over spending and ensure bill payers get  the best possible deal as we  continue to move to a low-carbon economy.

 “My priorities are clear. We need to keep bills as low as possible for hardworking families and businesses while reducing our emissions in the most cost-effective way.

“Our support has driven down the cost of renewable energy significantly. And as costs continue to fall it becomes easier for parts of the renewables industry to survive without subsidies. We’re taking action to protect consumers, whilst protecting existing investment”.

Financial support for renewable technologies primarily comes in the form of subsidies which are paid for via energy bills. The total amount of subsidies available is capped via a mechanism called the Levy Control Framework (LCF). The measures announced today provide for:

Removing the guaranteed level of subsidy for biomass conversions and co-firing projects for the duration of the Renewable Obligation, known as grandfathering. This could reduce the risk of more allocations under the LCF by around £500m per annum in 2020/21. These changes to grandfathering apply to England and Wales only. Decisions regarding the operation of the RO, including grandfathering policy, in Scotland and Northern Ireland are for the Scottish Government and Department of Enterprise, Trade and Investment in Northern Ireland respectively

Launching a consultation on controlling subsidies for solar PV of 5MW and below under the Renewables Obligation (RO). This includes consulting on early closure and removing the guaranteed level of subsidy for the duration of the RO, known as grandfathering. With regards to small scale solar: the proposals in relation to early closure would, if implemented, apply across GB. The proposals in relation to grandfathering, and any future banding review, would, if implemented, apply to England and Wales only.

A consultation on changes to the preliminary accreditation rules under the Feed-in Tariff (FIT) scheme followed by a wider review of the scheme to drive significant further savings. With regards to the FIT scheme: the proposed changes wouldapply across GB.

The Government will set out totals for the LCF beyond 2020 – providing a basis for electricity investment into the next decade – when it sets out its plans in the Autumn in respect of future CFD allocation rounds.

Rudd added: “The Government has provided vital financial support to the renewable sector which has helped new and innovative technologies, reduced our emissions, and increased the amount of low-carbon electricity that powers homes and businesses across the UK.

“However, the Office for Budget Responsibility’s latest projections show that subsidies raised from bills are currently set to be higher than expected when the schemes under the LCF were set up.

“This is due to a number of uncontrollable factors such as lower wholesale electricity prices, higher than expected uptake of the demand-led Feed in Tariffs and the Renewables Obligation (such as solar panels on roofs) and a faster than expected advancement in the efficiency of the technology, meaning renewables are projected to generate more electricity than previously projected.

See also:

Scottish Energy Minister and Scottish Energy Association voice fears for 5,000 jobs in Scottish renewables http://goo.gl/7QRxxB

* Environmental Levies provides the breakdown of spend on the RO, FIT and CFD making up these figures and can be found at http://budgetresponsibility.org.uk/economic-fiscal-outlook-supplementary-fiscal-tables-july-2015/. These are nominal figures.

The DECC table below provides these in 2011/12 figures:

£m, 2011/12 prices 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
RO 2795 3360 4090 4475 4840 4840 4840
FiTs 740 925 1095 1255 1375 1490 1600
CfDs 5 50 270 505 990 2050 2660
Total expected cost 3540 4335 5455 6235 7210 8380 9100

 

**

Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed