Over the summer the government announced proposed cuts to subsidies to deal with what it has called a “projected over-allocation of renewable energy”. It estimated that actual spending will reach £9.1 billion in 2020-21 compared to the budget of £7.6 billion, although critics note that this still falls within the budget’s 20% headroom allocation to allow for unforeseen changes in energy prices or technology costs.
The proposed measures have set the renewables sector spinning into disarray, and saw the closure of some of the UK’s largest solar companies. As the sector begins to dust itself off, what does the new, less assured future mean for the survival
of our country’s renewables industry? And can, as energy secretary Amber Rudd claims, renewable energy sources now “stand on their own two feet”?
Solar power
The solar power sector looked to be the hardest hit after being dealt a triple whammy of proposed government cuts. First was the proposal to close the Renewables Obligation (RO) for solar projects under 5MW (including capacity extensions of existing projects) from 1 April 2016, a year earlier than scheduled, and reduce the level of support for projects seeking eligibility up to that date.
The second blow came from the proposed end to the ‘grandfathering’ that guarantees the level of RO subsidy across the project life for solar installations of less than 5MW. The knock-out blow came with the proposed removal of pre-accreditation that guarantees a certain feed-in tariff level ahead of commissioning for small-scale renewables projects, and the proposed cuts to the tariff put forward as part of the Feed-in Tariff Review. Instead, developers will only receive a rate at the time they apply for accreditation, meaning the final unit tariff received could fall during the course of project development.
A few months down the line two solar firms, Mark Group and Climate Energy, closed, followed not long afterwards by Southern Solar. And US firm Zep Solar has pulled out of the UK. All the closures were blamed on the government’s proposal to cut the feed-in tariff for residential solar installations by 87%.
Scottish Conservative MSP Murdo Fraser, who says that renewable energy can thrive without subsidy, adds that the aim for all energy suppliers should be to operate without “generous government subsidy,” and the solar power sector has “proved resilient in the past” when dealing with cuts to feed-in tariff levels.
He acknowledges concerns that the government may be implementing the changes too quickly but adds: “This decision has been born out of careful thinking, and it is only right to cut down on poorly sited panels that fail to deliver environmental benefits whilst at the same time being heavily reliant on subsidies to deliver a return on investment.”
In contrast, the response to the proposed cuts from the sector has been one of loud and joined-up dissent. A joint statement by renewable energy associations warned that removing access to the feed-in tariffs from individuals, farmers, businesses, investors and communities looking to generate their own power would put at risk “hundreds of projects, millions of pounds of investment and many thousands of jobs”. The Solar Trade Association estimates that up to 27,000 jobs in the sector and its supply chain could be at risk if the proposed reductions in tariffs go ahead.
Sonia Dunlop, spokesperson for the association, says that, while they understand that the subsidy cannot go an as before, the cut to feed-in tariff for domestic solar panels by up to 87%, from 12p down to 1.6p, is “absolutely massive”.
Dunlop explains that the problem is also the “ridiculously low” absolute maximum cap on the budget that can be spent on all renewable technologies under the feed-in tariff and an absolute maximum cap on the levels of deployment in every quarter over the next few years. She adds: “They are trying to cap the market at about a fifth of what it is at the moment. If these proposals go ahead as planned it will absolutely decimate the solar industry in the UK.”
What is most frustrating, Dunlop says, is that the cost of solar has come down by 70% over the last five years and the industry was “very close to the point to be able to compete with fossil-fuel electricity without any subsidy by 2020 if steady reductions were imposed”.
Dunlop does acknowledge that the Levy Control Framework, the government’s budget for renewables, is under pressure, and is largely spent, if not overspent. However the major justification for the cuts, to minimise consumer energy bills, is ultimately flawed. “You’ve got to think what can give you value for money, and solar is the second-cheapest low-carbon source of energy after onshore wind. It is cheaper than nuclear and much cheaper than the new Hinkley Point,” she says.
The solar industry has put forward an emergency ‘£1 solar rescue plan’. It asks for a total of £95 million over the next three years, a significant increase on the
£7 million the government is proposing.
The plan would only add an extra £1 a year to average household energy bills from 2019 for new solar installations deployed over the next three years which would generate enough electricity to power the equivalent of 875,000 homes.
The proposal introduces higher tariffs than those proposed by the government, with higher and more flexible caps on the total amount of solar projects that can be deployed and an improved mechanism to continually bring support levels down. It remains to be seen whether the government will take on the compromise, with a final decision on the proposed cuts expected by the end of the year.
Wind power
The solar sector is not the only area to face cuts. The government also announced plans to close the Renewables Obligation to new onshore windfarms in 2016, a year earlier than planned. Dr Gordon Edge, Renewable UK’s director of policy, said that this was not an unexpected move given the election result, but the approach has been confused and far from fair.
The government has since made an amendment to the proposal to extend ‘grace periods’ to ensure that projects that “would have otherwise been able to accredit under the RO by 31 March 2017 are not frozen out of the process”. The amendment ensures that projects remain eligible for the pre-existing grace period which entitles schemes affected by unforeseen delays over grid connections and aviation safety concerns to an additional 12 months in which to accredit.
To get additional time to seek accreditation, projects must provide evidence that they have been unable to secure financing between 18 June 2015 and royal assent of the energy bill. This “investment freezing condition” amendment aims to avoid investor uncertainty for projects during the review of the energy bill. That includes schemes that have already started construction.
Edge says that difficulties to this amendment may arise but he adds: “It does allow people who were working on the assumption that this is what the grace period would look like to go forward. So we haven’t seen anyone drop out. It’s just a case of whether people can convert an intention to legislate the amendments that they’ve got to ‘I’m going to sign a deal next month and deliver it’.”
This means that delivery of projects should stick to the original goal of April 2017, and the early closure should only stop around 200MW of onshore wind capacity.
However, new projects not qualifying for the RO will now become reliant on winning support under the new contracts for difference (CfD) scheme based on competitive bidding – but uncertainty over when the next bidding round will begin is unsettling the onshore wind sector.
Edge says: “We’ve got a number of projects that have contracts under the CfD first round, mostly delivering in 2018. But the question is then what? The next CfD auction that was supposed to be kicking off in mid-October was put into the long grass by the new government. They need to make an announcement now.
“From what they’ve said about budgets it’s not clear whether they think they need any more contracts up to 2020. In which case they might say ‘yes, we’ll do more CfD rounds in a couple of years,’ which will be terrible, particularly for offshore wind which needs to keep building momentum.”
In regards to the global onshore industry, Edge says the changes to subsidies in the UK are a minor nuisance, and are not going to slow its momentum. The same cannot be said for offshore wind. Edge says: “The UK is a really necessary country for the global offshore wind industry. We are number one and have the biggest development pipeline and if everything goes into deep freeze for a couple of years that’s a real problem.”
It is a waiting game to see what the government will decide. There have been some hopeful signs, for onshore wind at least, with the House of Lords having recently backed a Labour amendment deleting a clause in the energy bill that would have ended the RO a year early. However, the Tory party looks set to try to push forward with its proposed cuts.
MSP Murdo Fraser says: “Onshore windfarms were in receipt of £800 million of subsidies in 2014 and the government believes that this type of investment can be better directed elsewhere. With intermittency still an issue for most renewable technologies the government has been correct to invest in nuclear as the most reliable source of low-carbon baseload electricity.”
He quotes senior industry experts, such as the president of Canadian company Brookfield Renewable Energy, who has said that onshore wind projects can go ahead “without the need for significant subsidies”.
Dr Jimmy Aldridge, a research fellow at the Institute for Public Policy Research, also supports the cuts and recently said: “Amber Rudd is right to act to control costs and to protect bill payers from continuing to pay over the odds for clean energy”.
Fraser adds that in recent years the Scottish government has “over-prioritised onshore wind at the cost of traditional generators”. Despite this, Fraser says, only 3.8% of Scotland’s heat energy is derived from renewable sources and it is time to move the debate from renewable electricity and on to renewable heat as this is an area responsible for a “large bulk of our carbon emissions”.
Marine and hydro power
David DeChambeau, director of Southeast Power Engineering, has installed some major hydro power projects in the UK and had more in the pipeline. However, following changes to the feed-in tariffs, he says that hydro is no longer a safe investment.
He says: “There is tremendous potential in this country, something like 15,000 weirs that are suitable for hydro power. However, the energy department has eliminated the pre-accreditation programme for feed-in tariffs, making it nearly impossible to fund these projects.
“I have abandoned all of the projects where I won the tender to build them, where we don’t already have pre-accreditation. This includes over 1MW over three big projects.” He adds: “It’s a shame that this shortsighted government has decided to end virtually all renewable energy development.”
When it comes to marine energy, Edge says it is still a long way off from being competitive. He adds: “We have to persuade government that it is a long-term option and by supporting it now to the point where it really is competitive it can be an industry that the UK leads the world in.”
Edge says that France and Canada are making big plays in tidal energy technology and the UK risks falling behind. He says: “There are countries that would eat our lunch on this which would be hugely frustrating because we’ve been building up great infrastructure like the European Marine Energy Centre in Orkney. For us to squander that would be massively disappointing.”
What next?
While the industry waits with bated breath to see whether the government will go ahead with its proposed cuts, organisations such as the Solar Trade Association and Renewable UK will continue to work to reduce the potential damage and create compromises. Edge says that he hopes to see a commitment to the CfD with regular auctions to support a longer-term trajectory, in particular for offshore wind, wave and tidal technologies to “bring them into the competitive fold”. Edge hopes there will be a commitment to the Levy Control Framework past 2020. He says: “There is a workable solution but they’ve got to want it.”
Fraser says that renewable energy and fossil fuels must complement each other in the medium term, while in the longer run there has to be an “enhanced role for nuclear as a source of low-carbon baseload electricity”.
“The UK government has acknowledged the threat of climate change and we are one of the most progressive countries in Europe when it comes to renewables,” says Fraser. “However it is only right to acknowledge the negative consequences to consumers, jobs and industry of higher energy bills as a result of overly expensive green levies. A balanced energy portfolio dovetails all energy sources to create a stable, reliable and affordable supply.”
Did you know?
Ernst and Young’s latest quarterly Renewable Energy Country Attractiveness Index report saw the UK drop out of the top 10 for the first time since the index began 12 years ago. Ernst and Young blames “a wave of policy announcements reducing or removing various forms of support for renewable energy projects” that has left investors and consumers “baffled”.
The firm warns that the lack of clarity and direction around energy policy may undermine investment in other areas.
The climate of uncertainty could threaten progress with nuclear new build, carbon capture and storage and shale gas too.