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The green energy sector received a boost when Westminster’s plans for contracts for difference – a system of subsidies for renewables – were rubber-stamped by the European Commission.
The Department of Energy and Climate Change (DECC) published details of the draft budget for the scheme, a white paper on which was issued three years ago. The aim of the system, which is destined to replace the Renewables Obligation, is to transfer to consumers the risk of investing in green energy. It will guarantee suppliers a fixed return on energy they produce by providing a top-up from taxpayers whenever the wholesale price of electricity drops too low.
The commission concluded that contracts for difference met rules on state aid. Under the £15 billion scheme, established renewable technologies such as onshore wind, solar farms and energy-from-waste sites will compete for a pot of £50 million a year. This is set to rise to £100 million in a year’s time.
Newer and more innovative technologies will initially benefit from a £155 million a year funding pot, and will also be subject to auctions. The UK is also waiting for the commission to rule on whether the subsidies negotiated with EDF for power generated by the planned nuclear plant at Hinkley Point in Somerset are in line with the rules.
For some in the green energy sector, the system does not go far enough. Dr Gordon Edge, Renewable UK’s director of policy, said the draft budget was “insufficient to drive industrialisation, competition and cost reduction”. He said that onshore wind would become the cheapest form of new generation.
“An overly restrictive budget for the established group of technologies will mean a lower level of delivery of the cheapest technologies, risking consumers paying more than they should have to.”
Manufacturers’ organisation the EEF said it was supportive of the scheme. It added that contracts for difference had been designed to deliver better value for money than the Renewables Obligation, because there was a ceiling on what consumers would pay.
Richard Warren, senior energy and environment policy adviser at the EEF, said the organisation wanted projects to get cheaper, so “we have always pushed for some competition in the market”. Nuclear projects also needed to be assisted, he said. DECC had budgeted in such a way that there was competition, which should drive down costs. “There are more projects than money,” he said.
The contracts have already had an impact on British manufacturing. Warren said the fact that DECC had awarded early contracts for difference to six offshore wind projects had spurred Siemens to invest in a wind-turbine factory in Hull. Siemens is putting £160 million into turbine production and installation facilities in Yorkshire. The plan will be across two sites, comprising the previously announced Green Port Hull construction and assembly facility, and a new rotor-blade factory in Paull, East Riding.
Warren added that, because solar panels were not being made in the UK, the EEF would rather see cheaper projects such as onshore wind going ahead. “Should we be trying to drive down solar cost reduction in northern European countries, or should that take place in California, Africa and China? But onshore wind is perfect for cost reduction here,” he said.