MP fears subsidy stagnation for new UK low-carbon electricity projects
The subsidy pool for new low-carbon electricity generation projects in the UK through to 2020 "is not going to be much greater in any one year than what is available today", a member of the parliamentary energy committee told ICIS on Monday.
The claim could potential dampen the government's November announcement, which was warmly welcomed by the renewables industry, that £7.6bn (€8.8bn) would be channelled into low-carbon power generation by 2020 under its reformed subsidy regime (see EDEM 23 November 2012).
The government on Wednesday insisted the figure was consistent with its 2020 targets for renewable power generation.
But according to UK member of parliament (MP) Alan Whitehead, who is charged with scrutinising energy policy under his committee role, the £7.6bn will barely constitute a rise for new projects coming to market compared with today's figures because all forms of low-carbon generation will be supported - including those "grandfathered" under the existing renewables obligation (RO) support scheme.
The grandfathering term refers to levels of subsidy being maintained for a set number of years.
In addition, the cumulative increase in subsidies paid under the contracts for difference (CfD) mechanism, which will replace the RO, will also be funded from the pool of cash. This will further eat into what remains for new entrants to the generation market, Whitehead explained.
"If you make reasonable calculations about what that accumulation will represent over that period - what you pay for before new entrants and what you have left - the basic point is that the amount of money available for new entrants is not going to be much greater in any one year than what is available at the moment," he said.
Any year-on-year stagnation of the subsidy pool for new projects would clash with the UK's plan to ramp up renewables deployment in the latter half of this decade as it accelerates its push to hit EU-prescribed 2020 targets.
According to Whitehead's calculations, cumulative payments by 2020 should eat up around £7bn of the £7.6bn funding pool by 2020/21. This allows for support for all low-carbon power generation projects built between now and 2019, plus those that have been commissioned already and support for which is grandfathered beyond the end of the decade.
This would leave just £600m for new projects in 2020. Prior to this, according to Whitehead, approximately £700m will be available each year from 2015/16 to 2019/20 (see table).
A Department of Energy and Climate Change (DECC) spokesman said: "The £7.6bn that we want to get to is fully compatible with meeting renewables and other targets."
The figure falls under the levy control framework, a treasury-run model designed to keep a lid on subsidy pools across government departments. RO subsidies are largely set until 2017 and after that the CfD scheme will take over. It is possible subsidies to individual technologies will reduce as renewable technology develops, but the rate the UK needs to build new green capacity at over the next seven years will far outweigh the speed at which costs come down.
The UK is heavily reliant on capital intensive offshore wind farms to hit its 2020 clean power targets, with deployed capacity expected to accelerate dramatically from 2018 onwards according to DECC's most recent subsidy impact assessment.
Its projection of newly installed capacity in the sector climbs from 1.2GW in 2017 to 1.9GW in 2018, then to a huge 2.3GW in 2019, before falling to 1.8GW in 2020. Jamie Stewart
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