UK reveals subsidy pot for low carbon electricity generation

23 November 2012 11:22 Source:ICIS

The UK will channel £7.6bn (€9.4bn) into low-carbon power generation from 2015−2020 under its subsidy regime, the government revealed on Friday.

The figure, which represents real 2012 prices and corresponds to around £9.8bn in 2020, was broadly welcomed by the renewable energy sector. It will form part of the energy bill, due for its second reading in parliament next week.

But the bill will not include a firm 2030 decarbonisation target for the power sector, which a number of government advisory bodies have been pushing for (see EDEM 13 September 2012).

Instead, that decision will be delayed until 2016, once the Committee on Climate Change has provided advice on the UK's fifth carbon budget, which covers the corresponding period. And even then, any ceiling on power sector emissions will take the form of a "target range", as opposed to a set limit.

In the meantime, the Department of Energy and Climate Change (DECC) will issue guidance to UK system operator National Grid setting out "an indicative range of decarbonisation scenarios for the power sector in 2030".

DECC also confirmed that the counterparty for the new feed-in tariff with contracts for difference (FiT CfD) subsidy model will be a government-owned company. The issue of which body would act as the counterparty has been a sensitive one for the investment community (see EDEM 26 June 2012).

Contentious issues

Energy policy has been dogged by reports in recent weeks that coalition government infighting between the Liberal Democrat-headed DECC and the Conservative-headed treasury was putting power sector investment at risk (see EDEM 20 November 2012).

Energy secretary Ed Davey said on Friday: "This is a durable agreement across the coalition against which companies can invest and support jobs and our economic recovery."

The £7.6bn figure falls under the levy control framework, a treasury-run model designed to keep a lid on subsidy pools across government departments.

It is designed to reach a 30% penetration level for renewable power in the generation mix by 2020.

"This is proof that the treasury really does get it - the renewable energy industry offers one of our best hopes for economic recovery," said trade body RenewableUK's chief executive Maria McCaffery.

The FiT CfD subsidy model will also cover nuclear and, further down the line, carbon capture and storage-equipped fossil fuel-fired power generation.

The release of the details ahead of the energy bill is a clear sign that the government has realised the necessity of appeasing the investment community.

Last month, accountancy firm Ernst & Young said the pace of investment in the UK power sector was falling behind what was required to meet 2020 emissions reduction targets (see EDEM 29 October 2012).

DECC also said its gas-fired power generation strategy will be published on 5 December, alongside the treasury's autumn statement. JS

By Jamie Stewart