The announcement by the Department of Energy and Climate Change (DECC) is part of the government’s reforms to the UK electricity market and the funding is for the first allocation round for the new Contracts for Difference (CfD), measures which are intended to provide long-term certainty and risk reduction for investors.
The government is aiming to reduce emissions from the power sector much more cheaply than through its existing policies. The target is around 6 percent (£41) lower on the average domestic electricity bill up to 2030. The UK Energy Secretary, the Right Honourable Ed Davey MP, stated that renewable energy projects would have to bid competitively for the contracts, thereby ensuring that new clean electricity generation would be built at the lowest possible cost to energy consumers. Mr Davey added that at least a further £50 million is planned for an auction round in 2015, with a total of around £1 billion potentially available later for further projects up to 2020-21
“Our plan is powering growth and jobs as we build clean, secure electricity infrastructure for the future” Mr Davey said. “By radically reforming the electricity markets, we’re making sure that decarbonising the power sector will come at the lowest possible cost to consumers. Average annual investment in renewables has doubled since 2010 - with a record breaking £8billion worth in 2013. These projects will create green jobs and green growth, reduce our reliance on foreign-controlled volatile energy markets and make sure billpayers get the best possible deal.”
The government wants to build a secure, low-carbon electricity system that will be the powerhouse of the British economy, supporting up to 250,000 jobs by 2020. The funding will be managed by the Levy Control Framework, which caps the cost of renewable energy policies to consumers, and the CfD budget will be split between three technology groups – established technologies such as solar and onshore wind, less established technologies such as offshore wind and biomass conversion.
However, the trade association RenewableUK has responded by saying that although the department’s announcement brings a greater level of clarity on the future of financial support for renewable energy projects, the funding itself is insufficient to ensure the UK’s successful transition from fossil fuels to clean energy sources.
“The long-awaited publication of the indicative budget available for new renewable energy projects in the first allocation round of Contracts for Difference provides information which is critical for developers and the supply chain to support future investment in the clean energy sector” said RenewableUK’s Director of Policy, Dr Gordon Edge. “Having studied the details, we need to sound a note of caution. Whilst the industry understands the pressures facing Government when setting this budget, we are disappointed with the overly cautious approach used. Although we appreciate that it’s necessary to hold back budget for future years in order to allow potentially cheaper projects to come forward later, this initial release of the draft budget risks being insufficient to drive industrialisation, competition and cost reduction.”
Dr Edge added that a successful launch of the first CfD allocation round is fundamental to building investment and industrial momentum. An excessively cautious approach will affect the UK’s offshore wind industry in particular, as it needs long term visibility to give the UK the best chance of securing a strong local supply chain to drive down the cost of offshore wind energy. The government’s failure to set even an indicative budget for the second allocation at this crucial stage means that visibility is now extremely limited.
“Established technologies, including onshore wind, continue to have a key role in contributing to new generation” Dr Edge said. “Onshore wind is set to become the cheapest form of new generation from any type of energy source by 2020, though this is dependent on deployment being allowed to continue. 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.”
RenewableUK believes that DECC’s announcement means that the next government will have to act quickly and decisively to set out its ambition beyond 2020. It will need to prioritise setting out a clear framework for the sector beyond 2019, including longer term budgets for CfD allocation. Investors need confidence now in order to bring forward the much needed investment that will reduce costs and capture the maximum possible economic benefits for the UK from wind, wave and tidal energy.
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