Subsidies for onshore windfarms under the government’s Renewables Obligation (RO) will end a year early, says the Department for Energy and Climate Change (DECC).
The BBC reports that the decision has “baffled” the renewables industry, given onshore wind is the cheapest low-carbon energy source. It says the Scottish government is plotting a legal challenge. The Guardian says “political interests have trumped the national interest”. Labour says the decision will increase consumer bills and cut jobs. The Mail says residents are to be given a veto over new windfarms, though not everyone agrees on whether the planning change is significant.
Coming just days after press reports suggested the UK was off track against its 2020 EU renewable energy target, the long-anticipated announcement has disappointed industry and confused everyone else. Carbon Brief runs through what we know about the changes to onshore wind support, and what it might mean for the UK’s renewable energy target.
Since 2002, large renewable electricity schemes have been eligible for support under the government’s Renewables Obligation (RO). This is an obligation on electricity suppliers to source an increasing share of their power from renewables. A fixed level of support is available.
The RO was due to close on 31 March 2017. There is a three-year period of overlap with the replacement Contracts for Difference (CfD) scheme, which started operating last year. CfDs are allocated in semi-competitive auctions, with contracts going to the cheapest bids.
Today’s announcement from DECC means the RO will close to onshore windfarms from 1 April 2016, a year earlier than originally expected. However, DECC says it is “minded” to grant a grace period. This would continue RO support for projects that have already secured planning permission, a grid connection and land rights.
DECC’s press statement says up to 5.2 gigawatts (GW) of onshore wind capacity could be eligible for this grace period, a significant figure compared to the 8GW currently in operation.
Carbon Brief analysis of the government’s renewable energy planning database confirms that 5.2GW of onshore wind has secured planning consent and is “awaiting construction”. Of this, 3.8GW could potentially qualify for the RO. However, a DECC statement to the Telegraph’s Emily Gosden says that just 2.9GW would meet all of the grace period criteria.
Industry group Renewable UK tells Carbon Brief it has also been unable to stack up DECC’s figures on this point. In any case, the generosity of the grace period has not been finalised and is likely to change.
The details of these rules will determine the scale of the impact on industry. One insider who asked not to be named tells Carbon Brief that three-quarters of their firm’s pipeline would probably not be able to squeeze in before the early RO closure and would have to be scrapped.
A chink of sunlight remains for the industry, however. Last year, after deciding to close the RO two years early for solar farms, the government revised the grace period rules. The change gave greater recognition of industry investments made towards planning applications and early-stage project development, made in good faith on the expectation that subsidies would be available.
Today’s statement has also cast a shadow over support for onshore wind in future CfD auctions.
Rudd’s statement to parliament says:
“With regard to CfDs, we have the tools available to implement our manifesto commitments on onshore wind and I will set out how I will do so when announcing plans in relation to further CfD allocations.”
What does this mean? CfD support is handed out under two separate auctions. “Established” technologies, such as onshore wind and solar, must compete for a smaller share of the total. The lion’s share is reserved for “less established” sources, such as offshore wind.
So one option for DECC would be to further squeeze the auction pot for established technologies in order to “implement its manifesto commitments”. Alternatively, it could create a new pot for onshore wind, without allocating any funds, or it could set a maximum price for onshore wind schemes that would be so low as to make schemes undeliverable.
Though the details of the subsidy changes remain murky, it’s already possible to see how they might affect the UK’s ability to meet its 2020 EU renewable energy target. DECC says onshore wind capacity will grow to 12GW by 2020, up from 8GW today, despite the early RO closure. It says this is in line with a 2013 government plan towards meeting the 2020 target.
That’s why Amber Rudd, energy and climate secretary, says in a statement:
“We now have enough subsidised projects in the pipeline to meet our renewable energy commitments.”
The UK’s target is to source 15% of its total energy needs from renewable sources by 2020, covering energy use for transport, power and heat. Confusingly, however, DECC’s press office insists that Rudd’s statement only refers to renewable electricity, for which the UK has no target.
In 2009, the government’s plan to meet the 2020 target suggested it could be met if renewables generated 30% of the UK’s electricity, 12% of heat demand and 10% of transport energy. So Rudd’s statement refers only to this 30% figure for electricity, even though it was never intended to be a target, commitment or upper limit.
The 2009 plan said:
“It is important to stress that these figures are purely illustrative of how the overall 15% target for the UK could be met. They should not be taken as an upper limit to the UK ambition for renewables deployment.”
A DECC spokesperson tells Carbon Brief:
“The UK is making good progress towards the EU 2020 target on renewables…We are on track to meet the next interim target of 5.4% for 2013/14.”
With all the uncertainty surrounding today’s announcement, it’s hard to be sure how good the UK’s progress really is. A formal review will be published towards the end of the year.
Even now, however, we know that the UK’s progress on renewable heat and transport is well behind schedule. This means the UK is unlikely to be able to meet its 2020 target unless renewable electricity exceeds the 30% illustrative figure set out in 2009.
A further possibility is that the UK could buy its way out of trouble on the target by buying credit from countries such as Sweden, which has already met its 2020 goal and is likely to easily surpass its target. EU member states are allowed to trade over-achievement, but the rules on how this would work are complex.
Beyond 2020, the UK has to meet its own legally binding carbon reduction targets. These imply a big increase in onshore wind capacity, which would need to reach 25GW by 2030, according to the Committee on Climate Change (CCC). Other routes are possible, the CCC says, they’d just be more expensive.