Making energy choices

18th January 2016

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  • Fossil fuels ,
  • Nuclear ,
  • Renewable


Emily Ghedia

The new feed-in tariffs (FITs) for solar and wind is a cut of nly63% instead of the 91% originally proposed.

There is no doubt, however, that the new subsidy levels for renewable deployment will severely damage roll-out. The government is justifying the cut on the ground that subsidies should not be in perpetuity. With solar and onshore wind close to market parity in terms of cost per hour of electricity produced and with money for subsidies tight, it is as well that the industries do without significant subsidy now rather than later.

I can buy part of that argument. It always was the case that FITs were supposed to fall as costs for technologies came down. Solar panel prices have nosedived in recent years, and arguably the initial tariffs were set too high, but a more sensible continuing tariff degression would keep in line with this initial understanding, while not terminally frightening off investors and installers.

The part I don’t buy is the selectivity being levelled at renewables under the guise of the “stand on your own feet” argument. The truth is that pretty much all forms of energy are subsidised, and largely not on a degressing basis. The planned nuclear power station at Hinkley Point in Somerset will receive around £24 billion over 35 years. In the same week as the cuts to FITs were announced, the government held a second capacity auction – intended to ensure that power stations will be available to provide electricity when required. They will be subsidised to do this and be able to keep the profit from the power produced. Gas-fired and coal-fired power stations as well as existing nuclear power plants all will receive substantial standby payments.

I can also buy part of the argument for capacity auctions: paying to keep plants online makes sense. But the deployment of renewables – which generally can be faster than building large, conventional power plants – also contributes to keeping that capacity gap open. To tell one sector it must do without subsidy while another receives money betrays where the government’s energy priorities lie, rather than acting as a sound argument about subsidies. So the other truth right now is that in effect you pay your subsidy and you take your choice: and the choice of the government’s energy policy is to not prioritise renewable and low-carbon energy.

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