More subsidy cuts for solar and onshore wind

22nd July 2015

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Solar projects under 5MW are to lose support under the renewables obligation (RO), while onshore wind will not be eligible for the next round of contracts for difference (CfDs), the government has said.

Launching a consultation today on reducing subsidies for solar energy projects, the energy and climate change department (Decc) said that it needed to control overspending on support for renewables, which is projected to exceed the £7.6 billion cap set by government, known as the levy control framework (LCF).

The estimated £1.5 billion overspend is due to lower wholesale electricity prices, higher than expected uptake of feed-in tariffs (FiT) and faster than expected improvements in solar technology, which had increased the amount of electricity produced, Decc said.

The latest forecasts – contained in an impact assessment accompanying the consultation – suggest the annual capacity of new sub-5MW solar projects could reach 800MW to 2GW each year in 2015/16 and 2016/17, and possibly as high as 3GW.

This is far higher than the 300-500MW predicted in October 2014, when the RO was removed for projects over 5MW.

Higher deployment levels could raise the amount spent on subsidies by between £40 million and £100 million a year, an increase on original estimates of up to 80%, the consultation document states. If deployment reached 3GW, spending would increase to £150 million a year.

Energy and climate change secretary Amber Rudd said: “My priorities are clear. We need to keep [energy] bills as low as possible, while reducing our emissions in the most cost-effective way.”

The move would protect consumers, while protecting existing investment, she claimed.

The change will come into effect from April 2016. The guaranteed level of subsidy for the duration of the RO, known as grandfathering, will also be removed, Decc said.

Slowing the growth of solar energy could lead to an increase in CO2 emissions by between 2.9 million and 7.3 million tonnes over the typical lifetime of arrays, the impact assessment reveals. It could also lead to an increase in air pollution, as more fossil fuels will be burned to generate the energy that would have come from solar power, it states.

Decc is also proposing to change the preliminary accreditation rules under the FiT scheme and carry out a wider review of the scheme. Support for biomass could also be reduced if Decc goes ahead with proposals to remove grandfathering of biomass conversions and co-firing projects.

The solar industry body, the STA, said that the subsidy cuts were disappointing and ran counter to repeated commitments from government to boost the commercial solar rooftop market. =Leonie Greene, the STA’s head of external affairs, said: “More work is needed urgently to unlock larger solar roofs. There is a danger if government pulls the rug on the solar farm industry too early, the market will have nowhere to go.”

The industry has estimated that solar farms will cost the same as new gas generation by 2020.

Angus MacNeil MP, chair of the energy and climate change select committee, said he was disappointed that the announcements had been made after the House of Commons had risen for its summer recess. “Proper scrutiny in parliament will now not be possible until after the consultation deadlines,” he said.

Meanwhile, Rudd told the committee yesterday that onshore wind was unlikely to be included in the next round of CfD auctions. During a hearing on her priorities, Rudd was questioned on the future of the CfDs, and specifically on whether onshore wind would be included.

“I would not anticipate it to be, no,” she told the committee. “Subsidies are the way to get an industry going, then it is right for the state to step back. They are not intended to be permanent.”

She claimed that three developers had approached Decc to express an interest in building onshore wind farms without subsidies.

Rudd said she was “acutely aware” of the need to give certainty to the energy industry for the period after 2020, when the current LCF runs up to.

Decc permanent secretary Stephen Lovegrove told the committee that the department was undertaking an internal review of the impact of the first round of CfDs and whether sufficient capacity had been brought forward under the scheme.

He said that, although the original £7.6 billion subsidy cap would be breached, money set aside by the department to cover the overspend had not yet been. “We are in discussion with the Treasury about what level would be appropriate for a future round of CfDs.”

Rudd also said that the department was hoping to come forward with a new home energy efficiency policy in the autumn.


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