Feature

UK's spending review charts an uncertain course for renewable energy


Carl Thomson

The renewable energy industry had been warned to expect bad things from George Osborne’s first Spending Review, reports Carl Thomson. So now the dust has settled, what next?

There was speculation that the last Government’s Feed-in-Tariff scheme, which guarantees a minimum payment for energy exported into the grid, could face the chop despite only coming online in April this year. The Renewable Heat Incentive (RHI), a similar programme which will provide payments to suppliers of heat energy from renewable sources, was also rumoured to be at risk.

Some even speculated that the flagship Renewables Obligation Certificates (ROC), green tradable certificate issued in return for a commitment by licensed suppliers to generate a proportion of their energy from renewable sources, could be abolished.

In the end, all three programmes survived, and funding for the RHI and Renewables Obligation is one of the few areas of expenditure that is projected to increase over the next four years, from £0.7 billion in 2010/11 to £2.7 billion in 2014/15.

The Coalition Agreement signed between the Conservatives and Liberal Democrats in spring clearly committed the Government to maintaining Feed-in-Tariffs and banded ROCs, while Ministers spoke favourably about the RHI in their response to Parliamentary Questions ahead of the Spending Review. The Renewables Obligation is not only a popular support mechanism with the industry, but also transposes a number of EU regulations into UK law, and thus was never seriously at risk of being axed.

This does not mean, however, that the renewable energy industry will escape the hardship that other sectors are likely to face in this new age of austerity. The Department for Energy and Climate Change has had its budget seriously trimmed. Resource spending will be down by 18 percent compared to today’s levels by 2014/15, and while its capital budget will be substantially higher this is almost entirely due to the cost of existing nuclear decommissioning commitments. How the spending reductions will impact on DECC’s day-to-day activities remains to be seen.

Moreover, while Feed-in-Tariffs, the RHI and the Renewables Obligation have survived, the policy environment is still uncertain and there is concern amongst industry that this will affect the viability of future projects. DECC is scheduled to begin a review of the bands for ROCS this month, which will set future levels of support and the sums that producers will be offered for their renewable energy certificates.

This process will last several years, with any changes not coming into effect until 2013. DECC is currently wrestling with the question of whether certain types of renewable energy, such as bioliquids, should be ‘grandfathered’ and the outcome of this is far from certain. The Renewable Energy Directive and Waste Framework Directive both place additional reporting and monitoring requirements on the sector, and at the same time the eligibility requirements for support are getting tougher. Biomass and bioliquids must deliver emissions savings of 50 percent by 2017 and 60 percent by 2018 to qualify for ROCS, a significant jump from the current 35 percent.

For producers of transport fuel, the 20 pence fuel duty differential for biodiesel produced from used cooking oil comes to an end in 2012. The Government expects that the Renewable Transport Fuels Obligation (RTFO) – a certificate scheme similar to the Renewables Obligation – will become the main support mechanism for biodiesel producers. However, a review into amendments to the RTFO will not come into effect until just three months before the tax differential is abolished, creating the nightmare scenario that swathes of the industry could be wiped out if the RTFO fails to create the stability and market certainty that investors in new technology rely on.

The Government will publish its flagship Energy Security and Green Economy Bill in December. This will introduce the Green Investment Bank, which will provide loans for capital investment in ‘green’ projects, as well as the Green Deal to fund insulation and other energy efficiency measures at home and in the workplace. These schemes will provide significant opportunities for a host of companies specialising in innovative technology such as building insulation, CHP and energy efficiency.

With a former Energy Secretary recently elected as the leader of the Labour Party and the Coalition pledging to be the ‘greenest government ever’, renewable energy is likely to remain a political battleground, but the regulatory environment will be fluid and fast moving and producers will need to be on their guard as budgets are cut, old schemes phased out, and new ones introduced.

Carl Thomson is a consultant at The Whitehouse Consultancy, and an expert in environmental and renewable energy policy who has also worked for a number of senior Conservatives while the Party was in opposition.
 

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Comments

sunpower said

31 March 2011
The commercial PV industry has been totally destroyed in the UK by Barker 'the Butcher of Feed in Tariffs'.

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