UK’s assault on renewables support risks R&D investment

August 21, 2015

Announcing plans for further reforms to its renewable energy support policy framework, the UK government looks set to deal another blow to clean energy commercialisation. The risk of undermining the development of new technology – in the UK, at least – is high, ii Energy believes.

The recently elected UK government is on a rampage through the renewable energy support system.

Only weeks after finance minister George Osborne announced that support for onshore wind power would be phased out earlier than originally planned, solar power and biomass have now also come under fire.

The government says it has undertaken a review of the various support schemes in place in order to reduce “energy bills for UK consumers whilst meeting climate goals in the most cost-effective way.”

As part of its reform programme it has announced proposals for early closure and removing the guaranteed level of subsidy for the duration of the Renewables Obligation support scheme for solar projects below 5 MW. This would affect all new projects after 1 April 2016 and comes after a decision last year to phase out support for solar PV projects above 5 MW.

Indeed, some had already forecast a complete phase out of support for commercial solar PV projects, given the strength of the UK’s solar industry and concerns that previously anticipated renewables installation figures are woefully inadequate.

Without such reforms, government figures indicate, the annual cost limits on renewables support, as imposed under the Levy Control Framework (LCF), will be exceeded.

UK-based research and consulting firm GlobalData warns that the on-going assault on renewable energy support policy will hit investment. Prasad Tanikella, the company’s senior power analyst, explains: “In the short term, the government’s latest move to phase out the Renewables Obligation and impose CCL [Climate Change Levy] on renewables will certainly discourage investment in the sector.”

In a recent speech setting out government policy, UK Energy and Climate Change minister Amber Rudd said: “The economic impact of unchecked climate change would be profound.”

But she also added: “The bottom line is this – if we are acting on climate change to preserve our economic prosperity, we have to make sure that climate change action is pro-growth and pro-business.”

Ash Sharma, senior research director at UK-based research and analysis firm IHS is particularly concerned about proposals to remove ‘grandfathering’ – a guarantee that a solar project will receive a certain level of support throughout its lifetime.

“By abolishing grandfathering, the [Department of Energy and Climate Change] now wants to reserve its right to not only control the funding level that is available at the point of accreditation, but to intervene even at a later point in the project’s lifetime. This would allow DECC to hedge against any underestimation of PV cost reductions or newly-built capacity in the future, but would destroy any certainty on project economics and investor confidence.”

We believe Sharma is right to pick up on this as a key to future clean energy development.

Renewable energy technologies such as onshore wind and PV are close to competing with fossil fuelled technologies on the open market – but they are not quite there yet. By potentially intervening at some future date to change the economics of installed projects, such a proposal stands to wipe out further development – at least in the UK.

The coming breakthroughs on cost for PV, wind and other low-carbon energy technologies will be built on the twin pillars of technology development and production volume. Both are predicated on a long-term buoyant market to sustain investment. And investment is undermined by uncertainty.

The UK government may indeed be better off by a few billion by the end of the decade, but ill-conceived policy risks setting back the fundamental advances that will make clean energy commercial.

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