Controlling the cost of renewable energy
Renewable energy subsidies revised to ensure consumers are protected from higher energy bills.
Measures to deal with a projected over-allocation of renewable energy subsidies have been announced today.
Reducing energy bills for hard working British families and businesses and meeting climate goals in the most cost effective way are Government priorities. The measures set out today will provide better control over spending and ensure bill payers get the best possible deal as we continue to move to a low-carbon economy.
Announcing the changes to bring costs under control, Energy and Climate Change Secretary Amber Rudd said:
“My priorities are clear. We need to keep bills as low as possible for hardworking families and businesses while reducing our emissions in the most cost-effective way.
“Our support has driven down the cost of renewable energy significantly. As costs continue to fall it becomes easier for parts of the renewables industry to survive without subsidies. We’re taking action to protect consumers, whilst protecting existing investment”.
Financial support for renewable technologies primarily comes in the form of subsidies which are paid for via energy bills. The total amount of subsidies available is capped via a mechanism called the Levy Control Framework (LCF).
The measures announced today include:
- Removing the guaranteed level of subsidy for biomass conversions and co-firing projects for the duration of the Renewable Obligation, known as grandfathering. This could reduce the risk of more allocations under the LCF by around £500m per annum in 2020/21 (i) .
- Launching a consultation on controlling subsidies for solar PV of 5MW and below under the Renewables Obligation (RO). This includes consulting on early closure and removing the guaranteed level of subsidy for the duration of the RO, known as grandfathering.
- A consultation on changes to the preliminary accreditation rules under the Feed-in Tariff (FIT) scheme followed by a wider review of the scheme to drive significant further savings.
The Government will also:
- Set out totals for the LCF beyond 2020, providing a basis for electricity investment into the next decade.
- Set out its plans in the Autumn in respect of future CFD allocation rounds.
The Government has provided vital financial support to the renewable sector which has helped new and innovative technologies, reduced our emissions, and increased the amount of low-carbon electricity that powers homes and businesses across the UK.
However, the Office for Budget Responsibility’s latest projections show that subsidies raised from bills are currently set to be higher than expected when the schemes under the LCF were set up. This is due to a number of uncontrollable factors such as lower wholesale electricity prices, higher than expected uptake of the demand-led Feed in Tariffs and the Renewables Obligation (such as solar panels on roofs) and a faster than expected advancement in the efficiency of the technology, meaning renewables are projected to generate more electricity than previously projected.
Notes to editors
- With regards to Biomass: the changes to grandfathering apply to England and Wales only. Decisions regarding the operation of the RO, including grandfathering policy, in Scotland and Northern Ireland are for the Scottish Government and Department of Enterprise, Trade and Investment in Northern Ireland respectively.
- With regards to small scale solar: the proposals in relation to early closure would, if implemented, apply across GB. The proposals in relation to grandfathering, and any future banding review, would, if implemented, apply to England and Wales only.
- With regards to the FITS scheme: the proposed changes to pre-accreditation would, if implemented, apply across GB.
- The Office of Budgetary Responsibility’s (OBR) Economic and Fiscal Outlook – July 2015 (published 8 July) sets out in Table 4.5 Current Receipts on page 98 the cost of Environmental Levies, these can be found at http://cdn.budgetresponsibility.independent.gov.uk/July-2015-EFO-234224.pdf.
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Table 2.7 Environmental Levies provides the breakdown of spend on the RO, FIT and CFD making up these figures and can be found at http://budgetresponsibility.org.uk/economic-fiscal-outlook-supplementary-fiscal-tables-july-2015/. These are nominal figures.
- The table below provides these in 2011/12 figures:
| £m, 2011/12 prices | 2014/15 | 2015/16 | 2016/17 | 2017/18 | 2018/19 | 2019/20 | 2020/21 |
|---|---|---|---|---|---|---|---|
| RO | 2795 | 3360 | 4090 | 4475 | 4840 | 4840 | 4840 |
| FiTs | 740 | 925 | 1095 | 1255 | 1375 | 1490 | 1600 |
| CfDs | 5 | 50 | 270 | 505 | 990 | 2050 | 2660 |
| Total expected cost | 3540 | 4335 | 5455 | 6235 | 7210 | 8380 | 9100 |
i) In 2011/2012 prices