July 3rd, 2015
The new Conservative Government has wasted no time in implementing its manifesto pledge to end subsidies for onshore wind. Just six weeks into her tenure as Secretary of State for Energy and Climate Change, Amber Rudd announced that the Renewable Obligation (RO) would close a year early for onshore wind projects and strongly hinted that action would also be taken to curtail support for the technology under both the small-scale Feed-in Tariff (FiT) and the new Contracts for Difference (CfD) scheme for larger scale projects. Meanwhile, the new Secretary of State for Communities and Local Government, Greg Clark, was busy announcing new planning considerations that will make it significantly harder for onshore wind projects to gain planning consent.
Such speedy progress may be surprising in an age where voters are increasingly sceptical about pre-election promises, and will certainly please those of their supporters and MPs who see wind turbines as a blight on the countryside. But what is the true cost of this policy decision and what are the implications?
A quick review of DECC’s Renewable Energy Planning Database (REPD) and the deployment targets in the Electricity Market Reform Delivery Plan shows that the UK is pretty much on track to achieve its 2020 renewable electricity target (as part of meeting our wider 2020 EU Renewable Energy Directive target). We have already surpassed the target for solar PV, are just about on track for onshore wind (if you include the 5.2GW of consented projects) and should see enough offshore wind generation come online just in the nick of time.
Yet a recent progress report from the European Commission shows that the UK is falling far behind on its renewable heat and transport targets. The Renewable Heat Incentive (RHI) hasn’t been as successful as hoped, whilst the biofuels target (which was the primary means of ‘decarbonising’ transport) has been downgraded by the Commission and is unlikely to be reached by the UK. To stand any chance of meeting our 2020 commitments, therefore, it’s likely we are going to need to increase renewable electricity generation to make up the shortfall.
Nor do our commitments stop at 2020. The Climate Change Act 2008, which the Tory manifesto committed to honouring, requires the Government to achieve a 50% reduction in CO2 on 1990 levels by 2025, and 80% by 2050. Unless there is startling progress in other areas, renewable electricity will have a key role to play in achieving this. We have also committed to an EU-wide target to source 27% of generation from renewables by 2030.
As one of the cheapest forms of renewable energy, onshore wind appears critical to meeting these targets at the lowest cost. If the Government’s emerging policy damages investor and developer confidence to an extent that kills off the expansion of onshore wind, it could seriously damage the UK’s burgeoning industry. If we subsequently find we need wind to reach our long-term targets, it could leave us reliant on imported know-how and technology.
Striking out wind power
In the meantime we will need to look to other technologies to fill the gap. The auction element of the CfD scheme is designed to reward the cheapest technologies and notably onshore wind secured 15 of the 27 contracts in the last allocation round, projects receiving strike prices in the region of £82.50.
The removal of onshore wind from further allocation rounds would therefore benefit the other technologies in the ‘established’ pot, primarily solar PV, energy from waste (EfW) with combined heat and power (CHP) and advanced conversion technologies (ACTs). However, higher reference prices and other constraints associated with these technologies will leave us paying more for less.
Solar PV proved competitive with onshore wind, with projects moving forward at strike prices of around £80/MWh, but has a far lower ‘load factor’ than wind, meaning we need much more installed capacity (and capital expenditure) for the same energy output. Furthermore, the emergency degression of the small-scale FiT for solar back in 2010, together with Defra action to deter farmers from turning land over to solar power, indicate that this isn’t a particular favourite of the Conservative Party.
Deployment levels for solar PV have increased significantly over the last few years in response to the RO and FiT. However, the early closure of RO to large scale (>5MW) projects in April this year has shaken investor confidence and attention is now focused on rooftop and sub 5MW schemes. Whilst there is currently about 2GW of solar PV awaiting construction, few new large projects are coming through planning, and the technology seems very unlikely to fill the gap left by cutting onshore wind.
The CfD administrative strike price for ACTs is a rather eye-watering £155; EfW with CHP is price-competitive (£80), but feedstock constraints mean that any technology that relies on burning waste could struggle to fill the void left by onshore wind. Leaving aside the question of how much of the energy produced from waste is renewable, if the UK is to achieve its EU target for 50% recycling by 2020 (and potential 65-70% target by 2030), there will be insufficient residual waste available to support significant further roll-out of these technologies.
Still more costly than solar PV or EfW, however, would be further support for ‘less established’ technologies. At the recent offshore wind conference, Amber Rudd suggested that cutting onshore wind subsidies will make more money available for offshore projects. Whilst it is possible to deploy offshore wind at far greater scale, it is one of the most expensive technologies (achieving a strike price of £115-120 in the auction) and has far longer construction periods. Promoting this technology would leave us paying more and waiting longer for delivery of capacity, compromising our carbon reduction commitments and heaping costs on consumers.
The value for money achieved by ‘negotiated’ CfDs is also highly questionable. The Swansea Bay Tidal Lagoon, the only renewable energy technology that featured positively in the Tory manifesto, appears to require subsidy of £168/MWh, branded ‘appalling value for money’ by consumer watchdog Citizens Advice.
The strike price agreed as part of the CfD between DECC and EDF for the replacement nuclear station at Hinkley Point also represents costly deal for Government. Starting out at £92.50 but fully indexed, it is a lot cheaper than Swansea Bay, but far from competitive with onshore wind and solar.
Furthermore, the State Aid approval given by the Commission to Hinkley Point CfD has been appealed by the Austrian Government to the European Court of Justice. This could add two further years to the already lengthy lead time for the project. It also brings into question whether other projects which are agreed through the negotiated CfD route might face similar legal challenges.
Amber Rudd’s claim that the Government’s decision to end subsidies for onshore wind will not lead to increases in our energy bills seem therefore to rest on incredibly shaky ground. Solar PV, EfW, offshore wind, tidal and nuclear are all more expensive options. Without onshore wind, it seems we must either pay more for electricity, or obtain less of it from low carbon sources.
Assuming no change in policy direction is forthcoming, it will be interesting to see whether the Tories’ wind turbine opposing supporters will still see the curtailing of the industry as a good result when they feel the impact on electricity prices. Would it be too cynical to suggest that, if recent changes do away with the cheapest form of renewable electricity, the next battleground will concern whether we can afford the alternatives?