24 July 2014

Small size of UK renewables subsidy budget 'to trigger auctions'

The renewables industry was shocked by the smaller-than-expected size of the UK government's subsidy pot for established technologies, amid warnings that it will trigger a competitive auction process.

The UK's Department for Energy and Climate Change today released a draft of the level of funding it will make available under the first round of Contracts for Difference (CfD) regime, which will invite bids later this year.

The document said that established technologies – solar photovoltaics, onshore wind, medium-sized hydro, energy-from-waste with combined heat and power, landfill gas and sewage gas – will have to fight it out for just £50 million ($85.3 million) of funding in this allocation round. Biomass conversion, meanwhile, will receive no budget at all.

However, there was £155 million of funding for less established renewables – offshore wind, wave, tidal stream, advanced conversion technologies, anaerobic digestion, dedicated biomass with CHP, and geothermal.

The renewables industry reacted angrily to the proposed budget allocation, branding it "overly cautious".

Rewewable Energy Association CEO Nina Skorupska said: "The limited funding for several key technologies will send shockwaves through the industry. DECC cannot say that this planned budget delivers value for money for the consumer."

She called on the government to shift a portion of the budget from less established technologies to established technologies to deliver "better short term bang for your buck on delivering clean power". She added that the less established technologies should be backed up by minimum deployment guarantees.  

Leonie Greene, head of external affairs at the Solar Trade Association, said the government was "stacking the deck against solar".

"The government is … backing nuclear and other more expensive renewables over value for money solar," she said. "This is an absurd decision that will ultimately hit energy bill payers across Britain."

Gordon Edge, director of policy at RenewableUK, which represents the wind, wave and tidal sectors, said he was "disappointed with the overly cautious approach used".

"Although we appreciate that it's necessary to hold back budget for future years in order to allow potentially cheaper projects to come forward later, this initial release of the draft budget risks being insufficient to drive industrialisation, competition and cost reduction," he added.

Charles Yates, an independent renewables consultant, told Environmental Finance that the size of the budget would likely trigger a competitive auction process. The CfD scheme sets strike prices for different technologies, but a competitive auction process is triggered if the subsidy bids exceed the funds available.

"It looks like there will definitely be an auction with so little money on the table," he said. "£50 million for established technologies sounds very little, and the £155 million for less established technologies could get gobbled up fairly quickly by a relatively small number of offshore wind projects. I think there are a lot investors out there unhappy with this budget, and it's particularly unhelpful for the biomass guys."

He added that solar will struggle to compete on cost with onshore wind in a competitive bidding process.

However, not everyone was upset by the smaller than expected subsidy funding.

Gareth Stace, head of climate, energy and environment at manufacturers' organisation EEF, said: "It is enormously promising to see government take a more cautious approach for the enduring scheme. 

"EEF has long called for competitive auctions across the board to help drive down costs and deliver savings to the consumer – the government has made the right decision to require competition in all groupings."

Peter Cripps