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Further revisions to renewable energy subsidies 'ensure bill payers get value for money'
Published:  17 December, 2015

New measures to deal with the projected over-allocation of renewable energy subsidies were announced on 17 December, following recent consultations.

Renewable energy subsidies are paid for via energy bills through a number of schemes including the Feed-in Tariff (FiT) and Renewable Obligation (RO). Government decided on a set amount that would be paid to renewables by 2020 and, earlier this year, the Office for Budget Responsibility projected that the amount would be exceeded, meaning bill payers would have to pay more. Government has since taken action to reduce this overspend.

Feed-in Tariff

The FiT is a scheme where you can be paid for the electricity you generate from solar, wind, hydro or anaerobic digestion power. This gets paid even if you use it yourself as well as for any surplus electricity you export to the grid.

In the FiT review consultation, updated tariffs for solar, wind and hydro power were proposed and industry was asked for feedback.

As a result, government has announced revised tariffs, including a new tariff for domestic-scale solar of 4.39p /kwh. This is higher than the originally proposed tariffs.

The new FiT rates provide a sustainable return for anyone investing in small scale renewable technology that contributes to our energy mix without imposing unnecessary burdens on bill payers who subsidise the renewables industry.

Further announcements include:

  • Deployment caps will be set to limit new spending on the scheme to £100m up to the end of 2018/19
  • The reintroduction of pre-accreditation for solar PV and wind generators over 50kW and all hydro and anaerobic digestion generators
  • Measures to pause new applications to the FiT scheme from 15 January to 8 February, to allow time for the implementation of cost control measures

Renewable Obligation

The RO came into effect in 2002 in England, Wales and Scotland, followed by Northern Ireland in 2005. It places an obligation on UK electricity suppliers to source an increasing proportion of the electricity they supply from renewable sources.

For the RO scheme for solar PV with a capacity at 5MW and below, government has announced it will:

  • Close the RO across Great Britain to new solar PV capacity at 5MW and below from 1 April 2016
  • Introduce grace period arrangements to protect developers who made a significant financial commitment on or before 22 July 2015 and developers who experience grid delay beyond their control
  • Provide clarification of the planning evidence for the significant financial commitment grace period to exclude incomplete or invalid applications
  • Remove ‘grandfathering’ (a fixed rate of support from the date of accreditation) from 22 July 2015 for solar projects in England and Wales with an exception for those which meet the significant financial commitment criteria as of 22 July 2015
  • Hold a solar-specific banding review in England and Wales and consult on new bands for 2016/17
  • Consult on an exception designed to provide projects with protection against the proposed reduction in support where they qualify for the grandfathering exception.

Secretary of State for Energy & Climate Change, Amber Rudd, said:

“My priority is to ensure energy bills for hardworking families and businesses are kept as low as possible while ensuring there is a sensible level of support for low carbon technologies that represent value for money.

“We have to get the balance right and I am clear that subsidies should be temporary, not part of a permanent business model. When the cost of technologies come down, so should the consumer-funded support.”

As costs continue to fall and we move towards sustainable electricity investment, it becomes easier for parts of the renewables industry to survive without large subsidies.

The announcements today give a total reduction of £500m-£600m from the LCF overspend.

RenewableUK’s chief executive, Maria McCaffery, said: “It’s good that the government has listened carefully to our concerns about their original proposals, and has modified some of them based on evidence we have supplied.

“The cuts in tariffs for small and medium-scale wind energy projects remain challenging, but they are not as severe as those originally proposed, meaning that a greater level of new capacity can come forward.

“However, we do have concerns about the use of deployment caps and the pace of degression rates, as these may limit the abilities of homeowners, farmers and small businesses to get involved in generating their own power, and secure ongoing cost reduction. 

“We welcome the fact that the government has heeded our requests on certain specific issues, such as re-introducing pre-accreditation for medium-scale wind projects - this means that developers will have confidence to invest and deliver cost savings. We are also pleased to see that our request for the introduction of a specific level of financial support for smaller turbines (50-100 kilowatts) has been accepted by Ministers.

“The next steps are crucial – we need government and industry to work together to set out a clear vision for small-scale renewables, tackling red tape and stimulating innovation. This will deliver subsidy-free renewables and bring power to the people.  

“The vast majority of the public wants us to make greater use of renewable energy in our homes, on our farms, and in our factories and offices. The government has seen the benefits of this, and has gone some way towards heeding that message with the publication of today’s review.”