With the U.K. budget due to be announced on 16 March, many eyes are on the chancellor and his plans for energy spending. Both Green Alliance and the Solar Trade Association have done pre-budgets analyses; both finding that the country would benefit from policy reform and investment that favors renewable energy. Under the current policy, fossil fuels are still supported, while some incentives for renewables have been cut, which, if maintained, is likely to result in failure to meet the U.K.s carbon budgets and possibly a capacity shortfall.
Ending the subsidy regime
In its study Beyond subsidy: how the next levy control framework can get us there, Green Alliance forecasted that by building more renewable capacity and supporting a wider range of renewable energy technologies, the U.K. could greatly reduce its low carbon subsidies, saving £ 420 million ($600 million) in the process.
Under the current system, all energy companies can compete for contracts to supply energy, and receive bill-payer support to do so. As a result, fossil fuel generators can take advantage of this scheme, and receive added support above wholesale electricity price.
In addition to this, amid claims that subsidizing construction of green energy was too expensive, the government has weakened its support for various forms of renewable energy, including cutting incentives for installing solar panels, and altering the planning regime to make it difficult to build new wind farms. The effect on the domestic solar market alone has seen growth reduced to a fifth of the size that it was this time last year.
However, the current framework is exaggerating the cost of new low carbon electricity generation, because the calculations also include the cost of building high carbon energy generation, such as the support offered to fossil fuels generators that take advantage of the current scheme.
The Green Alliance report argues that instead of offering far reaching incentives, a new framework should be applied between 2020 and 2025, which invests in renewable energy technology and favors incentives for low carbon power. The analysis found that the lowest carbon scenario also has the lowest subsidy costs, saving £420 million between 2020 and 2025 as a result, and achieving the necessary level of low carbon power by 2025. It warns that failure to support these renewable energy technologies would also increase the cost of electricity overall.
Subsidy free renewables are within sight, but their cost is exaggerated by current policy, said Dustin Benton, lead author of the study. To meet carbon targets and protect consumers from higher costs, we should focus on how to make all renewables cheaper than other forms of power, which is already the case for the best solar and wind projects.
Level playing field in energy policy
In its pre-budget briefing, the Solar Trade Association (STA) highlighted the risk of further disadvantaging the solar industry in the U.K. The government has already cut its support to domestic solar by 65%, and is now threatening to raise VAT for the domestic solar market to 20% from 5%, which, for example, would add £900 ($1,280) to the price of a 4KW system. It has also reduced tariff incentives for commercial solar.
At the same time, the oil and shale gas sectors have enjoyed significant tax breaks under the current policy. The STA argues that allowing solar to compete on a level playing field would provide consumers better value for money and would add competitive pressure for other technologies. It says that the Energy Efficiency Tax Review presents an opportunity to reward investment in solar power, at no extra cost to bill-payers, which would help the country achieve its low carbon goals.
The STA briefing did commend the National Infrastructure Commission report entitled Smart Power. The report highlighted how a smarter energy system, which includes demand flexibility and electricity storage could save the country £8 billion ($11.35bill). Incorporating this system would reduce the integration cost of intermittent renewables, and is yet another practical recommendation, which doesnt call for new subsidies.