Renewables Obligation review: the winners and losers

The marine and wind energy industry will be celebrating today's announcement, but other sectors are not so fortunate

20 Oct 2011, 15:47

First the good news: after years of campaigning for stability, clarity and certainty for green investors, the government's proposed changes to the Renewables Obligation scheme promise to deliver just that.

It is rare for the renewables industry and green NGOs to be united in their praise of government environmental policy, but the reaction to the launch today of the consultation has been largely, if not universally, positive.

Gaynor Hartnell, CEO at the Renewable Energy Association, said the reforms should give investors the "certainty and confidence" they crave, Doug Parr at Greenpeace said the proposals provided evidence that the government's green wing had defeated Tory sceptics and delivered incentives that could "spark an expansion of green energy generation", while Juliet Davenport of Good Energy offered a cautious welcome to changes that "aren't as bad as many of us had feared".

The manner in which the government is looking to increase support for marine energy, improve subsidies for offshore wind farms, and provide stable or modest reductions in the level of support for most other renewable technologies adds up to a very encouraging settlement for the sector as a whole.

Throw in the proposals for clear degression curves for subsidies through to 2018 and the coalition appears to be delivering the stable policy framework the industry has been crying out for.

Chris Huhne is not exaggerating when he says he wants to make the UK the "number one place to invest" for renewables developers, particularly when it comes to offshore wind and marine energy. It seems increasingly likely the UK will now entrench its position as the world's premier market for offshore wind and marine energy technologies, while also ensuring the country's onshore wind and biomass sectors continue to progress.

DECC projections suggesting that by 2017 the Renewables Obligation scheme adds just £50 a year to the average domestic energy bill – less than £1 a week – should also serve to highlight the relatively low cost of building low carbon infrastructure. Although we won't pin our hopes on the message getting through to those blaming renewables for rising energy bills.

But while there is much to celebrate in the proposed changes (and the manner in which the green wing of the government apparently faced down Tory sceptics calling for deeper cuts to renewables subsidies), there is also evidence of a clear shift in the government's thinking which will have alarm bells ringing at many clean energy firms.

If offshore wind and marine energy are clear winners, and biomass and onshore wind projects can live with the proposed reforms, the prospects for a raft of other technologies look pretty bleak.

Retaining or cutting the level of support for waste-to-energy plants, hydroelectric systems, anaerobic digestion and geothermal energy is unlikely to stimulate any new investment in technologies that could play a significant part in the UK's clean energy mix. Meanwhile, the decision to axe all support for landfill gas capture plants is a huge blow to a technology that could deliver deep cuts in greenhouse gas emissions if widely adopted. Some of these technologies may still secure a future in the UK as costs fall and the price of fossil fuel-generated energy rises. But the proposed cuts suggest the government has little interest in establishing the UK as a world leader in any of these unfortunate technologies.

The government's oft-repeated claim that it does not believe in "picking winners" has always been nonsensensical, and the proposed changes to support levels only confirm this. Industrial policies inevitably pick winners and this government has just selected those renewable energy technologies it favours.

The other key conclusion is that the UK's flirtation with decentralised power generation appears to be heading for a messy end.

The technologies facing the worst settlements, such as waste-to-energy, hydroelectric, and anaerobic digestion installations, are those most likely to feature in community-scale projects. Equally, the wind energy industry has already warned that the proposed 10 per cent cut in support for onshore wind farms is likely to make smaller projects pursued by communities and non-energy businesses untenable.

Similarly, the proposed cut in the level of ROCs available to solar projects confirms the government has no interest in reviving the market for large-scale solar installations following the blow dealt to the sector by this summer's cuts to feed-in tariff incentives. The failure to dismiss rumours that all solar installations are now being lined up for deep cuts to subsidies also provides further evidence that the coalition is rapidly cooling to the idea of an energy system based on hundreds of thousands of decentralised energy generators at homes and offices across the country.

Ministers will be reluctant to admit it, but it appears those large energy companies arguing for the primacy of the centralised energy network over an ambitious decentralised energy system have won out.

The debate will continue to rage over whether industrial-scale low carbon energy projects or smaller-scale decentralised renewables offer the most effective means of decarbonising the UK's energy infrastructure, but today's announcement makes it is increasingly clear which side of the argument the government is on. Green investors finally have some certainty, but it is not the certainty some clean energy firms will have wished for.

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Previously known as the BusinessGreen Blog, James' Blog features musings, observations and occasional rants from BusinessGreen editor James Murray

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