The government has perfect opportunity to restore its battered green credentials, but only if it resists calls for deep cuts to renewables incentives
Crunch time is fast approaching. Within the next few weeks the government will confirm its plans for the future of both the Renewables Obligation and feed-in tariff scheme, the two incentive mechanisms that are currently driving much of the investment in low carbon energy.
Nervousness across the industry over both these imminent decisions is reaching fever pitch. As we report today, rumours are swirling, with some insiders convinced the government is poised to drive through deep cuts to subsidies that will slam the brakes on the sector's current expansion. Meanwhile, others are counselling against unnecessary scare-mongering, arguing that the "greenest government ever" would not be foolish enough to cripple a growing green industry.
What is known is this: there are powerful figures within the cabinet who blame renewable energy subsidies for the high price of energy and would like to see them drastically cut. We also know that the feed-in tariff scheme has proven so successful that there are mounting concerns within Whitehall that the allotted funds to support the scheme could be burnt through ahead of schedule.
The renewables industry can argue until it is blue in the face that the cost of low carbon subsidies adds just a tiny fraction to energy bills at a time when price hikes are actually being driven by volatile gas prices and oligopolistic behaviour from the Big Six (behaviour, which according to figures released today by Ofgem, has allowed energy companies to increase profits 733 per cent in the past four months to £125 a year per customer). It can also point to the jobs the industry is creating, the emissions it is saving, the way in which the subsidies it enjoys are far lower than those handed out in the early years of the fossil fuels industry, and the steady reduction in renewable energy costs.
These arguments are failing to convince those senior figures within the government that regard the low carbon economy as a cost rather than an opportunity, are ideologically opposed to green subsidies, and are privately sceptical about the need to tackle climate change at a time of economic hardship.
The result is that the coalition's commitment to the low carbon economy is about to face its biggest test yet – a test it quite simply has to pass if the UK is to have any hope of hitting its emissions targets and delivering a world-leading clean tech sector.
The decisions on the future of the feed-in tariffs and the banding for the renewables obligation need to provide a clear signal that the government will deliver a stable policy framework that allows for the sustainable growth of the UK's renewable energy industry.
And let us be clear on one thing. Regardless of what the industry's critics may claim, no green business expects, nor wants, a blank cheque.
There is widespread acceptance across the industry that incentives must come down over time to a point where renewables compete on a level playing field with conventional energy sources. The industry expects incentives to be cut, but what they fear is a repeat of the fast-track review of feed-in tariffs earlier in the year where the resulting cuts were so deep that they have killed the large solar PV market for at least five years.
The damage this uncertainty has caused is now self evident in the way in which successful, fast-expanding, job-creating companies are spending as much time worrying about whether or not their businesses are about to be destroyed by the next feed-in tariff review as they are deploying clean technologies. This uncertainty cannot be allowed to continue if the UK is to stand any chance of attracting the £200bn of energy investment that Chris Huhne keeps insisting is necessary for the UK to keep the lights on and meet its carbon targets.
The Lib Dems and the Green Tories within the cabinet simply have to win their battle with the reactionary forces that wish to rein in spending on low carbon infrastructure and impose deep cuts on renewable energy incentives.
The next few weeks need to see the confirmation of modest cuts to subsidies and clear details on the digression regime that will manage the gradual reduction of incentives in line with falling costs. It also needs to see an orchestrated counter attack against those who use misleading figures to blame green measures for high energy bills.
If the government fails to deliver these sensible reforms and instead realises the worst fears of renewable energy investors (and some of the cuts being talked about are eye-wateringly deep) then we are heading for a period of stalled green investment, bankruptcies, job losses, missed environmental targets, ill-tempered court cases, and, if the Lib Dems have the backbone, one almighty political row.
The acid test is clear, the question is whether the coalition has the nerve to pass it.
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