Is the UK's overstretched clean energy budget a case study in government largesse or a relatively modest investment in cleaner and more resilient infrastructure?
Is £9.1bn a lot of money, because I just don't know anymore? I mean, obviously, it is a huge, Scrooge McDuck vault-filling, amount of cash. But is it a lot of money if what you get in return is a modern, clean, potentially unsubsidised energy system, such as the one the last government promised to build by 2020?
I honestly don't know. I mean, it is not a lot of money compared to the £124bn (and a lot more besides) the government handed to banks in the wake of the financial crisis. It is a fraction of the €86bn bailout currently being negotiated for Greece. It is less than a quarter of the £42.6bn budget required to help us travel between Birmingham and London 30 minutes faster. It is not a huge sum of money compared to the £12bn of uncosted welfare cuts announced during the election and the £8bn that was magically found for the NHS presumably to help it cope with deaths attributed to air pollution, cold homes, that sort of thing. And it is in the same ballpark as the London Olympics, which, in fairness, did give us a memorable fortnight and a nice new stadium.
It doesn't seem like much when set against Lord Stern's estimate today that we will have to invest two per cent of GDP in transitioning to a low carbon economy, and even then it still results in much lower economic costs than if we did nothing to tackle climate change. In this light, £9.1bn seems good value if the result really is revitalised energy infrastructure, the emergence of a cost-competitive domestic clean energy sector, and the creation of a global clean tech hub, not to mention a reduction in air pollution and climate risks.
But then again, £9.1bn is a hell of a lot of money if you genuinely can't afford to heat your home and your share of it - an estimated £20 a year on top of the costs that were already anticipated - pushes you into your overdraft. It is a large sum of money to justify when you consider it is raised through a regressive charge on energy bills that means the poorest households pay a higher proportion of their income. It is a much bigger sum than it needed to be when you look at how policy mis-steps by the last government mean a chunk of the budget is continuing to deliver extremely high returns to those who first spotted the investment opportunity enabled by the government's initial subsidy largesse. And it is a pretty considerable sum compared to the cost of decarbonisation had the previous government focused more on delivering much more cost effective energy efficiency savings.
Although, before anyone attempts to address whether £9.1bn is a lot of money, we also need to ask whether it is a relevant amount of money? Because, as DECC officials have admitted, it is impossible to be certain predictions the UK's clean energy support budget, or LCF in the jargon, will exceed the £7.6bn target and reach £9.1bn by 2020 are accurate as too many variables are in play.
As RenewableUK's Dr Gordon Edge makes clear today, we can't even make an informed assessment as to whether the government's projections are solid because DECC will not show its workings. Casual observers - investors, developers, those whose jobs depend on the renewables industry - are left having to guestimate whether the government's projections for the budget is accurate or, as some informed experts believe, overly pessimistic.
But if we put this arcane technical debate to one aside and take the government's figures at face value, it is still worth asking is £9.1bn a lot of money? The answer to this question is crucial, because it is Ministers' fear that the LCF will hit its £9.1bn 'headroom' hard limit that justifies all the recent efforts to slow the rate of deployment of renewable energy technologies, including today's expected proposed changes to solar subsidies and shock moves to reform the feed-in tariff incentive scheme and end dilute biomass subsidies.
The answer, of course, depends on your circumstances, the extent to which you regard action to tackle climate change as an investment or a cost, the confidence you have in industry predictions renewables will be able to operate without subsidy in the 2020s, how concerned you are about the impact of energy bills on competitiveness, whether you think fuel poverty is best tackled with short or long term measures, and the value you attach to cleaner air and the creation of a UK clean tech sector, not to mention several other variables.
Is the LCF a case study in mismanaged government largesse or a relatively modest investment in cleaner and more resilient infrastructure? The answer, ultimately, is it's both.
As a climate hawk I'd argue while there is absolutely no doubt some of the projected £9.1bn could have been better spent, it represents a justified and necessary investment if the UK is to build a modern, decarbonised energy system (although I'm also painfully aware this argument risks you looking cavalier about the impact on fuel poverty, even if you have a record of arguing for much more ambitious policies to improve the energy efficiency of fuel poor households).
The government has obviously taken a different view. Ministers have deemed £9.1bn, if that is indeed what the continuation of current policies will cost, is too much money. This is a legitimate and reasonable conclusion to reach, even if it somewhat negates previous Prime Ministerial claims that you regard climate change as an existential threat to the UK, which in the case of increased flood risks necessitates a 'money no object' response.
The problem for the UK renewables industry, not to mention the wider infrastructure sector and the government's credibility as a global leader on climate change, is the government's efforts to bring the LCF budget under control have all the clear cut elegance of a Jeremy Corbyn suit. The panicked moves to end key subsidy support for solar farms, delay the next wave of contract for difference auctions, use every tool available to halt onshore wind farms, review the feed-in tariff, mess with grandfathering conditions, and axe pre-accreditation rules in a way that will have a devastating impact on an onsite renewables sector that only a few months ago ministers said was a priority, will not only take heat out of the renewables market as the government hopes, it will also lead to higher emissions and deal a massive blow to investor confidence that will take years to heal.
As Ovo Energy's Jessica Lennard observed on Twitter this morning, "Ministers often talk about a 'responsible, managed approach' to N.Sea O&G decommissioning. Shame they don't apply same to green subsidies".
Confusion now reigns supreme. Anyone doubting this simply has to ask themselves if a financial director at a company keen to cut its emissions would currently sign off on a rooftop solar installation, knowing that something as simple as the timing of the project could result in much lower returns than anticipated when you gave it the green light. A handful of developers may be able to build onshore wind and solar projects without subsidy at some point between now and 2020, as Energy and Climate Change Secretary Amber Rudd predicts, but the scale of the build out will be much less than had been previously planned. At the same time, rightly or wrongly, it looks as if support will continue to flow towards more costly offshore wind and nuclear projects, not to mention polluting fossil fuel plants through the capacity mechanism.
Meanwhile, the UK's carbon and renewable energy targets are at serious risk of being missed, the Prime Minister and the opposition appear to have completely absented themselves from the debate about the future of the UK's decarbonisation efforts, and pretty much the only people who are happy with the current policy moves are those who think all efforts to tackle climate change are a scam.
The sole hope for the UK's renewable energy industry, not to mention the wider green economy, is that as with much of the rest of the government's agenda ministers are looking to get the pain out of the way early before building a coherent and credible new path forward. There are some flickering signs that this may well indeed be the case. DECC today was at pains to point out that news on a new CfD allocation and the extension of the LCF post 2020 will be announced in the coming months. A review of energy efficiency, renewable heat, and feed-in tariff policies all hold out the hope of a new policy framework that will ensure the UK's long term climate goals are met. Amber Rudd has repeatedly stressed the government will not give up on its emissions targets and does not strike as if she went into politics to oversee a five year contraction in some of the UK's most exciting new industries.
There remain a few crumbs of comfort for the renewables sector, fuelled, as ever, by the realisation global renewable energy costs continue to plummet and the case for fossil fuel investment looks ever more shaky. But a route forward can only be delivered if the government quickly sets out a coherent decarbonisation vision that provides much clearer investment signals than the current policy morass.
Ministers could start by recognising constant criticism of green businesses needs to be leavened by an appreciation of the crucial role they play in meeting the UK's carbon targets. And they could also acknowledge that while £9.1bn of green policy 'costs' seems excessive, a well-managed £9.1bn investment programme carefully tailored for those cost-effective clean energy technologies that are genuinely close to standing on their own two feet is not just good value, it is essential to the UK's long term health and prosperity in a decarbonising world.
There is no doubt subsidies could be cut in a way that allows a reasonable pace of deployment to continue, just as there is no doubt the necessary cash could be found to bail out the LCF if only Ministers backed up their rhetoric on climate action with a recognition low carbon investment is justified by significant, wide-ranging, and long term environmental and economic benefits. Is £9.1bn a lot of money? It depends how you look at it and what you get in return.
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