The government can scale back renewables if it wants, but where is its alternative?

James S Murray
@James_BG
27 August 2015

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The latest attack on the renewables sector in a bid to cut energy bills by £6 is bad enough, the failure to set out an alternative vision is even worst

What will you do with the £6 the government is proposing to save you in 2020 by eviscerating the UK's most popular renewable energy scheme? What about the £1 the proposed reforms will shave off the average household electricity bill next year? What will you do with your 0.2 per cent saving? Don't spend it all at once.

These are, of course, slightly facetious questions. The government does need to take steps to cut spending on renewable energy subsidies given its Levy Control Framework (LCF) spending cap looks set to be breached by a cool £1.5bn by 2020, a scenario that would lead to significantly more upward pressure on bills than the nominal £6 the latest reforms are designed to save. Fuel poverty remains a serious problem and even if bills are falling currently, there is a compelling case for getting spending on green levies on a much tighter rein.

However, the point implied by my opening questions stands; we are talking about a vanishingly small amount of money in the grand scheme of things. And it is a sum that the US, China, Germany and many others are more than willing to invest in the pursuit of a modern, sustainable, healthy, and clean energy system. Thousands of jobs are likely to be lost, emissions savings will go begging, an innovative and modern industry that is close to being able to operate without subsidy will be badly damaged, and all for what amounts to a rounding error in both national and household accounts.

It is also worth noting the putative £6 per household saving is based on the government's old trick of comparing the impact of its proposals with a 'do nothing' scenario, when no one in the renewables industry was expecting or advocating for the status quo to continue. Most within the renewables industry accept cuts are needed and justified. The solar sector has set out plans for withdrawing subsidies gradually in a way that allows it to become virtually subsidy free this decade. Set the latest projected savings against a scenario where the government cuts tariffs in a more gradual way and the expected £6 saving delivered by its scorched earth approach would be more modest still.

There are two big over-arching flaws in the government's latest attack on the clean energy sector, one practical, the other structural.

The first is the same problem that has befallen any attempt to reform the feed-in tariff in recent years. The announcement of prospective cuts triggers an inevitable boom and bust cycle where people rush to take advantage of the higher tariffs before they are cut. The fatal flaw in the scheme's design remains as pronounced as ever. Maf Smith of RenewableUK today warned the government risks turning "the British energy market into a wild-west market". No one would be that surprised if the government ends up making good on its thinly veiled threat to effectively close the feed-in tariff next year if a surge in new installations burns through the budget.

The microgeneration market is being made to pay for the previous government's over-generous dishing out of contracts to large clean energy infrastructure projects and previous mismanagement of the feed-in tariff scheme (and the industry has pointed out once again that it as calling on Ministers to tackle the initial solar deployment surge back in 2012 a full six months before they acted in a rushed manner that fell foul of the courts).

As long as the government continues to refuse to make use of the headroom in the LCF spending cap, there is no simple way to resolve this problem. It is an inherent flaw, baked into the feed-in tariff, which means solar firms that have been told repeatedly by Ministers that they are crucial to the UK's decarbonisation efforts and a vital part of a new decentralised energy vision have been condemned to years of boom and bust cycles and policy instability. That being said, it remains as clear as ever that a more measured reduction in tariffs would ease the risk of another sharp contraction in the market while minimising the impact on bills.

The second, and many ways more important, flaw in the government's proposal is the way it fits into a clean energy strategy that looks like it is about to collapse under the weight of its logical inconsistencies.

The feed-in tariff is not universally popular. There are compelling arguments in its favour to be found in the way it has helped trigger a drastic reduction in solar energy costs the pace of which is yet to be emulated by any other clean energy technology, the manner in which it has helped make clean technologies a visible and popular part of everyday life, and its potential for challenging the incumbent power of centralised utilities. You can justify feed-in tariff mechanisms as a means of seeding a market that can relatively quickly start to stand on its own two feet, as appears to be happening in other countries and as the UK industry insists is on the verge of happening here. This justification becomes stronger still if you buy the vision that energy storage and smart grid technologies are poised to make cost effective distributed power a workable reality.

But none of that can take away from the fact feed-in tariffs are expensive - manufacturers' association EEF claimed today it delivered carbon cuts at a rate of £380/tonne last year - and the system of paying for them through a levy on bills is regressive. Moreover, some experts fear that the absence of competitive auctions can result in some companies becoming inefficiently reliant on subsidies.

So, leaving aside the democratically questionable manner in which the Conservatives have once again launched proposals that promise to deal a serious blow to hundreds of green businesses just weeks after they failed to make even a passing appearance in their election manifesto, there is a case for scaling back or even axing the feed-in tariff - a case ministers could have made themselves if they had deigned to accompany this consultation with a statement.

But here is the problem for a government that is supposedly fully committed to the decarbonisation of the British economy, if you kill off the feed-in tariff and risk taking the microgeneration and distributed energy market down with it what do you replace it with?

The government's own impact assessment says its proposed changes will lead to over 6GW of anticipated renewables capacity and 1.59MT of carbon dioxide savings not being realised by 2020/21. Where are these carbon savings and the promised clean power capacity boost now going to come from? The nuclear project that is still waiting for an investment decision and will deliver power at a strike price considerably higher than either onshore wind and solar power? The CCS demonstration project that has been waiting six years for a promised funding award? The national energy efficiency programmes that have just been killed? Will they come from the big clean energy infrastructure projects that the government has just delayed by postponing the next wave of price support contracts? Or perhaps the answer lies in the fracking projects and gas plants that will supposedly push coal off the grid, but which the government can't get through the planning system and which it still needs to subsidise through a capacity mechanism?

The government urgently needs to provide a credible answer to these questions, because without them the prospect of a £6 windfall in return for a neutered renewables industry will look like an even worse deal than it does at the moment.