The government’s Contract for Difference auctions have provided an opportunity for renewable energy investors to “speculate” at the expense of ordinary consumers, a libertarian thinktank has claimed.
The latest round of CfD auctions showed that the guaranteed floor price for renewable energy contracts procured through the scheme has plunged to £39.65/MWh. This is less than a third of the prices achieved in the original round of contracts allocated five years ago.
But Victoria Hewson, head of regulatory affairs at the Institute of Economic Affairs, used a fringe meeting organised by the thinktank to attack the regime, which uses billpayers subsidies to support renewable generation, like offshore wind farms
“CfDs have been excellent for investors in renewables at the expense of the ordinary consumers,” she said, adding that the subsidy regime is “highly susceptible” to lobbying from interest groups.
“You barely have an energy market in this country at all, such is the level of intervention,” she said.
And the most recent announcements by the government on its net-zero strategy, which include additional funding for research into nuclear fusion technology, showed ministers remain wedded to an “unfortunate” strategy of picking winners, she added.
There is a “strong case” for an economy-wide carbon tax to replace the EU ETS (Emissions Trading Scheme) when the UK leaves the trading bloc, Hewson said: “The best way to get the UK on track is for the government to sit back and provide a framework for competition across the market in particular on energy generation distribution and supply, which will deliver innovation within the parameters of decarbonisation.
“If people were really serious about driving down emissions, we would have had an economy-wide carbon tax and the market would have kicked in in and as a result we wouldn’t have the opportunity for speculation in renewables CfDs.”
While the extra costs resulting from slashing emissions could be borne easily by individuals with a “comfortable life in London”, they would be more challenging for somebody who has not had a pay rise for some time, Hewson said.
Ben Houchen, elected mayor of the Teesside combined authority, told the same meeting that the UK government had to be “very careful” about how it goes about its push to achieve net-zero emissions by 2050.
While the previous goal to achieve an 80% cut in emissions by 2050 was already “pretty ambitious”, it was “relatively straightforward” because it would use existing technologies.
However, he said that the net-zero target relies on unproven ones like a mass roll out of hydrogen.
Peter Mather, head of BP in the UK, backed the 2050 net-zero target, saying: “2050 is consistent with the Paris goal and we can see a pathway to net zero but can’t see a pathway to 2030. Let’s get first large scale CCUS project done in this country.”
Andrew Pendleton, director of policy & advocacy at the New Economics Foundation said that the climate change movement is “going to get bigger and bigger because we don’t have time to mess around” and will “require a severe amount of investment, some of which will have to come from government”.