The victors in the general election won’t be the only winners this summer. The renewable energy community will be waiting for the outcome of another selection process – the first of what was supposed to be three auctions for the second round of contracts for difference (CfD).
The round, originally due to take place last year, was one of the subsidy regimes to have survive the great cull of 2015, when
the now defunct Department of Energy and Climate Change heralded in a new policy era.
Last year, the government indicated that a total of £730 million would be up for grabs during the predicted lifetime of this parliament, with three auctions before 2020.
The window for bids for the first of these auctions ran from 2 April to 21 April and was hailed by energy minister Jesse Norman as underlining that “Britain is open for business to companies seeking to invest in low-carbon energy”.
As the bidding process started, there were several predictions that offshore wind would be the overall winner, as well as calls to let more established technologies, like onshore wind and solar, compete in a “pot one” style auction.
But if a week is a long time in politics, then a month is an eternity. The initial bids are in, but there is now the slight matter of a snap general election on 8 June and what impact that will have on the future of the CfD programme.
The government has said the current CfD allocation round will not be affected by the election, although the sector will have to wait until the summer to discover which projects have been successful.
The plan was for £730 million over the three auctions, to be held by 2020, with £290 million going to the first. However, the future of the next two auctions is now uncertain. They rely on the next government deciding it wants to press ahead with them.
The chief executive of the Renewable Energy Association, Nina Skorupska, says: “Clearly, this is a significant area for the renewables industry and considering how important policy stability is for securing new power capacity and driving down technology costs, we urge all parties to commit to annual CfD auctions in the next parliament.”
But the chief executive of energy consultancy Cornwall, Gareth Miller, says he can envisage a situation where a Conservative government, returned with an increased majority, could scale back low-carbon energy commitments, like the CfD programme.
“We’ve seen plenty of changes in policy that were unexpected over the past two or three years, and that’s been in an environment that reflects a consensus on low carbon ambitions,” says Miller. “Post-election, that consensus may not matter so much.
“CfD auctions this parliament? They have earmarked the budget and said they will run three, but there’s nothing in law that says they have to. It’s perfectly plausible for a new government to turn around and say ‘bills are going up, we need to take pressure off consumers and we just have procured several gigawatts of offshore wind in this auction, do we really need to do this?’
“You can see plenty of scope for those things to happen, particularly if they get a whopping majority.”
Miller also predicts that offshore wind is “likely to be the winner” in the current round, with a strike price below £70.
EY’s head of energy and environmental finance, Ben Warren, tells Utility Week he also believes offshore wind “will come out as the clear winner” in the current bidding round, as a “consequence of the increasing competitiveness of the technology”.
“If that prediction is right, then the really interesting question will be how many projects get an award, because there’s probably only enough budget for two sensible-sized schemes, and what price do they go for?” says Warren.
However, associate fellow of the Bright Blue think-tank, Ben Caldecott, insists renewables are “popular among Conservative voters”.
“The government needs to provide policy consistency and certainty to investors in the clean energy revolution to keep the cost of capital low and to keep attracting inward investment,” he adds.
“Of course, onshore wind should be located only where there is local support and there should be relentless pressure to phase out subsidies. These are sound Conservative principles, but we must not risk throwing out the baby with the bath water.”
The call for clarity, particularly around future CfD rounds is a pertinent one. One of the key areas highlighted by Energy UK’s election manifesto, published last week, is a call for CfD allocation rounds on a rolling one-year basis.
“Since the last general election, we’ve had this injection of uncertainty into things,” says Energy UK chief executive Lawrence Slade. “We really do need to start working on a stable policy framework, going forward. What we are looking for is that clear guidance on what is on the horizon.”
The political parties have yet to publish their manifestoes for the election, so whether any will heed Energy UK’s call remains to be seen. Either way, the renewables energy sector will be waiting until the summer, when the winners of both the election and the first auction are named, for any clarity.
Interview: Nina Skorupska, Renewable Energy Association
The renewables sector will have to wait for the new government to settle in before it will know how seriously the UK will continue to pursue low carbon goals.
The snap general election has seen parliament dissolved until June, and the summer recess and the break for the party conference season which follows shortly afterwards will effectively see all government active cease until the autumn.
Chief executive of the Renewable Energy Association (REA) Nina Skorupska, tells Utility Week this could have a devastating effect on the UK’s low carbon and climate change ambitions.
“It’s definitely an interesting time,” she says before highlighting more than half a dozen pieces of government legislation – as well as many more green and white papers the REA and the sector were expecting – which will be held up at least until October, or early 2018, as a result of the election.
The lack of clarity caused by these delays, which obscure the UK’s strategy for meeting the obligations of the fourth and fifth carbon budgets, is unsettling for industry.
“We’ve always said that the policies identified by the previous government delivers on the necessary trajectory to 2020/21. Beyond that, there is nothing clear or anything people can hang their hat on to enable us to deliver the fourth budget,” Skorupska sates, before adding, “the gap is only bigger for us to meet the fifth budget”.
Skorupska says that with most of the activity from the government effectively paused until the autumn, the new programme of work the sector was waiting for – which she adds was due to be published over the next month or two – has been halted.
However, despite the “maelstrom” of politics of recent years, Skorupska is not completely downbeat about the state of energy policy and the hope of the UK meeting its renewable energy and climate change commitments.
“We believe this is an opportunity that can see the new government recommit to key policies and create a pathway, but there is an urgent need to upgrade policies.”
She tells Utility Week that the industry is making its own moves in the vacuum created by the lack of these upgraded policies.
“We want to get on to deliver what’s right for low carbon energy and climate change. We have to get on with it.”
However, one thing she makes very clear is that achieving the goals the UK is legally bound to in the Climate Change Act would be made much easier by the big political parties, and the new government – whatever its makeup – publicly committing to renewable low carbon energy and the UK’s climate change targets.