It’s been a mixed two weeks for low-carbon energy funding. David Blackman reflects on government policy and the sector’s winners and losers.

It didn’t turn out to be the best day for the government to unveil the centrepiece of its environmental awareness campaign.
Clean growth minister Claire Perry trumpeted on 19 July that Green Great Britain Week would be held in mid-October. But any positive green vibes generated by this announcement quickly faded as news trickled out on the same day about the government’s plans for scrapping the feed-in tariff (FIT).

A consultation paper, snuck out on the BEIS (Business, Energy and Industrial Strategy) department website with a lot less fanfare than Green Great Britain Week, says there will be no replacement for the scheme when it ends next March, effectively axeing support for the small-scale renewable projects.

Within a few days, though, the government’s battered renewable energy credentials enjoyed a fillip with last Monday’s announcement of a timetable for the contracts for difference (CfD) auctions for larger schemes.

So, after this roller-coaster ride over the past fortnight, is the sector any clearer about the thrust of government policy on low-carbon energy?

Clarity on generation

The CfD pipeline announcement is undoubtedly welcome for investors and developers. They have been complaining for months about the absence of clarity surrounding the process for divvying up the £557 million left in the £730 million pot allocated for these auctions by then-chancellor George Osborne back in 2016.

But while the announcement offers welcome certainty, it releases no new money for renewable energy, points out Doug Parr, head of policy at Greenpeace.

He says: “Let’s not exaggerate the significance of this announcement. It would be eccentric of the government to stand in the way of cheap, clean power, given that it has set aside the money for it.”

One gloomy renewable industry source says: “Offshore wind still looks pretty good, but for anything other than that technology it looks pretty bad.”

The sector has been waiting for the announcement on the future of FITs since it was promised in last autumn’s Clean Growth Strategy. But the lack of detail in the paper on small-scale low-carbon projects has left Alan Whitehead, shadow energy spokesman, wondering why it took so long to produce.

Referring to an exchange he had with his counterpart in the House of Commons a few days ago, he says: “Claire Perry said she wanted to bring forward workable policy but now the consultation has come out there really is no policy.”

The FITs regime has been a particular boon for the solar sector with the installations of photovoltaics (PV) growing from 100MW when the scheme was set up in 2010 to 12.7GW at the end of last year. Of those installations, around 4.8GW have benefited from the FITs regime, according to the consultation paper.

But the paper signals that there will be no direct subsidy available for new small-scale low-carbon generation.

The solar sector had been expecting bad news ever since the government’s decision in 2016 to dramatically scale back the level of support for renewable generation. The only solace on offer is a hint that 50kW-plus projects will be allowed to participate in the power purchase agreements market, but the paper acknowledges that smaller micro-schemes will “struggle” to compete.

Pointing to figures from Bloomsbury New Energy showing that domestic installations are already running at 2 per cent of 2011 levels following the 2016 cuts, Whitehead says. “The net effect is that support for domestic [solar] will fall off the cliff.
“This has killed or will probably kill off domestic solar.”

Export tariffs cut

However, while few were confident that generation subsidies would survive, even fewer expected the government to announce that export tariffs would also be culled.

This tariff provides domestic renewable kit owners with a fixed rate for what they export to the grid, based on the assumption that they will consume roughly half of what they produce and sell the rest.

One renewables source says: “We are now in the bizarre situation where you will be giving away for free 50 per cent of your electricity. If you were going to be spiteful you would be better off earthing the solar panels.”

James Court, head of policy and external affairs at the Renewable Energy Association, says: “The industry had reconciled itself to no direct replacement for generation tariffs but the abolition of export is an unreasonable position to put consumers in.”

What makes the FITs move particularly perplexing is that it runs counter to the government’s stated commitment to promoting a smart and flexible grid.

The export tariff provides those who own their own renewable kit with a mechanism to export their surplus supply.
Leonie Greene, head of external affairs at the Solar Trade Association, says the government is penalising the kind of low-carbon energy pioneers it should be encouraging.

“It’s so important that they are given a good experience. At the moment they are facing an absolute mess. If you make that journey a bad experience, it’s going to backfire.

“We need a coherent journey for the small investor nationwide, which is why it’s absolutely essential to keep the export mechanism. Otherwise you are effectively subsidising the suppliers, which is wacky.”

‘Unclear’ for solar

The plummeting cost of solar panels over recent years holds out of the prospect that this technology could soon supply subsidy-free renewable power.

But even the consultation paper ­acknowledges that is “unclear” whether solar and onshore wind projects can be self-­sustaining without some form of government intervention.

It acknowledges there may not be many sites big enough and benefiting from easy access to grid connections or storage, like the first subsidy-free solar farm at Clay Hill, which can operate without support.

A spokesman for Scottish Renewables says: “It seems like we are so close, especially with solar, that to pull the rug now is wrong-headed.”

Retaining some form of export tariff is essential to getting solar over the line to a subsidy-free future, says Whitehead: “If you kept or marginally increased the export tariff, that could be a viable way of underpinning solar on its glide path, but they have shut down that too. It appears to be a piece of dogma not a practical proposal.”

And withdrawing the FITs, with the knock-on impact this is likely to have on small-scale renewable deployment, will mean other measures must pick up the slack if the government is to have a hope of meeting its statutory carbon reduction targets, he adds.

Limited options

The other danger, graphically underlined during the hot weather over the past few weeks, is the risk of relying on a limited suite of technologies.

The sunny weather has driven up solar generation to record levels. At the same time, the UK has been in the middle of what Energy UK chairman Lord Hutton termed a “wind drought” recently.

This phenomenon is unlikely to be a one-off, says Parr: “There will be periods of low wind, like now, and for the UK it’s certainly the case that coincides with high levels of solar, so there is a certain amount of trade-off to be done.”

A “diversity of sources” of energy is useful, therefore, he adds.

But Whitehead says the government’s current approach is “betting the farm on offshore at the expense of every other technology”.

Reallocating funding

Pointing to calculations in the recently published National Infrastructure Assessment, he argues that descending offshore wind prices will make it possible to reallocate funding to other technologies.

“The offshore strike price is only likely to be marginally above general prices, so we see the possibility of that £557 million going quite a lot further.”

Some of that looming slack could be redeployed to support the ongoing rollout of solar PV, Whitehead says. “You would hardly need any because solar PV is on a glide path to parity: really it’s about the certainty and the ability to put together a planned programme,” he says.

“Unless auctions go very much the other way you can probably get a pretty good wind programme and have room for other technologies as well.”

So why has the government not taken this approach? Whitehead blames a “pretty dogmatic and inflexible approach” to renewable support within the Treasury, where memories linger fresh of how FITs costs ballooned under the coalition government.

“I presume BEIS must understand how export tariffs work. Either they didn’t put the case very well to Treasury, or it has turned its face against anything that looks like a support.”

There is “no consistent set of criteria” that appears to be guiding energy policy, argues Parr. And relying on even the greenest mega-projects, such as the massive windfarms being mooted in the North Sea, will only work up to a point in the new world of decentralised electricity generation and distribution, he says. “When you have lots of EVs on the system new ways of balancing become more important.”

What next?

Parr backs a suggestion, voiced recently by Lord Hutton, that the time is ripe for an energy white paper to bring some coherence to policy in the sector. “If there were ever a time to look around and see what’s going on it’s now.”

She’s fixed the date for Green Great Britain Week.

It increasingly looks like Claire Perry will have her work cut out, then, explaining how the UK’s low-carbon future is shaping up.