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United Kingdom

United Kingdom

Long-awaited UK renewables policy falls short of certainty

UK: A government commitment to £7.6 billion (€9.4 billion) funding for renewables up to 2020 has been met with relief by the wind industry. The decision follows months of negotiations and political in-fighting in the UK coalition government.

Energy minister Ed Davey announcing the bill in the House of Commons
Energy minister Ed Davey announcing the bill in the House of Commons

The level of funding, or levy control framework (LCF), effectively caps the amount of money that can be charged to power users to support low-carbon electricity generation, which includes wind as well as new nuclear. The LCF budget is currently £2.35 billion in 2012/13.

The decision was one of a package of measures announced ahead of major legislation, due as Windpower Monthly went to press. The energy bill aims to overhaul the electricity market and introduce a support system to promote growth in low-carbon energy known as contracts for difference (CfD).

Under this system, generators will receive a top-up payment when the wholesale electricity price is below a pre-agreed "strike price", and pay money back when the price rises above it. This mechanism will be introduced in 2014, although generators will be able to choose between the current system of the renewable obligation (RO) and the CfD until 2017.

The government also announced the creation of a government-owned company to manage the CfD, a decision aimed at reducing risk for investors. This "counterparty" will raise funds from suppliers to pay CfDs to generators.

In terms of offshore wind, legislation will be introduced to protect transmission developers breaking the law.

Decarbonisation

The government has stopped short of introducing a target for the decarbonisation of the UK's electricity system by 2030. It will instead create a power to introduce one after the next election in 2016.

This decision was slammed by environmental lobbyists. Ed Miliband, leader of the opposition Labour party, pledged to introduce a decarbonisation target if he was prime minister.

However, trade body RenewableUK denied that it was a defeat, as some claimed, as a decarbonisation target was not on the table when negotiations began.

Its main concern was that the government kept tight control over the timetable for the legislation to pass through parliament. Maf Smith, deputy chief executive of RenewableUK, said: "If it doesn't, there are concerns about the transition from the RO system to CfDs between 2014 and 2017, especially for offshore wind."

One key issue the industry wants resolved is how the CfDs will be allocated. It was not impressed with initial proposals that contracts would be allocated when construction was due to start.

Chris Hemsley, head of market design at the Department of Energy and Climate Change (Decc), told delegates at RenewableUK's annual conference in October that the government was considering bringing forward the timetable for allocating CfDs so that they are allocated once permitting permission and agreement for grid connection have been obtained.

The RO is not agreed until a wind farm is operational, but the wind industry has been lobbying for a two-stage process whereby a developer receives an agreement on CfD level in principle, which will be paid as long as certain conditions are met.

Draft strike prices will not be published until June 2013, when grid operator National Grid has completed a review.

Cross-party conflict

Negotiations between the Conservative Party-controlled Treasury and Liberal-Democrat-controlled Decc have been fraught and as a result the publication of details of the market reform have been repeatedly delayed.

Energy minister Ed Davey has continued to push the case for renewable energies, while chancellor George Osborne believes they are too expensive and favours investment in gas.

"Enough is enough"

The situation deteriorated when pro-renewables junior energy minister Charles Hendry was replaced by John Hayes. Hayes then stunned the wind industry by telling anti-wind newspapers The Daily Telegraph and Daily Mail that "enough is enough" on onshore wind, and that the UK is "peppered with wind farms".

Decc released a strongly-worded statement saying that there were no policy changes or caps on wind. However, Hayes continued to make anti-wind comments, saying that he did not want to see any more wind farms enter the permitting system.

Although Davey has overall control of renewables policy, Hayes is responsible for taking the energy bill through parliament. Smith said RenewableUK had met with Hayes and believes he does understand the industry's position.

Speaking in a parliamentary meeting, Hayes said that decisions on onshore wind should be made on the economic evidence, not according to personal opinions.

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