Subsidy cut puts one third onshore projects at risk

UK: The UK government's plans to downgrade the level of support for wind energy could cut onshore wind deployment by up to 30%, warned UK trade body RenewableUK.

In its long-awaited review of financial incentives under the Renewables Obligation (RO), the government has been re-assessing the level of support that each renewable technology will receive between 2013 and 2017. From 2017, new renewable developments will receive support under a new fixed-price tariffs mechanism.

The RO requires electricity retailers in England and Wales to either source a proportion of their power from renewables by buying Renewables Obligation Certificates (ROCs) or pay a buy-out penalty, which currently stands at £38.69 (EUR44.68) for each ROC for 2010/11. The number of ROCs that different technologies receive varies according to their level of market maturity.

Onshore impact

The Department of Energy and Climate Change (Decc) said that where market costs have come down, it is reducing the subsidy. As one of the more mature technologies, onshore wind developers will see support cut from 1 ROC/MWh to 0.9 ROCs/MWh.

Offshore wind will see its support stepped down over time - remaining at its current level of 2 ROCs for two years before reducing to 1.9 ROCs in 2015/16 and 1.8 ROCs in 2016/17.

Decc maintained that out of 2.6GW of onshore wind projects expected to be built in the period 2013/17, the reduction in onshore support meant that only up to 430MW would fail to proceed.

Renewable UK's director of policy Gordon Edge disagreed. "We think there could be up to 1.5GW less capacity built and it will be the smaller community-based projects in England that suffer," he said. For offshore wind, the 0.2 ROC cut by 2016 could make more projects in the ambitious Round 3 of offshore development marginal, added Edge, but he welcomed the phased reduction.

Chris Hill, general manager of European offshore developer Smart Wind is more upbeat. The greater certainty over likely levels of support in coming years will boost investor confidence and spur developers to progress projects, he said. "We've got to reduce costs to make projects work. The quicker we build projects, the quicker we bring costs down," added Hill.

There is, nonetheless, an overall sense of relief in the renewables community that deeper cuts have not materialised. With the UK Treasury seeking big spending reductions across all government departments, industry insiders believe that Decc has done well to emerge with relatively minimal cuts to the overall RO budget.

According to Decc, the proposals, which are out for consultation, are expected to save between £400 million and £1.3 billion compared with current RO levels. Energy secretary Chris Huhne claimed it will bring forward 7% more renewable capacity and shave £2 off annual household energy bills.