UK funding for low-carbon power set until 2020

Budget increase to £7.6bn will support Round 3 offshore wind

A crucial agreement has been reached between the UK finance and energy ministries clarifying how much money will be available for new low-carbon electricity generation between now and 2020.

By the end of the decade, the UK government will have made £7.6bn (€9.4bn) available to support low-carbon projects, according to the deal announced last night. (The £7.6bn figure is based on 2012 prices and is index-linked to inflation.)

This compares to the current 2012/13 financial year, for which the cumulative budget for low-carbon support from government is set at £2.2bn. The majority of the £5.4bn extra that will be spent between now and 2020 will be used to support renewables as well as "new nuclear power and carbon capture and storage commercialisation," says the UK Department of Energy and Climate Change (Decc).

Decc hopes that by clarifying budgets to 2020 it will assist low-carbon developers, including those working on Round 3 offshore wind projects, in securing project finance.

A positive response to the news on low-carbon funding – which goes by the name of the ‘levy control framework’ – has emerged from the government’s influential Committee on Climate Change (CCC)."The agreement on the levy control framework is very positive," commented CCC chair, Lord Deben. "This should be sufficient to support investments in renewables required to meet the 2020 EU target and carbon budgets."

A similarly-positive reaction has been issued by trade body, Renewable UK, which has welcomed the political agreement for "committing the Treasury to providing the right level of financial support to allow a massive expansion of the renewable energy sector during this decade, generating tens of thousands of jobs".

Mainstream UK press coverage about the agreement has generally emphasised the likely impact on consumer energy bills, with some media outlets predicting that wind farms – rather than new nuclear capacity or the gas markets – will be responsible for future price rises.

New organisation for CfDs

Other elements of the agreement relevant to the offshore wind sector include confirmation that a new organisation will be created by the UK government to act as "single counterparty" for the incoming contracts for difference (CfDs) regime. This body will be given the power to raise revenue from electricity suppliers to meet its operational costs and to make payments to low-carbon generators.

The agreement also addresses the risk that the UK electricity market will face temporary shortfalls in supply as existing generating capacity is decommissioned and replaced with intermittent (wind) and/or "inflexible" (nuclear) generation. A capacity market may be created to ensure sufficient gas-fired generation as an "insurance policy". The UK government will look to energy regulator, Ofgem, and electricity network operator, National Grid, to advice it on potential shortages in supply.

Environmental campaigners are disappointed that binding targets to decarbonise the UK electricity sector by 2030 have not been included in the agreement. Instead, these will be debated after the CCC issues its next assessment of the UK’s progress on reducing its carbon emissions. This is not due for publication until 2016.

Further progress toward clarifying the UK's long-term energy objectives may emerge next week, with publication of the draft energy bill.