United Kingdom

United Kingdom

UK to replace renewables funding framework

UK: The government has decided to scrap the widely criticised levy control framework (LCF) with a new set of controls to be announced later in 2017.

The UK government will replace the LCF with a new system later this year
The UK government will replace the LCF with a new system later this year

The LCF is the UK's annual budget on supporting low-carbon technology, designed to avoid rises of consumers' electricity bills.

It supports funding for the outgoing Renewables Obligation Certificates, the Feed-In Tariff for small-scale renewables, and Contracts for Difference (CfDs).

It today's budget announcement, the UK's treasury department said, "The government recognises the need to limit costs to businesses and households as the UK decarbonises its energy supplies.

"The existing levy control framework has helped to control the costs of low carbon subsidies in recent years, and will be replaced by a new set of controls. These will be set out later in the year."

The new system is likely to come in to force beyond 2020, when the current LCF budget expires.

This means three further CfD auctions, with £730 million (€843 million) of funding, are still due to take place before then, with the first expected this year.

Trade body RenewableUK said it hopes to work with the government in forming the new system.

"Energy infrastructure takes time to build. Projects being thought about today will come on line in the 2020s, after the period covered by the LCF expires," said RenewableUK executive director Emma Pinchbeck.

"We need to ensure that developers and investors in wind, wave and tidal energy projects have certainty so that projects can be built, economic returns can flow and consumers can benefit from the low cost of renewables," she said.

The system has been widely criticised in the past few years. Last month an influential group of MPs said the LCF had "suffered from a lack of transparency, rigour and accountability".

The House of Commons Public Accounts Committee said cost forecasting had been poor and the Department for Business, Energy & Industrial Strategy (BEIS), which incorporated the former Department of Energy and Climate Change (Decc), expected to continue the overspend on its budget.

This is likely to add around £110 (€129) to a typical household's yearly energy bill in 2020, putting it £17 a year beyond the original estimate.

In November 2016, an internal review by BEIS of its predecessor DECC's handling of the budget found that poor governance, a lack of transparency, and a tendency to "group think" was at the heart of the failure to correctly forecast pressure on the LCF and prevent overspend.

The government's spending watchdog, the National Audit Office (NAO), was equally critical. In October 2016, it said poor forecasting and higher than expected budget allocation in April 2015 "resulted in a situation in which there is little unallocated budget left for new projects between now and 2020/21".

The report focused on the eight early contracts for large renewable projects — including five offshore projects — awarded in 2014, before the full CfD regime had been established.

The NAO accepted the early projects helped avoid a hiatus in investment and proved that CfDs were investable. But, it argued, this reduced potential for value for money in later projects.

It added that the offshore wind projects could be costing £300 million a year more than necessary.

The report also attacks the lack of visibility on long-term funding, noting that the LCF timescale to 2020/21 has yet to be extended. Investors frequently need to make decisions a decade ahead or more, and their confidence has been hit.

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