DECC defers cuts to onshore wind subsidies

Future subsidies under the Renewables Obligation will not be welcomed by some firms involved in anaerobic digestion, biomass, geothermal or solar.

Subsidies for new onshore wind projects under the Renewables Obligation (RO) will not drop substantially until at least 2014, the energy and climate department (DECC) announced in July.

The decision followed weeks of speculation that the current subsidy level would be cut by 25% due to pressure from the Treasury to cut costs (ENDS Report 450, p 5). In the end, it has only been cut by 10%.

However, a call for evidence on onshore wind costs will be issued in September. This is expected to lead to another formal review of the level next year, which could mean further cuts in April 2014.

DECC insists it will protect projects “where significant financial commitments had been made” from any further cuts. However, developers may need to have actually ordered turbines to be spared.

The deferral appears to have come at a very high price. In July, DECC announced it was committed to gas being used for electricity generation into the 2030s, not just as peaking plant or back-up plant for wind. This appears to put the UK’s chances of meeting its future carbon budgets at risk.

The decision has been driven by the Treasury’s insistence that the cost of decarbonising the UK’s electricity system must be lowered.

The announcements appear in details of RO subsidy levels for 2013-17.1 These were originally consulted on last year (ENDS Report 441, pp 6-7).

Under the RO, renewables developers receive a subsidy per megawatt hour of electricity generated. This comes in the form of certificates (ROCs) that can be sold to electricity firms.

ROCs are currently worth about £45 each. A project receives a fixed level of ROCs for 20 years after it becomes operational.

DECC’s rates only apply in England and Wales, but they tend to be followed by Scotland and Northern Ireland.

Most subsidies for projects in 2013-17 will be as proposed last year, with increased support for offshore wind, wave and tidal. However, there are some important changes:

 

• Biomass: DECC has introduced a complex range of support levels for different types of biomass plant.

Coal plants that convert to run on biomass will get 1ROC/MWh of electricity generated. Any coal plant that does not convert, but uses biomass for at least 85% of its fuel, will get 0.7ROCs/MWh in 2013/14, rising to 0.9ROCs/MWh in 2014/15. The lower level for 2013/14 is due to budget constraints.

Plants burning a lower percentage of biomass will receive fewer ROCs.

The owner of the UK’s largest coal plant, the four gigawatt Drax power station in Yorkshire, reacted positively to the news, confirming it would convert at least three of its six boilers to biomass.

DECC intends to consult soon on cost-control proposals in case there is an unexpected surge in conversions or co-firing.

Support for dedicated biomass plants will decline from 2016, as proposed last year. However, DECC wants to limit how many can be built to avoid a sudden rush.

The department intends to revise existing sustainability criteria to alleviate concerns about the environmental impacts of biomass, including setting a new minimum greenhouse gas-saving requirement.

Current criteria require an 80% carbon dioxide saving compared with fossil fuels, but this can be easily met (ENDS Report 427, p 51). However, the new criteria would not apply until 2020 to allow time to complete existing fuel contracts.

DECC is removing the increase in support for coal plants that burn energy crops because it is “not justified on the cost evidence or in line with the aim of keeping costs down for consumers”. This means the energy crop market is likely to remain stagnant (ENDS Report 437, pp 6-7).

• Anaerobic digestion: New anaerobic digestion (AD) projects will be eligible for the RO from April 2013 if they are above five megawatts peak capacity. Plants below that size will only be able to get support under the feed-in tariff (FIT) regime.

This decision was met with concern by the Anaerobic Digestion and Biogas Association and the Renewable Energy Association. They pointed out that DECC had announced in July that it was capping the number of AD plants that can claim FITs to ensure the scheme stays within Treasury spending caps (see pp 41-42).

“If AD is removed from the RO, it’ll be a disaster,” said David Collins, the Renewable Energy Association’s head of biogas. “This totally contradicts the government’s aspirations for a huge increase in AD.”

• Other small-scale renewables: Any other renewable that can claim FITs will no longer be eligible for the RO from April 2013. This includes large solar projects below five megawatts peak capacity.

This has again caused great concern in the renewables industry because the FIT budget is much smaller than that of the RO.

Energy-from-waste: Incinerators that generate heat as well as electricity will still receive 1ROC/MWh until 2017.

DECC had proposed cutting support to 0.5ROCs/MWh, but says it now recognises that projects need more financial backing to get off the ground.

The department had also proposed cutting support for new landfill gas projects, but has decided to make two exceptions: projects at closed landfills will get 0.2ROCs/MWh, while those that use waste heat to improve efficiency of electricity generation will get 0.1ROCs/MWh.

• Hydro: DECC will give new hydropower projects 0.7ROCs/MWh, rather than the 0.5ROCs proposed last year, after it received evidence that the lower rate was insufficient.

• Geothermal: DECC has decided to only give 2ROCs/MWh to geothermal projects that start before April 2015 and to cut support thereafter.

This is as DECC had proposed, but the handful of UK firms hoping to develop projects (ENDS Report 427, p 15) had called for 5ROCs/MWh in line with wave and tidal to reflect the technology’s immature state.

DECC has bluntly rejected these calls. “Our cost-effectiveness analysis has indicated that deep geothermal power is not necessary to meet [EU renewables targets].”

 

The government’s decisions are complex and it intends to run up to six consultations soon to ascertain views, particularly on biomass.

A revised Renewables Obligation Order implementing the decisions will be laid before parliament in the autumn.

 

Northern Ireland has published its consultation response on future support levels under its own RO.2 It is following the UK’s lead, except on landfill gas, where it will continue to offer 1ROC/MWh until April 2014 to try and encourage more projects to be developed.

Compliance Search

Discover all ENDS content in one place, including legislation summaries to keep up to date with compliance deadlines

Compliance Deadlines

Plan ahead with our Calendar feature highlighting upcoming compliance deadlines

News from ENDS Europe

News from ENDS Waste & Bioenergy