Ensuring value for money and maintaining investment in renewable energy

Proposals to maintain the growing momentum behind renewable electricity investment in the UK, while continuing to deliver value for money for consumers, have been unveiled today.

Since 2010 the UK’s renewable electricity capacity has doubled; in the same period, over £34 billion of private sector investment has been announced, with the potential to support almost 37,000 jobs. What’s more, the scale of growth in the sector has meant that the cost of some renewable technologies, such as onshore wind and solar power, has fallen.

Today’s proposals are about ensuring the right balance of support for renewables and a smooth transition to the Government’s new Contracts for Difference, securing the further investment we need to provide clean, green and secure energy, whilst continuing to deliver value for money for energy bill-payers.

Solar photovoltaic (PV) is an important part of the UK’s energy mix: there is currently 2.7 GW of PV capacity in the UK – enough to power 620,000 homes – placing us firmly in the global top 10 economies for solar power. We expect this progress to continue, up to a projected deployment of between 10-12GW by 2020.

A month ago, we published our Solar Strategy. This sets out the actions that Government is taking in partnership with the industry to ensure that the solar sector continues to grow. It included a focus on deploying more solar panels on the top of industrial and public sector buildings – a part of the sector that had been deploying at lower levels than we expected.

In order to support that rooftop deployment, we are consulting today on splitting the current ‘degression band’ for projects over 50kW under the Feed In Tariffs scheme (FITs) into two: one for standalone, one for non-standalone. In other words, tariffs for building-mounted solar panels would reduce at a slower rate than for ground-mounted solar panels, so giving rooftop-mounted schemes access to more of the financial support available through FITs.

The Solar Strategy highlighted that Government was considering the implications of current deployment trends on the budget available for financial incentives to solar PV under the Renewables Obligation (RO) and would consult on any proposals for amendment.

Large-scale solar is deploying much faster than we expected. Industry projections indicate that, by 2017, there could be more solar deployed than is affordable – more than the 2.4-4GW set out in the electricity market reform (EMR) delivery plan.

We need to manage our financial support schemes effectively and responsibly. That means that we need to ensure that the growth of the solar sector is delivered in a way that gives best value for money to consumers and allows us to offer effective support to the renewables sector as a whole.

So we are also consulting today on proposals to close the RO to new solar PV capacity above 5MW from 1st April 2015, across England, Wales and Scotland. Those proposals include grace period arrangements to protect developers who have already made significant financial commitments.

We propose keeping the RO open for projects under 5MW which are not eligible for the new Contracts for Difference (CfDs). Projects above 5MW will be able to apply for CfDs – part of our world-leading Electricity Market Reform Programme that is marking further progress in its publications today.

We also want to see communities benefiting from ownership of renewables projects. So we are consulting on the possibility of increasing the maximum capacity for community anaerobic digestion, hydro onshore wind and solar PV projects from 5MW to 10MW under the FITs scheme, and whether more can be done to allow grants to be combined with FITs payments for community projects up to 5MW. This delivers on two commitments in the Community Energy Strategy – published earlier this year.

DECC has today confirmed that the budget for Contracts for Difference renewables spending will be divided into groups including (a) established technologies and (b) less established technologies.

A number of criteria were used to select the appropriate grouping of each technology including: the maturity of the technology and industry; levels of UK and global deployment now and in the future; the potential for further cost reductions; and contribution to future decarbonisation.

Established technologies

Technologies in the established group have benefited from significant cost reductions following early research and development and as a result are, in some cases, taking forward large scale deployment.

Included in this category are: onshore wind greater than 5MW; solar photovoltaic greater than 5MW; energy from waste with combined heat and power (CHP); hydro between 5MW and 50MW; landfill and sewage gas.

These technologies will compete with each other for support from the first allocation of Contracts for Difference, helping to reduce costs and ensure that consumers get good value for money.

Less established technologies have a range of characteristics including significant potential for cost reduction and delivery of low-cost renewable generation in the future.

Included in this category are: offshore wind; wave and tidal stream; advanced conversion technologies; anaerobic digestion; dedicated biomass with combined heat and power and geothermal.

Support will be provided to create investment that enables cheaper competitive development in the longer term. These technologies will only move to auctions if there are more applicants for Contracts for Difference than are affordable within the budget.

In addition we are also launching a consultation under EMR on:

proposals to treat biomass conversions as a separate technology group, and Scottish Islands onshore wind projects as either part of the “less established” technology group, or as a separate technology group;

a minimum allocation for wave and tidal stream to ensure that budget is available for at least 100MW to be deployed.