Renewable energy subsidies revised

On the 22 July, it was announced that measures are to be put in place to deal with a projected over-allocation of renewable energy subsidies.  The Government's measures are hoped to "provide better control over spending and ensure bill payers get the best possible deal as we continue to move to a low-carbon economy."

Financial support for renewable technologies primarily comes in the form of subsidies which are paid for via energy bills.  The total amount of subsidies available is capped via a mechanism called the Levy Control Framework (LCF).

The measures have been announced after rumours of the LCF being overspent by around £1.5bn from the original planned reviewable projects by 2021 on a £7.6bn budget.  This is important as the funding is aggregated across our electricity bills but the Government wants to show it is trying to control energy prices to consumers.  The Government states that the overspending comes from a number of uncontrollable factors such as lower wholesale electricity prices, higher than expected uptake of the demand-led Feed in Tariffs and the Renewables Obligation (such as solar panels on roofs), etc.

The measures that are planned to take place are:

• removing the guaranteed level of subsidy for biomass conversions, in England and Wales, and co-firing projects for the duration of the Renewable Obligation (Grandfathering).  This is predicted to reduce the risk of more allocations under the LCF by around £500m per annum in 2020/21;
• launching a consultation on controlling subsidies for Solar PV of 5MW and below under the Renewables Obligation (RO).  This will include consulting on early closure and removing the guaranteed level of subsidy; and
• a consultation on altering the pre-accreditation rules under the Feed-in Tariff (FIT) scheme followed by a wider review of the FIT scheme.

The Government also plans to:

• set out totals for the LCF beyond 2020; and
• set out its plans in the Autumn in respect of future CFD allocation rounds.

The proposed changes to grandfathering could be interesting in terms of possible retrospective action, something that would really hurt investor confidence in any future support scheme from the Government.

For more information, help or advice please contact Andrew Davison on 0191 211 7950.