Falling costs trigger reduced subsidy for onshore wind

Future subsidies to onshore wind and solar farms are to be slightly less than planned because of falling costs, the government has announced.

The growth of the renewable industry means the government now believes onshore wind and solar generators will need less support when changes to the way subsidies collected from energy bills are paid come into force next year, and so future subsidies will be less than previously indicated – £95/MWh instead of £100/MWh for the first three years.

By comparison, the strike price agreed with EDF for energy from the new Hinkley Point C nuclear plant was £92.50/MWh.

Early media reports indicated the government was shifting support away from onshore to offshore wind, a move thought to have the political benefit of pacifying vocal anti-turbine groups in the countryside.

But the government has now announced gradually falling planned levels for offshore wind subsidies (initially £155/MWh) will be introduced as planned until 2018, when a small intended cut will no longer be introduced and prices will remain at their 2017 level (£140/MWh).

The change in the way subsidies are calculated and their dependence on the future wholesale cost of energy also means it is impossible to yet say whether the payments to renewable firms will go up or down compared to current levels – although energy prices are expected to rise, meaning subsidies would go down.

‘The spin in Westminster and the media today is disappointing but not surprising,’ said the Renewable Energy Association’s chief executive, Dr Nina Skorupska, in a statement.

‘Today is actually a good news day for renewable electricity and renewable heat. The real reason that support for solar and onshore wind will go down is that they are leading the race for cost-competitiveness with fossil fuels. Government policy is working and bringing down costs.’

Energy secretary Ed Davey claimed the new subsidy regime would help meet the target of doubling the UK’s existing 20GW of renewable generating capacity by 2020 by attracting up to £40bn of extra investment.

’Investors are queuing up to express their interest in these contracts,’ he said in a statement. ’This shows that we are providing the certainty they need, our reforms are working and we are delivering ahead of schedule and to plan.

’With sixteen new major renewable projects progressing in our “go early” stage  we are delivering ahead of schedule and are able to begin the move to the worlds first low carbon electricity market faster than expected.’

Alongside the changes to wind and solar, landfill and sewage gas and energy-from-waste producers will also see their planned subsidies cut, while hydro, geothermal, dedicated biomass and anaerobic digestion generators will receive more, with geothermal seeing the largest increase.

Tidal and wave marine energy suppliers will see no change in their future subsidies, which will be by far the most generous – double those of offshore wind – reflecting the relative early-stage development of the technology and the difficulty in commercialising it.

  Strike price for 2014/15 in £/MWh
Renewable technology Draft Final
Onshore Wind 100 95
Offshore Wind 155 155
Large Solar Photo-Voltaic 125 120
Geothermal (with or without CHP) 125 145
Hydro 95 100
Wave 305 305
Tidal Stream 305 305
Advanced Conversion Technologies (with or without CHP) 155 155
Anaerobic Digestion  (with or without CHP) 145 150
Dedicated Biomass (with CHP) 120 125
Biomass Conversion 105 105
Energy from Waste (with CHP) 90 80
Landfill Gas 65 55
Sewage Gas 85 75

‘The big picture here is that renewables are the only low carbon technologies which can help bridge the looming supply crunch – and yet government has actually depressed its ambition for biomass and conventional waste to energy generation,’ said Skorupska. ‘This means more coal and gas plants, keeping us very much hooked on volatile fossil fuel prices.’

The biggest upcoming change is the one already announced by the government from a market-based “Renewables Obligation” system, where companies essentially trade renewable energy for extra money raised from higher bills, to a fixed ‘strike price’ system where renewable producers charge a set price for their energy.

This means that if wholesale energy prices rise then the amount of extra money renewable firms receive will fall. The system is designed around the assumption that wholesale energy will get more expensive in the future – if it were to get cheaper then subsidies would actually increase.

Although the government has recently promised to shift some green levies from energy bills to general taxation, these only pay for energy efficiency measures and the new renewable subsidy will still be raised through extra charges on bills.