UK Government Proposes Solar and Biomass Subsidy Cuts

The U.K. proposed to reduce support for the solar and biomass-power industries to help consumers who fund the subsidies through their energy bills.

Ministers plan to end a government aid program for small solar projects a year early and will no longer allow small-scale renewables developers to lock in guaranteed power prices under the feed-in tariff program, according to documents on the Department of Energy and Climate Change website.

Prime Minister David Cameron’s administration is scaling back renewables assistance as part of its drive to keep a lid on public spending and reduce the costs to consumers of government policy. Today’s revisions follow cuts to onshore wind subsidies last month and to larger solar projects in April. The new measures are projected to save at least 600 million pounds ($940 million) a year by 2021.

“We’re taking action to protect consumers whilst protecting existing investment,” Energy Secretary Amber Rudd said Wednesday in a statement. “Our support has driven down the cost of renewable energy significantly. As costs continue to fall, it becomes easier for parts of the renewables industry to survive without subsidies.”

The Solar Trade Association called the measures “damaging” and a “real blow to investor confidence” while Good Energy Group Plc Chief Executive Officer Juliet Davenport said ending solar support “makes no sense at all” when the government is also pledging guaranteed power prices for large nuclear plants.

‘Hand-Brake Turn’

“This announcement is yet another hand-brake turn on energy policy,” said Maria McCaffery, chief executive officer of the RenewableUK industry group. “Removing certainty will worry energy investors and can only increase the cost of developing renewable projects.”

The Office of Budget Responsibility estimates spending on the renewables assistance programs would exceed Treasury caps by about a fifth in the tax year 2020-2021, a projection that prompted the latest action.

The energy department also said it will end a policy called grandfathering, which allows biomass developers to get premium payments for their electricity over the lifetime of a project. When that move was proposed in December, Drax Group Plc shares slumped 10 percent. Drax, which has converted two coal units to burn wood pellets at its power plant in Selby, northern England, fell as much as 2.2 percent on Wednesday.

The Treasury’s Levy Control Framework sets annual caps on assistance to renewables rising from 4.3 billion pounds this tax year to 7.6 billion pounds in the 2020-2021 tax year. The Office of Budget Responsibility projects spending of 4.3 billion pounds this year, rising to 9.1 billion pounds by 2021, an overrun that only just falls inside the 20 percent “headroom” provided to allow for shifting costs.


The department said it’s working with the Treasury to prepare new caps for after 2021 to provide more certainty for investors. It also said it’ll make proposals in the fall regarding the next round of auctions under the Contracts for Difference program, the main tool to encourage large-scale renewable energy projects.

Under Rudd’s proposals, the Renewables Obligation program would close April 1 — a year before planned — for new solar projects of as much as 5 megawatts. It already ended aid for bigger solar projects this April, and announced the same measure for onshore wind last month. The department also proposed to end grandfathering rules for solar projects under the program.

The government estimates that the change to biomass rules alone may save as much as 500 million pounds a year by 2021 — an amount that would have been incurred over and above the projected overspend. The changes to the renewables obligation for smaller solar projects would deduct 100 million pounds from the overspend in the year through 2021.

“I’m not ruling out further subsidy for the solar industry,” Rudd said on BBC Radio 4’s “Today” program. “What we’re doing today is introducing measures to limit that subsidy. We can’t have a situation where industry has a blank check and that check is paid for by people’s bills.”

©2015 Bloomberg News

Lead image: Spending Cuts. Credit: Shutterstock.

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