The government has announced the outcome of the banding review for the Renewables Obligation, setting out the levels of support available for large-scale renewable energy technologies for the period 2013 – 2017 (2014 – 2017 for offshore wind). Subsidies for onshore wind have reduced, but not to the extent predicted by industry journals. Support for large scale solar farms remains at current level, though this will be reviewed later in 2012.

Commentators have presented the outcome as a victory for the Department of Energy and Climate Change over Treasury (and Conservative backbench) pressure for deeper cuts. Announcing the results of the review Energy Secretary Ed Davey claimed that they would 'unlock investment decisions' and stimulate up to £25 billion of new investment in the UK economy by 2017.

Subsidy levels

There is no surprise that many subsidy levels are reducing. Like other subsidy schemes, the Renewables Obligation is intended to support early stage and advanced technology, reducing as costs fall and as technologies are proven in the market. The question mark over the 2012 review of Renewables Obligation banding was how far and how fast those subsidies would fall, particularly for politically controversial technologies such as onshore wind and solar pv.

Following the banding review:

  • Support for onshore wind from 2013-17 will be reduced by 10% to 0.9ROCs, as consulted on in Autumn 2011. This level is guaranteed until at least 2014 but could subsequently alter if there is a significant change in generation costs.
  • Rates of support for offshore wind will reduce as the cost of the technology comes down during the decade;
  • Support levels for certain marine energy technologies will more than double from 2ROCs to 5ROCs per MWh, subject to a 30MW limit per generating station;
  • There will be a new band to support existing coal plant converting to sustainable biomass fuels. This will increase the amount of renewable energy produced at less cost to consumers; and

DECC claims that by 2017, this package could deliver as much as 79 TWh of renewable electricity per annum in the UK - nearly three-quarters (74%) of the way towards the 108TWh of electricity needed to meet the UK's 2020 renewable energy target.

Areas of uncertainty?

The Renewables Obligation is due to close for new generating facilities in 2017, with support continuing for facilities already within the scheme until 2037.

Within that period, DECC's view is that the proposals provide industry with the certainty needed to make near-term investment decisions. The emphasis must be on 'near-term' decisions. It is clear from the written ministerial statement accompanying the announcement of the banding review that levels of support for key technologies will remain vulnerable to change throughout the period to 2017.

A call for evidence on onshore wind industry costs will be launched this Autumn and DECC intends to report in early 2013. If the findings identify a significant change in generating costs, the Government will initiate an immediate review of ROC levels with any new support arrangements taking effect from April 2014, with 'grandfathering' and grace periods for projects already committed. The call for evidence will also consider how local communities can have more of a say over, and receive greater economic benefit from, hosting onshore windfarms. This last element appears to be an explicit nod to the group of more than 100 backbenchers who called for much larger reductions in support for onshore wind, and also to the increasing number of planning authorities seeking to restrict windfarm development.

Similarly, while there is no immediate reduction in support for large-scale solar, there will be a further consultation this year on reduced support levels 'given recent dramatic falls in costs'.

Given that levels of support are generally locked-in once a scheme has been accredited, the intention is clearly to incentivise early investment before levels of support reduce and the shutters finally come down on the Renewables Obligation in 2017.

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