As the UK government closes Renewables Obligation (RO) subsidies for larger onshore wind developments a year early, the rumours that offshore wind subsidies will be reviewed, in addition to the loss of political support for ground mount solar, could see the ‘greenest government ever’ experience a very rough ride from the renewables industry and global investors.
However, following in the footsteps of our European neighbours may not be all doom and gloom. While larger developments are now expected to stand on their own two feet, community-backed schemes will be largely unaffected for the time being by the funding changes in the UK. This presents opportunities for industries looking to work more closely with local communities.
A tale of Europe – the subsidy journey
While it is all too easy to consider UK energy policy in isolation, it may help to explore the subsidy regimes in other European markets. Italy, for example, saw strong growth in solar power but ceased granting feed in tariffs (FiT) for new installations in 2013, once its budget cap had been reached. Combined with restrictions on solar self-generators and a tax on renewable energy producers, this has led to a massive decrease in investment.
In Spain, a county that has the fourth highest electricity costs in Europe, it seems logical that the government would want to encourage individuals to generate their own power. However, conversely, the government is about to publish draft legislation that will not only impose taxes on small-scale renewable producers, but also end the payments for exporting excess electricity back into the grid.
Taxes are also planned in Spain for householders and community organisations looking to invest in battery storage, while anyone who does not connect their renewable installation to the national grid could be fined up to €30 million. This is all due to a €26 billion accumulated tariff deficit, which the Spanish government claims has built up due to the surplus energy produced during Spain’s solar energy boom years.
Germany too sits at the top of the league tables when it comes to energy costs for consumers. Like Spain, Germany introduced a programme of subsidies early in the 1990s to help support the burgeoning renewables sector. However, it has managed to pass some of those costs on to consumers, with utility companies diverting around a fifth of each bill payment to the Renewable Energy Levy.
Indeed, the challenge in Germany is that the existing infrastructure is just not up to the job. In order for the country to meet its renewable targets, it needs to install thousands of miles of high-capacity power lines and upgrade existing lines. To fund this investment, Germany has passed changes to its Renewable Energy Sources Act which will see subsidies for new green power plants reduced. Again, investment in renewable power is falling, while there has actually been a growth in fossil fuels.
Standing on its own two feet: the UK onshore wind industry
While the UK government’s argument that renewable technologies must stand on their own two feet and not be reliant on public subsidies for their success may broadly fall in line with European Commission (EC) guidelines, the concern that the market will not stabilise but will collapse instead like Spain is a very strong one. Although the EC changed the rules on state support for renewables in 2014 to mitigate against the impact of market distortions and increasing costs to consumers, the framework was also intended to operate in a gradual and pragmatic way, safeguarding the expectations of returns by investors and reducing consumer power bills.
Given such concerns, key representatives of the UK’s renewables sector have suggested that legal action could be taken to fight the decision, while the Scottish government has also expressed significant concerns over the move, which will impact heavily on its domestic renewable industry. The EU’s climate chief has also added his voice to the fray, stating that onshore wind is the cheapest way to hit renewables targets and that the UK has already fallen off the track to meet its legally-binding renewable goals.
Opportunities for community-backed and small scale projects
Of course, while there is no doubt that the move will have some impact on investor confidence across all UK renewable infrastructure projects, those on the smaller scale – 0.5MW to 5MW capacity – will not be affected by this latest government move. Indeed, such projects are supported by feed in tariffs which have not, yet, been impacted beyond the expected degressions.
In addition, some of the most recent developments in the world of planning policy have also delivered a series of positives for local communities and smaller projects, with the government’s confirmation of a greater focus on consultation and the introduction of community benefit payments. Indeed, there are strong advantages to all parties looking to participate as part of one of these funding models.
These changes will prove particularly beneficial to smaller scale schemes, providing they meet the requirements of a number of planning caveats set out by communities secretary Greg Barker. The MP confirmed that planning permission should only be granted if the proposed development site is in an area designated suitable for wind energy development in a local or neighbourhood plan, and if it can be proven that the scheme has full community backing.
The green light applies to schemes looking to supply both back-up power provision for businesses or a community generation scheme, and follows the government’s confirmation last year that community projects will have continued support on onshore wind through feed in tariff. The FiT allowance has doubled in capacity from 5MW to 10MW, which now enables communities to build two 5MW schemes side by side, providing one project is owned by a community organisation.
The government’s commitment has increased the attractiveness of this renewable energy source across agricultural industries. Farm and community-scale renewable energy generation presents the opportunity to diversify risk, deliver additional revenue streams and hedge against future energy price rises or future shortages for land owners and farmers. There has been significant growth in recent years in the number of community energy projects which have achieved consent. Indeed, investment in renewables is now a powerful consideration for all farmers, operators and developers across the UK.