The government has today published its long-awaited decision on future renewable energy subsidy levels, confirming the Lib Dems have successfully resisted demands from Chancellor George Osborne for deeper cuts in support for onshore wind farms and changes to policies governing new gas-fired power plants.
As expected the Department of Energy and Climate Change (DECC) today announced changes
to the Renewables Obligation (RO) subsidy mechanism for the period between 2013 and 2017 that are largely in line with original expectations, meaning onshore wind farms will only face a 10 per cent cut in support.
Energy and Climate Change Secretary Ed Davey predicted the changes will help to drive between £20bn and £25bn over the next four years.
"Renewable energy will create a multi-billion pound boom for the British economy, driving growth and supporting jobs across the country," he said in a statement. "The support we're setting out today will unlock investment decisions, help ensure that rapid growth in renewable energy continues and shows the key role of renewables for our energy security.
"Because value for money is vital, we will bring forward more renewable electricity while reducing the impact on consumer bills between 2013 and 2015, saving £6 off household energy bills next year and £5 the year after."
The announcement represents a significant victory for the Lib Dems and DECC, after an initial decision on the changes was delayed following interventions for the Treasury that demanded deeper cuts than expected in subsidies for onshore wind farms. It also emerged this week that Osborne had written to Davey demanding a significant shift in energy strategy to drive additional investment in gas-fired power plants in return for his support for more modest cuts in renewable energy subsidies.
The new subsidy levels suggest Davey has initially rejected these demands, but in a series of concessions to the Treasury DECC signalled it does "not expect the role of gas to be restricted to providing back up to renewables, and in the longer term we see an important role for gas with CCS".
It also announced additional official reviews on the level of subsidy available to onshore wind farms and solar projects, which will kick off later this year and have already raised fresh questions about investor uncertainty from industry groups.
DECC said there would no "immediate reduction" to subsidies for large-scale solar projects, but subject to consultation the RO scheme will no longer be made available to solar farms with less than 5MW of capacity – a move that would effectively slash the level of support for mid-sized solar farms by forcing them to secure incentives from the less generous feed-in tariff scheme.
Consultations on blocking onshore wind, anaerobic digestion and hydro-electric projects with less than 5MW of capacity from using the RO will also fuel concerns that smaller projects will face effective cuts in subsidies as they are instead forced to access the feed-in tariff scheme.
Davey is understood to be confident the reviews on onshore wind and solar projects will be evidence-based and will only result in additional cuts to subsidies if there are clear signs that falling costs can justify reductions in support.