Future subsidy levels for renewable energy projects have been proposed that are designed to encourage early investment in projects. However, financial support available to onshore wind farms will be cut by 10% under the Government's review of the support available to renewable generation technologies. Incentives for waste, biomass and offshore wind projects similarly face cuts.
In its consultation on changes to the levels of support available to large scale renewable generation projects for 2013-2017 under the Renewables Obligation (RO), DECC focuses on "scalable" lower cost technologies in order to meet its renewable energy targets by 2020.
The changes are intended to reflect market conditions while ensuring that developers continue to receive the level of support necessary to encourage investment, DECC said.
The RO is the main financial support mechanism used by Government to encourage the development of large-scale renewable electricity generation projects. It places an obligation on suppliers to source an increasing proportion of the electricity they supply to customers from renewable sources.
Tradeable Renewables Obligation Certificates (ROCs) are designed to stimulate the market and promote growth. Banding was introduced in 2009, changing the RO from offering a single level of support for all renewable technologies to one where support levels vary in relation to the cost of developing that technology and its future potential. The bands to be reassessed every four years.
The current consultation proposes increasing support for wave and tidal stream technologies to 5 ROCs from a previous level of 2 ROCs, for capacity up to 30MW per generating station, where the technology is accredited and operational before 1 April 2017.
Support for onshore wind power generated between 2013 and 2017 will be reduced from 1 ROC to 0.9 ROCs. Whilst support for offshore wind will also come down over the banding review period as development and operational costs fall, DECC said.
Support for offshore will be maintained at 2ROCs/MWh for all projects built until April 2015. After this date for new offshore wind generating stations accredited in 2015/16, the proposals are to reduce support to 1.9ROCs in 2016/17, and then further to 1.8ROCs.
The current RO allows coal generators to convert to biomass and receive the same level of support (1.5ROCs) as a new build dedicated biomass generator. DECC has proposed the introduction of a new band, "biomass conversions". Generators that convert before 1 April 2013 in line with new proposals will receive 1.5ROCs/MWh for any generation up to 31 March 2013 and 1ROC/MWh for any generation from 1 April 2013.
There will be increased support for biomass co-firing set at 1ROC and for dedicated biomass plants. DECC plans to maintain current RO support at 1.5 ROCs/MWh until 31 March 2016. From 1 April 2016, however, support will reduce 1.4 ROCs/MWh. Simon Hobday, an energy law expert with Pinsent Masons, the law firm behind Out-Law.com, said that the changes could affect the types of renewable energy projects which will see development go ahead.
"A cut from 1 ROC to 0.9 ROCs may not seem much on paper, but it may tip the balance on a project from an appropriate to an inappropriate use of investment. In a world of competing project demands, the capital will go to those projects which will see the highest return on that investment," he said.
DECC said that the changes would encourage 70-75 terawatt hours (TWh) of renewable electricity generation in the UK by 2017. This is 70% of the way towards the 108TWh of electricity needed to meet the UK's 2020 renewable energy target, it said.
The proposals are expected to cost between £0.4bn and £1.3bn less than retaining the current bandings, resulting in less of an impact on household energy bills, it said. They would also provide industry with the certainty needed to make investment decisions.
"We have studied how much subsidy different technologies need. Where new technologies desperately need help to reach the market, such as wave and tidal, we're increasing support. But where market costs have come down or will come down, we're reducing the subsidy," said Energy Secretary Chris Huhne.
The changes will apply to renewable electricity projects in England and Wales. The Scottish Government has also published a consultation paper on changes to the Renewables Obligation in Scotland (ROS). A separate consultation on banding changes to the Northern Ireland Renewables Obligation will be published shortly.