Public support for renewables 'good investment', says expert, as government consults on extension

Infrastructure law expert Gareth Phillips of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Department of Energy and Climate Change (DECC) published a short consultation on extending the contracts for difference (CfD) subsidy programme until 2026.

The UK government has already allocated £730 million to the scheme over the period between 2021 and 2026 as part of its most recent budget and spending review. However, existing legislation limits the projects eligible for support to those commissioned during 12-month delivery 'windows', which run until 31 March 2020.

Phillips said that, given that the budget had already been allocated for the extension of the subsidy programme, offshore developers had a "legitimate expectation" that CfDs would run for the balance of that budget.

"Given the economic uncertainty created by the 'Brexit' vote, a clear message is needed from the government to counter that effect and encourage project sponsors, investors and the supply chain to remain committed to the UK offshore industry," he said. "This would also give a clear message that the UK remains open and attractive for infrastructure investment."

"Offshore developers are on target to achieve reduced cost of energy, but costs are still high and it is right that offshore continues to have new technology status and financial support. The offshore industry has been thriving to date, resulting in significant provision of skilled jobs and local, regional and national growth. This makes CfD support a good investment of public money in terms of economic, social and environmental wellbeing," he said.

In a speech this week, energy minister Andrea Leadsom said that the government's commitment to green energy had not been affected by the outcome of the referendum on EU membership. However, she said that the government had a "responsibility" to cut the cost of the subsidy programme in line with the falling costs of individual technologies.

"When the costs of renewables fall dramatically, it cannot be in our interests to pay generators above the odds while the public foots the bill," she said.

"In the long-term, it is the market that will decide the contributions of the different technologies - first through auctions, and then directly as clean energy begins to deploy without subsidy ... I believe that it is in all of our interests to reach the point where clean energy can deploy without subsidy, and the government can remove itself from the market, as soon as possible," she said.

CfDs are a significant part of the UK government's programme of electricity market reform, through which it aims to incentivise up to £110 billion in energy investment over the next decade. They replace previous incentives for renewable energy generation such as the Renewables Obligation (RO), which is due to be phased out entirely by next year.

A CfD is a commercial contract between an operator of approved renewable generation technology and the independently-operated, government-owned Low Carbon Contracts Company (LCCC). The contracts provide guaranteed payments to operators, calculated with reference to a technology-dependent 'strike price' and a market reference price, while enabling the LCCC to claw back money when market prices are high.

Only 'less established' generation technologies, including offshore wind, will be entitled to participate in the CfD auction process from the second allocation round later in 2016 onwards. 'Established' technologies, such as onshore wind and solar photovoltaic (PV) power, will not be eligible for this round. Given the absence of onshore wind and solar, Phillips said that offshore wind would be "key" to the UK meeting the decarbonisation targets set out in the recently-published Fifth Carbon Budget.

DECC's consultation on extending the CfD programme closes on 8 August.