Delayed ROC banding review only confirms onshore wind subsidies until 2014

The Department for Energy and Climate Change (DECC) said that its package, which also includes a new support band intended to assist the operators of coal-fired power plants to convert their facilities in order to burn biomass, could incentivise up to £25 billion of new investment by 2017.

However, potential investors in onshore wind generation would be disappointed to learn that the subsidy level for the technology will only be guaranteed until 2014 in case there are "sufficient changes in generation costs", energy law expert Jennifer Ballantyne of Pinsent Masons, the law firm behind Out-Law.com, said.

"This obviously undermines the certainty delivered by today's announcement and there will be further concern about the perception that the Government is dithering on the big issues," she said. "While the announcement promises 'grandfathering' for projects which have been 'committed to' by 2014 there is already much industry speculation about what that will mean in practice. If investment in UK onshore wind is not to slow down again within 12-14 months, swift and detailed clarification of what is proposed for the review is needed in short order."

However, she said that confirmation of the initial 10% rate cut would be welcomed by the industry as it "scotches the rumours" that a greater reduction was being promoted by the Treasury. A leaked letter to Energy secretary Ed Davey, published by the Guardian, indicated that the Chancellor was in favour of steeper reductions as well as more explicit support for gas generation.

"It has been a difficult week for the coalition Government on energy policy and they will be hoping that the announcement is enough to avoid another round of negative publicity," Ballantyne added. "However, the perception is one of incremental rather than radical progress and has the hallmarks of a political 'deal'. The fall-out from the delay in making the announcement, and the very public wrangling over its outcome in recent weeks, has affected not just confidence in the ROC banding process but also in the process that will be adopted for supporting low carbon technologies under the Government's forthcoming electricity market reform proposals."

The Renewables Obligation (RO) is the main financial support mechanism used by the 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. Banded ROCs were 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 draft Energy Bill, currently before Parliament, proposes replacing the RO from 2017 with a new system of feed-in tariffs with contracts for difference (FiT CfDs) which will offer producers of low carbon power a fixed price for energy supplied to the National Grid. Payments will be made with reference to a technology-dependent 'strike price' and a market reference price, protecting consumers by "clawing back" money from generators if the market price is higher.

Following the review support levels for wave and tidal stream energy generation technologies will more than double from 2 ROCs to 5 ROCs per MWh generated, subject to a 30MW limit per generation station. Existing coal-fired plants converting to sustainable biomass fuels will receive 1 ROC per MWh.

Support for onshore wind will be reduced by 10% to 0.9 ROCs, as consulted on last year; with that level of support guaranteed until 2014. A call for evidence on the cost of onshore wind will be published in the autumn, according to the Government, and reviewed ROC levels will take effect from April 2014 if the findings identify "a significant change".

A further consultation will consider reduced support levels for large-scale solar projects due to the recent dramatic fall in costs, however there will be no immediate reduction in support for these projects.

In a written ministerial statement, Energy Secretary Ed Davey said that his intention was to "send a strong signal to industry" that the Government intended for renewables to eventually become competitive without the need for subsidy.

"To get this moving in the right direction, we are reducing support where it can be done while bringing on the deployment that we need from key technologies, such as offshore and onshore wind, to achieve our aims," he said.

Ballantyne said that the increase in support for marine projects would create a "consistent position" across the UK. She also welcomed the new bands encouraging the increased use of sustainable biomass in existing coal-fired power stations, however voiced her disappointment that the level of support was not higher.

"Enhanced co-firing and conversion of fossil fuel generation plant to biomass generation could play an important part in the drive to meet our renewable energy targets," she said. "However the level of support announced for enhanced co-firing is below the level hoped for to maximise the deployment potential and ensure the economic visibility of large-scale enhanced co-firing projects."

Earlier this week Scottish First Minister Alex Salmond confirmed that support for the onshore wind sector in Scotland would also fall to 0.9 ROCs per MWh; however, he said that this level of subsidy would be guaranteed for the next four years. The Scottish Government will publish its full response to its own ROCs banding review shortly, he added.

Commenting on DECC's announcement, Scottish Energy Minister Fergus Ewing said that he was "concerned" by the UK Government's decision to only guarantee the band for onshore wind generation for one year.

"I am concerned that the UK Government's explicit statement about another and immediate review of onshore wind costs will not dispel the uncertainty for the industry and investors that recent speculation has been allowed to create," he said. "These projects represent long-term investments, which could be unnecessarily delayed by the short term aspects of today's announcement by DECC. This short termism can only damage investor confidence and I call on DECC to remove these uncertainties."