Are cuts to UK renewable energy subsidies good news?

Changes to government support for wind and solar proves industries are competitive say industry insiders


By Ed King

News of cuts to UK wind and solar subsidies were once greeted with howls of anguish from the renewables industry.

But today’s announcement that support for onshore wind and solar power will be trimmed from 2015 has received a surprisingly warm welcome from analysts and green groups.

Underlying all of this is a growing confidence in the green sector, and a belief that it will soon be able to compete with traditional forms of energy: coal, oil and gas.

“Today is actually a good news day for renewable electricity and renewable heat,” said Dr Nina Skorupska, head of the UK Renewable Energy Association.

“The real reason that support for solar and onshore wind will go down is that they are leading the race for cost-competitiveness with fossil fuels.”

Her counterpart in the solar industry, Paul Barwell from the STA, agrees.

“The strike prices clearly show this is a technology on track to compete with fossil fuel prices. This is fantastic news for the public as solar will deliver clean power at a very stable price, with no unexpected cost fluctuations.”

Helping hand

Strike prices are what the government says it will pay per unit of energy, and are set significantly higher than the usual value of energy, giving investors in new forms of energy some certainty.

And as cost reductions are achieved these subsidies need to be cut “to avoid excessive and unnecessary increases in the costs of energy services,” recommends the International Energy Agency.

In the case of the UK it seems we’re heading towards that point, so much so that even Greenpeace’s Doug Parr seems relaxed about the cuts.

“Today’s cuts to onshore wind and solar support schemes show how quickly the cost of clean energy technologies are falling,” he said in an emailed statement.

Parr also points out that by 2017, the price of onshore wind will be cheaper than nuclear, and is likely to get cheaper in the coming decades.

It’s worth adding that the strike price for offshore wind, a rare energy sector where the UK is a world leader, was actually increased today in an effort to attract new investment.

The costs of installing, maintaining and transmitting electricity from turbines at sea are far higher than their land-based cousins, making it unlikely they will become cost competitive in the short-term.

The Carbon Brief website has a more detailed analysis of what this means for the UK renewables industry, which appears well on course to hit an EU target of 15% energy from clean sources by 2020.

And a bullish UK energy and climate chief Ed Davey said today “additional investments of up to £40 billion” by 2020 were expected, suggesting clean energy capacity could double to 40GW by the same year.

So is everyone a winner?

Guy Newey from the centre-right thinktank Policy Exchange says subsidy cuts are good news for consumers and efforts to address climate change.

“The cheaper these things are, the more likely we are to decarbonise,” he says, but adds “overall, not much has changed.”

Energy and banking analysts like Peter Atherton from Liberum remain unconvinced (see tweet below)

Without an effective price for carbon, gas is still the cheapest way to generate electricity, with coal not far behind.

But costs are falling. Is that because of state intervention or despite it? It seems what the industry craves above all is less tinkering.

“All politicians need to understand that uncertainty spooks investors and it is the consumer who bears that cost,” says Maf Smith from RenewableUK.

“Voters support the development of on and offshore wind, so we now need a period of calm and consistency from Government.”

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