Government puts back Renewables Obligation Certificate reforms, leaving investors unable to commit to green projects
Investment in the UK’s renewable energy infrastructure has been thrown into doubt as an urgent review into the subsidy regime has been delayed.
Renewable energy companies are concerned that the delay of Renewables Obligation Certificate (ROC) reforms – promised this year by the government – will prompt a rethink of the investment plans. The review is crucial for investors as they are currently unable to make long-term business plans without knowing how much support they are likely to receive in future.
Chris Moore, director at biomass plant developer MGT Power, said the delay meant investors were not moving ahead with potential projects. He said: “This is a problem for renewable businesses, and it’s very damaging for UK plc. All of renewable energy investment is effectively on hold until the government sorts out the review and its plans.”
Gaynor Hartnell, chief executive of the Renewable Energy Association, said the trade body had been “inundated” with inquiries over when the review might take place.
Key to the review is how the subsidies will be “banded”, whereby some forms of energy will receive greater support – which comes ultimately from consumer energy bills, rather than government coffers – than others. A new regime would also be expected to provide more targeted support for new technologies.
Last December, the government recognised the need for an urgent review when it brought forward the consultation by a year. Charles Hendry, energy minister, said then that a consultation on ROCs would be carried out over the summer, and that by autumn this year, new plans for the subsidies would be confirmed.
At the time, the Department of Energy and Climate Change (DECC) acknowledged: “Under the previous timetable, investors would not have known for certain what support they could have expected to receive until autumn 2012 at the earliest. The government was concerned this might delay early investment in certain technologies and hinder the UK’s ability to meet our European Union energy target for 15% of energy to come from renewable sources by 2020.”
In accelerating the review, the government said it would “give investors and developers greater certainty, and the confidence to help bring forward the scale of renewable development needed to deliver the EU target, and other important energy and climate change objectives”.
This timetable is now impossible to stick to. The consultation will take 12 weeks, as is standard. However, even if the review were to begin immediately, it could not be completed before the end of this parliamentary term. Investors are concerned that this could be the start of a longer delay.
Most at risk are biomass projects, generating electricity from wood and waste byproducts. Several of these are on hold because at current rates of subsidy, they would be uneconomic, and companies are calling on the government to correct this problem. This summer Dorothy Thompson, chief executive of Drax, which was planning to burn more biomass than coal in its massive power station, told the Guardian these plans were in jeopardy because of the government’s failure to clarify the subsidies.
DECC said an announcement would be made “shortly” but could provide no further details.
Ministers are thought to be wary of attracting attention to the level of subsidies for green electricity, after a spate of reports in sections of the media and on the right of the Tory party criticising renewable subsidies as a component in energy prices. Chris Huhne, environment secretary, argues that consumers are more at risk of rising costs from the volatility of the gas price, and that investing in renewables is the best way to prevent future rises.
Labour leader Ed Miliband blamed energy companies for higher bills this week, promising to curtail their powers.
When the new bands are decided, they will come into effect from 1 April 2013, and from 1 April
2014 for offshore wind technologies.