End to small-scale solar subsidies proposed as part of further changes to UK renewables support

Out-Law News | 24 Jul 2015 | 10:12 am | 2 min. read

Plans to end subsidies for smaller solar power generation of up to five megawatts (MW) in generating capacity a year earlier than originally planned have been put forward by the UK government.

The announcement comes a month after the government made similar changes in relation to onshore wind support, and comes as part of a package of planned measures to deal with a "projected over-allocation" of subsidies available to developers through the Renewables Obligation (RO). 'Grandfathering' support for certain biomass generators already accredited under the RO is to end immediately, as consulted on in December, the government announced.

Figures published by the Department of Energy and Climate Change (DECC) showed that the cost of renewables subsidies could reach £9.1 billion per year by the 2020/21 financial year; compared to the £7.6bn per year budgeted for through the Levy Control Framework (LCF). The LCF caps the cost of subsidies that can be recovered by the government through consumer energy bills.

The government said that the projected increase was due to "a number of uncontrollable factors" including lower wholesale electricity prices, higher than expected uptake of the financial support available for renewables and "a faster than expected advancement in the efficiency of the technology", meaning that more electricity than previously projected could potentially be generated by renewables.

"We need to keep bills as low as possible for hardworking families and businesses while reducing our emissions in the most cost-effective way," said energy secretary Amber Rudd.

"Our support has driven down the cost of renewable energy significantly. As costs continue to fall it becomes easier for parts of the renewables industry to survive without subsidies. We're taking action to protect consumers, whilst protecting existing investment," she said.

The RO was previously the government's main financial support mechanism for larger renewable electricity generation projects, but it is due to be phased out entirely by 31 March 2017. It will ultimately be replaced by the more competitive contracts for difference (CfD) scheme, under which 27 projects have already been offered contracts. Developers of more established renewable technology must bid for a place on the CfD programme based on the lowest guaranteed price per megawatt hour (MWh) that they are willing to accept.

The government has already restricted the scope of the RO to exclude solar projects with generating capacity of 5MW or above; a change which applied from 1 April 2015. The new proposals would exclude smaller installations in Scotland, England and Wales from the scheme from 1 April 2016, as well as end 'grandfathering' in England and Wales for those projects that have not already been accredited. The grandfathering policy protects developments from future cuts to subsidy levels throughout the lifetime of the subsidy award.

The consultation proposes similar 'grace periods' to protect solar project developers that have already received preliminary accreditation as of the date of the consultation, or those that have already made a "significant financial investment" in their planned scheme. As with the recently- announced changes to onshore wind, the government will ask developers to provide evidence of a planning application, a grid connection agreement and land rights in order to demonstrate significant financial investment.

The government has also confirmed the end of grandfathering for coal power stations that are converted to biomass or where the level of co-firing alongside coal is to be increased, for all projects accredited on or after 12 December 2014. This could reduce the LCF budget by as much as £500 million a year by 2020/21, according to the government. The change will apply to England and Wales only.

DECC has also published an additional consultation on changes to the preliminary accreditation rules under the feed-in tariff (FiT) scheme, which it said would be followed by a wider review of the scheme in order to "drive significant further savings". The FiT scheme covers subsidies for smaller-scale renewable installations, including wind turbines and solar panels installed to power individual homes and businesses. It would publish further announcements on the extent of the LCF budget after 2020, and on future CfD allocations, in the next few weeks, it said.