Renewable Energy Impact On Economy

The Parliamentary Information Office is currently monitoring progress towards targeted growth in the renewable energy sector

Yesterday Edward Davey MP, Secretary of State for Energy and Climate Change published the Government’s decision on the levels of financial support that will be available through the Renewables Obligation (RO) for large-scale renewable electricity generators from 2013-17. This follows a comprehensive, rigorous and evidence-based review of RO subsidies carried out over the last 18 months.

Mr Davey said “The support we’re setting out today will unlock investment decisions, help ensure that rapid growth in renewable energy continues and shows the key role of renewables for our energy security.”

The Renewables Obligation is currently the main financial mechanism by which the Government incentivises the deployment of large-scale renewable electricity generation. Support is granted for 20 years, which balances the need to provide investors with long-term certainty with the need to keep costs to consumers to a minimum.

Since the RO’s introduction in 2002, it has succeeded in supporting the deployment of increasing amounts of renewables generation from 3.1GW in 2002 to 13GW in the first quarter of 2012 and increasing the level of renewable electricity in the UK from 1.8% in 2002 to 9.4% in 2011. It is currently worth around £2 billion a year in support to the renewable electricity industry.

In April 2010, the end date of the RO was extended from 2027 to 2037 for new projects to provide long-term certainty for investors and to ensure continued deployment of renewables to meet the UK’s 2020 target and beyond.

The RO places a mandatory requirement on licensed UK electricity suppliers to source a specified and annually increasing proportion of electricity they supply to customers from eligible renewable sources or pay a penalty. The scheme is administered by Ofgem who issue Renewables Obligation Certificates (ROCs) to electricity generators in relation to the amount of eligible renewable electricity they generate. Generators sell their ROCs to suppliers or traders which allows them to receive a premium in addition to the wholesale electricity price.

Yesterday Ministers said that changes to subsidies for renewable electricity could incentivise between £20 billion and £25 billion of new investment in the economy between 2013 and 2017. The Banding Review for the Renewables Obligation will support jobs and deliver more clean power with a reduction in costs to consumers between 2013 and 2015,

Mr Davey reported that bandings were today set for renewable technologies under the Renewables Obligation for the period 2013-17 (2014-17 for offshore wind). This comes ahead of the Government's Global Investment Conference and series of 17 business summits taking place at the British Business Embassy at Lancaster House during the upcoming Games, which aim to secure further investment into the UK.

Mr Davey said:

“Renewable energy will create a multi-billion pound boom for the British economy, driving growth and supporting jobs across the country.

“The support we’re setting out today will unlock investment decisions, help ensure that rapid growth in renewable energy continues and shows the key role of renewables for our energy security.

“Because value for money is vital, we will bring forward more renewable electricity while reducing the impact on consumer bills between 2013 and 2015, saving £6 off household energy bills next year and £5 the year after.”

The Banding Review sets out that:

• Support for onshore wind from 2013-17 will be reduced by 10% to 0.9ROCs, as consulted on in Autumn 2011. This level is guaranteed until at least 2014 but could change after then if there is a significant change in generation costs. A call for evidence on onshore wind industry costs will be launched this Autumn and report in early 2013. If the findings identify a significant change, the Government will initiate an immediate review of ROC levels with any new support arrangements taking effect from April 2014, with grandfathering and grace periods for projects already committed. The call for evidence will also consider how local communities can have more of a say over, and receive greater economic benefit from, hosting onshore windfarms
• Rates of support for offshore wind will reduce as the cost of the technology comes down during the decade
• Support levels for certain marine energy technologies will more than double from 2ROCs to 5ROCs per MWh, subject to a 30MW limit per generating station
• There will be a new band to support existing coal plant converting to sustainable biomass fuels. This will increase the amount of renewable energy produced at less cost to consumers and
• There will be no immediate reduction in support for large-scale solar, but there will be a further consultation this year on reduced support levels given recent dramatic falls in costs.

By 2017, this package could deliver as much as 79 TWh of renewable electricity per annum in the UK - nearly three-quarters (74%) of the way towards the 108TWh of electricity needed to meet the UK’s 2020 renewable energy target.

These proposals are expected to bring forward 11 TWh more renewable energy in 2016/17 than current bandings, and stimulate between £20bn and £25bn of new investment. The proposals also provide industry with the certainty needed to make near-term investment decisions.

Gas
Alongside its plans for renewables the Government is also committed to ensuring that the UK is an attractive location for gas investors.

The Government will set out its gas strategy in the Autumn, and is today confirming that it sees gas continuing to play an important part in the energy mix well into and beyond 2030, while meeting our carbon budgets.
Through the 2020s, and beyond if gas proves cheap, it is expected to continue to play a key role ensuring that we have sufficient capacity both to meet everyday demand and complementing an increasing amount of relatively intermittent and inflexible generation. The role of gas is not expected to be restricted to providing back up to renewables, and in the longer term there is an important role for gas with CCS.

This role will be supported by making best use of UK energy resources and the Government is also today announcing the introduction of a £500m field allowance for large shallow water gas fields, to secure investment in marginal gas fields in the UK Continental Shelf.

The gas generation strategy will set out in more detail how the Government, whilst meeting its broad decarbonisation objectives will ensure investment in gas generation plant and how it will fulfil its commitment to ensure that if gas prices fall UK families and businesses will be able to benefit from lower bills.

As part of 17 Global Business Summits which will take place at the British Business Embassy during the Games, an Energy Summit will take place on 6 and 7 August. Speakers include Energy Secretary Edward Davey, Sam Laidlaw, CEO, Centrica, Steve Holliday, CEO, National Grid PLC, Maria McCaffery, CEO, Renewable UK, Samir Brikho, CEO, AMEC plc and Bob Dudley, CEO, BP.

The series of summits will be the largest set of trade and investment events ever held in this country with over 3,000 business leaders, policy-makers and ministers from around the world attending including half the companies in the FTSE 100.

The Parliamentary Information Office will continue to report on Government action to achieve targets in sustainable energy supplies over the months ahead.