Subsidies earmarked for solar could be cut as the UK’s Department of Energy and Climate Change (DECC) battles to keep Levy Control Framework (LCF) spending under control, a new report issued by market intelligence firm Cornwall Energy has claimed.
The LCF budget limits the impact that support for renewable energy has on consumers’ electricity bills.
The report, ‘Counting the cost’, issued on Tuesday, estimates that DECC could have already over-committed the LCF budget by up to £1 billion (US$1.57 billion) by 2020, a figure which would require urgent action.
“Based on our projections of continuing spend under the RO [renewables obligation] and small-scale FiT we have come to the conclusion that there might not be any money left to spend in any of the future CfD [Contracts for Difference] delivery years as a result of overspend against DECC’s original forecasts,” the report states.
And in order to secure funding for future CfD allocation rounds, other subsidies such as the small-scale feed-in tariff could find themselves on the cutting board. The CfD auctions are the competitive support scheme for renewables that sees solar and onshore wind compete for funding.
Cornwall Energy suggests that not only has solar’s meteoric rise in Q1 2015 – Solar Intelligence has calculated that 2.5GW was installed in this period alone – caught DECC by surprise, but that the department has made several underestimations in calculating factors that contribute towards LCF spending.
The report argues that DECC has underestimated the cost of subsidy schemes under the LCF umbrella, future load factors and wholesale power prices, all of which contribute to greater costs under the fixed cap.
Cornwall Energy also states that this could be exacerbated by the closure of the RO to onshore wind, announced to much criticism last week. The policy was part of the Conservative election manifesto. While DECC has estimated that 2.9GW of capacity will be completed during the year-long grace period, Cornwall Energy suggests this figure could be as high as 3.7GW.
Offshore wind capacity is also likely to continue to increase with a number of developers intending to complete sizeable installations prior to the end of the RO in 2017, and the new Conservative government is a huge proponent of offshore wind.
“Based on our assumptions of wholesale prices and load factors, the committed CfD spend is £200 million higher than the latest DECC assumptions released to the market,” the report states, adding that DECC would have to explain to the Treasury how it intends to reduce spending.
Renewed efforts required on climate change
Meanwhile the UK government's climate advisory board, The Committee on Climate Change (CCC), has urged it to take immediate action to meet its commitments on climate change and criticised it over recent policy decisions.
The CCC has issued the new Conservative government with its first progress report on the UK’s efforts to meet its emissions targets and it makes for grim reading despite a sharp decline in recorded emissions for 2014.
While the CCC has said there has been “good progress” in the deployment of renewable electricity generation technologies to date, there is continuing uncertainty with a number of key policies due to expire over the course of the current government.
“Uncertainty created by the lack of policies after 2020 will lead to stop-start investment, higher costs for all and risks failing to meet legal obligations to reduce emissions,” the CCC said. It added that certainty was needed to give investors confidence and to support low-carbon innovation.
In its report the CCC has advised the government to extend funding for low-carbon electricity generation under the LCF until 2025 with rolling updates to “ensure the power sector can invest with 10-year lead times”.