Mark Latham
Deputy Business Editor
When it was reported two weeks ago that the UK Government would fulfil its
manifesto promise to curtail subsidies for onshore wind farms by bringing
forward the closure of a generous subsidy scheme, green energy firms
threatened to sue and the Scottish Government responded that it was being
“frozen out” of a decision that would have its greatest impact in Scotland.
Barring a last minute U-turn as a result of the lobbying backlash, the new
UK energy secretary Amber Rudd is widely expected to announce the shutting
down of the Renewable Obligation Certificate (ROC) subsidy system (see
panel) a year earlier than expected: bringing forward the cut-off date for
qualifying projects to be constructed from March 2017 to March 2016.
Niall Stuart, the chief executive of trade body Scottish Renewables, told
the Sunday Herald that, if Rudd confirms the early closure of the ROC
scheme it would have a “disastrous” impact on investor confidence as
developers would instead have to bid for subsidies under the more strictly
rationed Contract for Difference (CfD) scheme.
According to Scottish Renewables around 850 onshore wind turbines spread
across 37 projects representing 2,129 megawatts of generation capacity
already have planning permission in Scotland and are now under threat.
If built, the industry says, the turbines would provide a £3 billion
investment boost to the Scottish economy and would generate 5446GWh over
their lifetime equating to 14.2 per cent of existing gross electricity
consumption in Scotland.
“All of these projects will have been making investment decisions on the
basis of the ROC being available until 2017 and two projects are already
under construction,” Stuart said.
“We are focussed on persuading the government that it would be a mistake
for the UK’s energy market and a mistake for consumers to go ahead with
this.”
Developers who had invested significantly in bringing forward proposals for
new schemes could decide to sue the government for bringing the ROC subsidy
scheme to an end earlier than expected, Stuart warned, pointing to the fact
that green groups last year successfully sued the previous coalition
government after it changed the rules on rooftop solar panel subsidies.
“Any change to the mechanism that would bring forward the ROC’s closure
would be a retrospective moving of the goal posts,” Stuart said.
“Developers have acted in good faith on a commitment and spent years and
millions getting the necessary consents and grid connections.”
“If the ROC was to be closed in a way that did not recognise the
significant sums that have been invested that would be unfair and
unreasonable,” he said. One solution, Stuart suggests, is to bring in some
form of “grace period” that would allow consented projects to take up the
ROC subsidy.
Stuart believes that, taking into account the significant decommissioning
costs associated with nuclear electricity generation (the main competing
source of low carbon energy), onshore wind power is, by comparison, a
cheaper form of generation.
“Onshore wind costs are coming down and have come down,” he said. “Our
focus now is on making onshore wind not just the cheapest renewable form of
generation but the cheapest low carbon form.”
How exactly would the change of regime impact the industry? One of the
projects under threat, whose developer does not want to be identified,
would have had a capacity of 22MW. The developer, who has already signed a
contract with a turbine manufacturer, has so far spent more than £1 million
on obtaining consents and will become liable for more than £10m for
improvements made to the National Grid network to provide the capacity to
connect the proposed wind farm.
An official announcement on government plans was originally expected to
have been made by Rudd around ten days ago. It was rescheduled for last
week and then cancelled. A spokeswoman for the Department of Energy and
Climate Change said on Friday that the announcement would be made “shortly”.
“We are consulting with the devolved administrations as we implement the
commitment to end new public subsidy for onshore wind projects,” the
spokeswoman said.
Earlier this year uncertainty over the direction of UK energy policy led to
the UK slipping down an influential global ranking for renewable investment.
According to the Renewable Energy Country Attractiveness Index published by
financial advisory firm EY, the policy uncertainty contributed to the UK
falling to 8th place in the index. In 2005, the UK was ranked in first
place.
EY said that the uncertainty in the UK came at a time when competition for
investment in energy infrastructure is intensifying internationally and
that this would pose an increasing threat to the UK’s ability to attract
investors.
Conservative MSP Murdo Fraser, Convenor of the Scottish Parliament’s
Economy, Energy and Tourism Committee, told the Sunday Herald that the Tory
pledge to remove subsidies for onshore wind would be delivered although
there was perhaps some wiggle room on when the subsidies would be withdrawn
for consented projects.
Fraser claims that, if the projects that have so far gained planning
permission are built, Scotland will meet the government’s target of
producing 100 per cent of the country’s electricity needs from renewable
sources by 2020, allowing for a base load of conventional generation to
guarantee constant supplies.
“I am not sure I understand why we need to continue to subsidise onshore
wind energy generation if we are already on track to meet the 2020 target,”
he said. “There is, though, a legitimate issue about the phasing out of any
subsidy withdrawals: when there is a pipeline of consented projects it
would be unreasonable to pull the plug immediately.”
Fraser backs the Conservative push to put more resources towards offshore
wind generation as, despite the higher cost of building turbines at sea,
offshore wind farms are more efficient as they can tap higher wind speeds.
Offshore wind farms also have the advantage of not impacting on countryside
of scenic value and, therefore, not impacting on tourism, he added.
Linda Holt of the Scotland Against Spin lobby group, which campaigns for
the reform of what it calls the Scottish Government’s “unsustainable” wind
energy policy, said she hoped that the Conservative government delivers on
its manifesto promise to remove subsidies for onshore wind farms.
“Having won the election, they have not merely a mandate but an obligation
to follow through so the wind industry can hardly act as if this is unfair
or unexpected,” she said. “That was a risk that the developers took. They
are speculators and it is disgraceful that they are now talking about suing
the government.”
The introduction by the previous coalition government of the CfD regime had
had a beneficial impact on the renewable energy sector, Holt believes.
Forcing generators to bid against each other in blind auctions had made the
sector more competitive and had led to a 20 per cent reduction in costs,
she claimed.
Holt is particularly critical of the Scottish Government’s energy policy
which, she says, will – because of the closure next year of the Longannet
coal-fired power station in Fife, the Scottish Government’s anti-nuclear
policy and the need to have a minimum of base load generation capacity to
keep the lights burning on windless or sunless days – turn Scotland from
being a net exporter of electricity to England into a net importer.
Last month Scottish First Minister Nicola Sturgeon demanded that David
Cameron give her a veto over any plans to cut subsidies for wind farms,
raising the prospect that subsidies could continue to be paid to new
projects in Scotland (where most of the UK’s onshore wind farms are
located) but not south of the border.
That would mean that English consumers would continue to foot most of the
costs for the development of onshore wind farms north of the border and
that is likely to be politically unacceptable for many English MPs.
The most likely political solution could be a fudge that will allow some or
all of the threatened Scottish onshore projects to receive some form of
subsidy.
Westminster could also sweeten the pill by persuading Holyrood that it is
serious about developing offshore wind in a way that would allow the three
proposed offshore wind farms in Scotland that have so far failed to obtain
a guarantee of subsidy (see panel) to be built.
ROCs AND CfDs
The so-called Renewables Obligation Certificate (ROC) system – first
introduced in 2002 – guarantees an automatic subsidy (funded through green
levies on consumer energy bills) to a green energy supplier as long as an
eligible generation technology is used. By contrast the Contract for
Difference (CfD) system progressively replacing ROC subsidies involves
generators bidding against each other in a blind auction for a limited pot
of money each year.
Under CfD, generators receive a top-up payment between the market price and
an agreed ‘strike price’. When the market price of electricity remains
below the strike price generators receive the top-up payment but when the
market price exceeds the strike price, generators have to pay back the
excess.
The Department of Energy and Climate Change claims that the introduction of
competition into the subsidy regime through CfDs has driven down energy
prices and that these savings are expected save tax-payers around £100m a
year compared with the non-competitive ROC system.
The first CfD annual allocation round announced in March this year saw 27
projects around the UK being awarded with CfDs worth £315m. By contrast,
the amount spent by the government on ROCs last year was £2795m.
SCOTLAND’S YET-TO-BUILT OFFSHORE WIND FARMS
In the run-up to last month’s general election the Conservative Party said
that, while it would cut subsidies for new onshore wind farms, it wanted to
see an increase in the UK’s offshore wind generation capacity, but, so far,
it is unclear how that aim will be achieved
The UK has more installed offshore wind turbines than any other country in
the world with around 20 wind farms dotted around the English and Welsh
coasts totalling 5GW of installed capacity. This is expected to rise to
11GW by 2020, at which point it is expected to account for around 36 per
cent of global offshore generation capacity.
However, with the exception of a small number of test turbines on the east
coast there is currently only one offshore wind farm in Scottish waters,
the 180MW Robin Rigg farm in the Solway Firth which is connected to the
National Grid in England.
Since the end of the last decade plans have been drawn up for five large
wind farms on Scotland’s east coast: two in the Outer Moray Firth (the
Beatrice and Moray Offshore wind farms) and three east of the Firth of
Forth and the Firth of Tay (Inch Cape, Neart Na Gaoithe and Seagreen). If
all five are built they would have a combined capacity of 4062MW.
But, so far, only two of the five projects – the 664MW Beatrice project and
the 448MW Neart Na Gaoithe project – have been successful in bidding for
Contracts for Difference (CfD). A final investment decision on both
projects is expected to be made early next year. Unless the other three
projects obtain CfD funding they are unlikely to be built.
A spokesman for the Moray Offshore project told the Sunday Herald he blamed
the 2013 move to the CfD process for the delay in building offshore wind
farms in Scotland.
In February the proposed 1116MW Moray Offshore farm missed out on a CfD
subsidy which would have guaranteed the price at which it sold electricity
for a 15-year period.
The two companies behind the plan – Portuguese EDP Renewables and Spanish
Repsol – have said they hope they will be successful in the next CfD
auction expected later this year or early next year.
The neighbouring Beatrice and Moray Offshore wind farms off the Caithness
coast would involve a total of 326 turbines which, taken together, would be
the world’s third largest offshore wind farm: far larger than the
175-turbine London Array, which is currently the largest UK wind farm.
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