Is Amber Rudd facing a £1.5 bn renewables budget overspend “headache”?

Amber Rudd has been warned by REF she faces a renewable energy subsidy overspend (pic courtesy of DECC)

Amber Rudd has been warned by REF she faces a renewable energy subsidy overspend (pic courtesy of DECC)

The renewable energy industry breathed a collective sigh of relief  last week when Amber Rudd was appointed the New Energy and Climate Change Secretary. Considered a ‘green Tory’, Rudd’s appointment was the best the industry felt it could hope for following the Conservatives’s victory at the General Election (it remembers the last Tory David Cameron appointed to the position of Environment Secretary was the climate sceptic Owen Paterson). By the end of the week, though, Rudd was confirming she would press ahead with the Conservatives’s election manifesto pledge to end subsidies for onshore wind farms (and wholeheartedly push ahead with fracking), despite the industry’s protestations that onshore wind is one of the most cost-effective ways to generate electricity.

On the other hand, Rudd has vowed to unleash “a new solar revolution”, through subsidising rooftop solar panels. “We have a million people living under roofs with solar panels and that number needs to increase,” the MP for Hastings and Rye told local newspaper, the Hastings & St Leonards Observer.

Amber Rudd: “headache”

But hold on. Today, the Renewable Energy Foundation (REF), a registered charity, which claims on its website to promote “sustainable development for the benefit of the public by means of energy conservation and the use of renewable energy”, has fired a warning shot across the Department of Energy and Climate Change’s (DECC) bows. Far from being in a position to promise more subsidised renewable energy, Rudd faces a potential renewables budget overspend of £1.5 billion a year – possibly even more – because of what the REF sess as her predecessor Ed Davey’s largesse towards the green energy industry.

REF says it has looked at the latest DECC Renewable Energy Planning Database figures (May 15 2015) and concludes Davey has overshot by between 34 per cent and 67 per cent the Government’s legally required EU target to meet a third of UK electricity consumption from renewable sources by 2020 – “leaving a headache” for Rudd.

In its press release, REF states “there is now 49 gigawatts (GW) of consented capacity (21.2 GW built and 28.1 GW under or awaiting construction). Applying probable productivity measures (load factors) shows that this consented capacity could generate approximately 148  terra watt hours (TWh), which is 34 per cent in excess of the [110 TWh] target. 

There is no subsidy budget to pay for this overshoot, which would require about £1.5 billion a year more than is allowed for in the Treasury’s Levy Control Framework (LCF) limit of £7.6 billion per year.

Furthermore, there is 14.7 GW of additional renewable electricity capacity seeking planning consent, which is sufficient to generate another 36 TWh, increasing the overshoot to about 67 per cent. If subsidised, this would further increase the cost excess and place still more unreasonable burdens on the consumer.

Amber Rudd wants to unleash "a new solar revolution"

Amber Rudd wants to unleash “a new solar revolution”

It should be noted here that REF upholds “root and branch” reform of the renewable energy subsidy system. Indeed, it has even been accused in the past of being biased against renewable energy.

So, is REF’s assessment on renewable electricity capacity and Rudd’s subsidy overspend fair and reasonable?

Not according to RenewableUK. Its director of Policy Dr Gordon Edge, told GreenWise: “This analysis presumes that every project that has won approval in the planning system will be built out. The Electricity Market Reform programme, however, ensures that only the lowest cost projects will move forwards. In addition, some of those consented projects may not be taken forward for other, non-financial, reasons, such as grid issues.

It would be very dangerous to assume that there is enough capacity in the system to meet our legally binding 2020 energy objectives, particularly given that renewable heat and transport look as if they may struggle to fulfil their targets. Looking solely at electricity via the medium of what is consented is not helpful. 

It’s also worth highlighting the fact that onshore wind is one of the most cost effective of all energy sources, so if the Government is serious about looking for value for money for consumers, it would be irresponsible to rule it out”.”

“Wiggle room” on renewable energy targets

Nor does Richard Black, director of the Energy and Climate Intelligence Unit, a non-profit organisation supporting “informed debate on energy and climate change issues in the UK”, agree with the analysis.

Black said: “I don’t agree with [it] because it assumes that most if not all projects in the planning process will get built, which clearly isn’t tenable, especially as we move to a regime of competitive tendering. 

“But if they were right, I’d think it would be a welcome boost for a Government that’s committed to decarbonising the UK economy along the pathway put forward by its statutory advisor, the Committee on Climate Change. 

“As the Committee notes, we’re doing worse than we ought to be in areas such as energy efficiency, renewable heat and transport, so being somewhat ahead on renewable electricity would give the government some wiggle room, as well as providing a buffer in case of  further delays with the proposed new nuclear power station at Hinkley Point.”

Responding to the challenge that REF’s figures are skewed because they assume that all consented projects will get built, REF director Dr John Constable, told GreenWise: “As a first cut estimate, it is reasonable to assume that all consented projects will be built out, and this gives a sound estimate of the scale of the overshoot from consented projects, which is large. Of course, some will fall away, but that percentage is difficult to estimate without making arbitary assumptions.

“Mr Davey observed in a letter last year that 30 per cent of the consented onshore wind would not in the event be built. As we remark in the press release, that seems an implausibly high attrition rate. But even if that rate of attrition were applied to all consented projects in all technologies there would still be an overshoot from the remaining projects,” he said. “We calculate the potential overshoot from projects in planning (while explicitly recognising that not all of these projects will go ahead) as a means of gaining insight into the degree of oversupply and overheating in the sector, which is extreme.”

When asked by GreenWise what cuts did he think were necessary and what those cuts might mean for the growth of renewable energy and the decarbonising of the economy, Constable responded that it was “irrational and greedy of the industry to think that they can simply take the consumer for granted.

“The consumer’s interests must be respected, first and foremost,” he said.

The Government too believes in putting the consumer at the heart of policy.

So we asked DECC what it thought about REF’s assessment?

Onshore wind: Rudd has made cutting subsidies a priority (Pic courtesy of Abundance Generation)

Onshore wind: Rudd has made cutting subsidies a priority (Pic courtesy of Abundance Generation)

It wouldn’t be drawn on the potential Levy Control Framework overspend, but a spokesperson from DECC did say: “Renewables play a fundamental part in our energy generation and we will continue to build on this important home grown energy source. This will ensure that we will keep the lights on, meet our decarbonisation goals and drive our economy.  Going forward we will work tirelessly to continue to cut our emissions, but at good value for money for consumers.”

I’ll leave it to you to draw your own conclusions on what that means.

Rudd, meanwhile, has made clear what she intends to do next: “No more onshore wind farms subsidies and no more onshore wind farms without local community support. That’s going to be one of the first things we’re going to do.  I’ve put a rocket under the team to get it done,” she’s told the Sunday Times.