A new strike price will make the UK renewable market one of the most attractive for investors, according to Ed Davey.
The energy secretary said investors will receive further certainty over how the government will support the sector through the Energy Bill in order to keep the lights on and bills and emissions down.
However, leading renewables industry figures have criticised the new consulatation document, warning it risks ‘undermining confidence’ among green energy investors.
The draft Electricity Market Reform (EMR) Delivery Plan, published today for consultation, provides details on the support mechanisms and draft strike prices for renewables investors, which together will help incentivise up to £110billion investment in the new electricity infrastructure by 2020.
Mr Davey said: “No other sector is equal in scale to the British power market, in terms of the opportunity that it offers to investors, and the scale of the infrastructure challenge.
“The delivery plan will provide investors with further certainty of government’s intent, so that they can get on and make crucial investment decisions that are supporting green jobs and growth.
“The strike prices we have set will make the UK market one of the most attractive for developers and investors in renewable energy.
“It is necessary to support technologies in the early stages of their development, but we are looking all the time at how we reduce the costs for consumers.
“The new support mechanism we are introducing for renewables will make it cheaper to deliver low-carbon generation by around £5billion up to 2030.
“This will put the UK one step ahead in the global race to develop clean technologies, and will support up to 250,000 jobs across the energy sector.”
Mr Davey added: “As well as being good for green jobs and growth, what we are doing will protect our environment. The new strike prices will mean that renewables can contribute more than 30% of our power mix by 2020, putting us on track to seeing significant decarbonisation of the power sector by 2030 and meeting our wider climate targets.”
The draft EMR Delivery Plan provides further detail on:
- The Contracts for Difference support mechanism – this will support investors in low carbon energy, by removing commercial risks, such as wholesale price risk. CfDs will make it cheaper to deliver low-carbon generation by around £5billion up to 2030 because they will deliver cost of capital reductions that cannot be achieved through existing schemes.
- The methodology behind the level of draft strike prices for renewable electricity including onshore and offshore wind, tidal, wave, biomass conversion and large solar projects from 2014-19 – these will kick-start investment in renewables, leading to renewable energy contributing 30% to the UK’s power mix in 2020. This support comes from within the £7.6billion Levy Control Framework to 2020/21, as previously announced.
- The methodology government will use in running a capacity market – government is proposing the use of a ‘reliability standard’ to guide how much capacity is auctioned in the capacity market in 2014, for delivery in 2018-19.
- The latest assessment of the price and bill impacts of electricity market reform – EMR is expected to reduce annual household electricity bills by an average of £63 or 9% over the period 2016 to 2030 (in real 2020 prices), compared to meeting the same policy goals using existing policy instruments
- Scenarios for technology deployment and decarbonisation from now to 2030 – this sets out three scenarios for decarbonisation of the power sector out to 2030, showing the level of deployment of different technologies required to decarbonise the power sector to 50g/kWh, 100g/kWh and 200g/kWh. DECC has also modelled scenarios showing higher deployment rates for carbon capture and storage (CCS), nuclear generation and offshore wind out to 2030, these assume that the power sector is decarbonised to 100g/kWh by 2030.
However, the proposals received a lukewarm response from industry body RenewableUK, who criticised the lack of support for wind providers planned over the next 17 years.
“The catalyst for all this is stable policy and a long term outlook from Government,” said deputy chief executive Maf Smith.
“The UK has a massive opportunity on offshore wind to get the jobs in as we are deploying the technology first and it would be tragic if we squandered that and let our European competitors take the spoils.
“Each month we see another piece of the policy jigsaw, and we are starting to see a clearer picture, and clarity builds confidence. But we are also seeing that Government risks undermining confidence by scaling back on its ambitions.
“Industry is waiting for the Offshore Industrial Strategy, and an important part of this will be the long term signal Government sends. The scenarios set out today show that Government is still in mixed minds about the role of renewables.
“Five of the six scenarios assume that offshore wind will not deliver on a shared industry-government target to reduce costs down to £100/MWh by 2020. This suggests low confidence in the sector and could undermine investment. Industry understands that its success relates to its ability to deliver cost reduction and economic benefit, but that needs to be a shared starting assumption not something left for the next Government to pass judgement on.”
Smith also warned that employment and growth in the future could be hit, as would the industry’s ability to reduce costs.
“Not only do you lose the benefits of economies of scale if you only have restricted production, but both the Crown Estate and the Offshore Cost Reduction Task Force have stated that getting a supply chain established in the UK is part of bringing down costs,” he said.
“By first shaving down numbers for 2020 and then putting forward low numbers for 2030 our ability to bring costs down is restricted. Overall the central scenario is bad for growth, bad for jobs, and bad for popularity,”
The failure to set a strike price for new build biomass generation was criticised by Renewable Energy Association chief executive Gaynor Hartnell.
“The lack of a strike price for new build biomass means support for this important technology has effectively come to an end, and we urge the Government to reconsider,” she said.
“The UK desperately needs new power generation capacity and has a legally-binding renewables target to meet.
“Whilst it was wrong to cap the amount of new build biomass under the existing policy, until today project developers had the alternative option of a contract under the new policy. Today that option has been closed off. This is a U-turn. It is misguided and it will halt the kind of bioenergy industry that environmental NGOs had previously wanted to see.
“It should not be a case of choosing between converting coal fired power stations to biomass or building new projects; the two operate at different scales and both can play an important role. This decision sends a terrible message to investors.”
The government said the scenarios outlined in the plan are not targets. The exact generation mix will be influenced by how individual technologies develop in the coming decade.
It said it was committed to decarbonising the power sector but doing so in a way that maximises value-for-money for consumers by moving to a competitive price discovery process for all low-carbon technologies as soon as is practicable.
The government is committed to meeting the UK’s legally binding carbon budgets and to reducing greenhouse gas emissions by 80% on 1990 levels by 2050.
A power to set a decarbonisation target range for 2030 has been added to the Energy Bill. The target will be set 2016 once the Government has received advice from the Committee on Climate Change on the level of the 5th Carbon Budget.