Business starts to raise concerns about UK government’s reduction of subsidies for renewable energy

Pilita Clark writes a good article in the Financial Times about Siemens’ concerns about the British government’s scrapping of many subsidies for renewable energy. They worry that “doubt and uncertainty discourages investment decisions”

 

Siemens weighs into UK green energy row

One of the world’s biggest industrial conglomerates has weighed into a row about green energy measures that the Conservative government has watered down or scrapped since it took office.

Germany’s Siemens, a top global wind turbine maker which is investing £160m in a Hull factory, has urged ministers to dispel industry concerns about the changes, warning that “doubt and uncertainty discourages investment decisions”.

“We hope to see more clarity in some key policy areas soon,” Matthew Knight, head of energy strategy for Siemens in the UK, told the FT.

“We need to take energy policy out of party politics so that political risk does not push up the cost of every type of generation.”

The company’s comments come as the National Trust takes the unusual step of joining Greenpeace and eight other charities to write to the prime minister about what some signatories said were “shocking” and “short-sighted” policy reversals.

These include decisions to allow shale gas and oil drilling near sensitive areas; end zero carbon homes policies and funding for the Green Deal home energy saving programme; and slash solar and wind farm subsidies.

The 10 charities pointed out that only one of these changes was mentioned in the Conservatives’ largely pro-green manifesto for the May election: ending some onshore wind subsidies a year early.

“We have, as yet, seen no positive new measures introduced to restore the health of our environment or grow the low carbon economy,” they said.

For business groups such as Siemens, the most disquieting changes have been those set out by Amber Rudd, the new energy secretary.

As well as announcing plans to reduce support for onshore wind, solar and biomass generators, Ms Rudd has warned of much bigger changes to come, including the total amount of spending the government will allow for green subsidies that are largely paid for through consumer bills.

A cap imposed under the previous coalition government, known as the levy control framework, allows this spending to reach £7.6bn a year by 2020-21.

It has helped to provide a total of £40bn in support for what Ms Rudd has called “a clean energy boom”.

Fears that this cap would be exceeded by up to £1.5bn by 2020, pushing up household energy bills, led Ms Rudd to cut renewable subsidies, which she said amounted to a “blank cheque” from consumers to industry.

The energy secretary said a new spending cap will be announced for the years after 2020 but has not said when that decision will be made nor what level of spending will be allowed over what time period.

Ms Rudd has also surprised industry by saying she does not expect onshore wind generators, the cheapest form of renewable energy, will be given access to newer subsidies designed to help cut household energy bills.

This has led to concern that the UK may not meet legally binding EU targets to produce 15 per cent of its energy from renewable sources by 2020.

The energy department said provisional figures showed that the country was producing 7 per cent of its energy from renewables, compared with 1.4 per cent in 2005, and the UK was making progress towards its 2020 goal.

But there is considerable doubt about whether the target can be achieved, especially given the impact on investor sentiment prompted by the subsidy cuts.

The energy department has previously calculated that, to meet the EU goal, renewable sources will have to supply about 30 per cent of UK electricity; 12 per cent of heating demand and 10 per cent of transport energy.

Renewables already account for 22 per cent of UK electricity, compared with 7 per cent in 2010, and energy department officials believe that share will rise to more than 30 per cent by 2020.

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But renewable sources of heating, such as biomass boilers, only account for about 2 per cent of demand and biofuels, the main type of renewable transport energy, only have a 3.2 per cent share, according to the government’s statutory climate advisers, the committee on climate change.

In an echo of the concerns expressed by the 10 charities writing to the prime minister, the committee’s chief economist, Adrian Gault, said his main concern about the subsidy changes was an absence of information about replacement policies.

“They have said they will extend the levy control framework into the 2020s but not when, or what that level will be,” he said.

“They have also effectively killed the Green Deal but there is no announcement about what will replace it.”

The European Commission warned last month that the UK was one of a group of countries that may “need to assess whether their policies and tools are sufficient and effective in meeting their renewable energy objectives”.

Some energy experts say this concern is well founded.

“I have got a bit of sympathy with some of the things the government has decided to do but the question is, are they throwing the baby out with the bathwater?” said Professor Jim Skea of Imperial College London.

“There’s enough momentum to get to 30 per cent of electricity from renewables, even with all the changes they’ve made. It’s continuity after 2020 that some of these decisions will affect.”

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