Are we serious about renewable energy?

Clive Arup
31 March 2015

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Degression in feed in tariff rates for renewable energy schemes is putting their development at risk – something the next government needs to address, says Clive Arup.

When the Feed-inTariff (FIT) scheme was introduced by Government in 2010, it built on the Renewable Obligation Certificate (ROC) system established in 2002. FIT was a catalyst for many small businesses specialising in renewable energy, most notably the solar PV sector. At that time, Government set the level of incentives for solar too high, despite evidence from other European countries of similar miscalculations.

"The reason FIT was introduced was a recognition that most renewable energy projects are highly capital-intensive. Due to FIT degression, we will soon return to a situation where renewable projects become non-viable and will be shelved for another generation."

The rapid reduction of FIT for solar PV in 2012 had a fatal impact on numerous small businesses. However, solar PV developments still make up over 80% of all renewable capacity receiving accreditation. This is because solar PV is cheap to deliver and very accessible to the public, meaning it has never been easier to put solar panels on your roof.

Rising domestic energy bills, coupled with lower solar PV installation costs, have made it a good investment option, indicating FIT levels for solar are set about right.

Fast forward to 2015 and more renewable energy technologies are experiencing similar pressures from reducing FIT levels. It is clear Government support for FITs, and the associated extra charges appearing on the public’s energy bills, have become politically problematic. As a result Government is phasing out FITs, creating huge uncertainty about future investment in renewable technologies.

The current policy of FIT degression (gradual reduction) is a response to a high number of applications for advance accreditation by OFGEM. This has resulted in reductions every six months of 5%-10% of FITs across many technologies, leading to a dash for advance accreditation to avoid degression. And while this has distorted the market, many accredited projects may never be installed or constructed.

The consequences of this are very clear. The reason FIT was introduced was a recognition that most renewable energy projects are highly capital-intensive. Due to FIT degression, we will soon return to a situation where renewable projects become non-viable and will be shelved for another generation. This will incur job losses, while the potential for job creation will also diminish, reducing industrial and construction activity, mostly in areas outside of the south east.

The new reality of lower energy costs also creates another potential barrier to renewables development. Inevitably, pressure to find alternative low carbon sources of energy reduces in the face of plentiful and cheap traditional sources of energy. With the economy improving, Government has a responsibility to plan for future energy shortages. Certainly, reliable renewables form an essential part of the country’s protection against future energy crises. 

However, under existing policy, there’s a danger some sectors of renewable energy will be killed off, seemingly for political reasons. This is a trend not entirely unique to the UK, but throughout Europe as austerity measures continue. While on one hand, renewables are arguably a luxury that cannot be afforded, on the other, most renewables are very long term investments, and the next generation will either thank us for persevering or be highly critical of us for not having done so. In the small and low head hydropower sector, schemes planned and constructed today could still realistically be operating in a century’s time.

Renewable energy businesses should respond to the challenges positively, and accept the political reality is unlikely to change. So it is vital companies operating in this sector prepare business plans, which include sustainability beyond subsidy. It is easier to influence Government by demonstrating that the business model can project into the future without Government support.

 For its part Government needs to effectively support the sector with far less draconian FIT degression until 2020, and from then on the best technologies will be self-financing. At present, the danger is continual degression will result in businesses either failing or failing to invest much beyond 2016. That will mean the opportunity to develop renewable energy will likely be lost for many years to come.

We have an opportunity to pass on to the next generation clean renewable energy resources unique to an island blessed with wind, rain and tidal activity unlike many places worldwide. We cannot let them down.

Clive Arup is a director of Barn Energy Ltd, Yorkshire Hydropower Ltd, Northern Hydropower Ltd and a member of the acumen7 network.