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WILL THE LOSS OF RENEWABLES SUBSIDIES PUT ENERGY SUPPLY SECURITY AT RISK?

Published: 1st December 2015

Hugh Conway – Chairman of MEUC’s Electricity Group

The most recent announcement by the secretary of state for energy and climate chance announcing the early end to feed in tariff subsidies has produced a surprisingly muted response from the chattering classes. Is it because this was on top of the end of subsidies for onshore wind and other measures such as the end of the Green Deal, which never worked anyway? Or are they more focussed on direct action against the government’s support of fracking?

More likely they appreciate the logic of the minister’s decision or maybe that the renewable industry has been “crying wolf” too often to be believed – remember the fuss when the subsidy for solar farms was halved from 43.3 pence per kWh?

We have come a long way in the months since this government was elected in May. Over the past few years energy companies have taken most of the blame for increased prices whilst the coalition government persisted in maintaining that renewable energy was producing savings over mythical future consumer bills. That view came crashing down when crude oil prices fell to their lowest level for several years and impacted on wholesale gas and electricity prices.

None of this may mean the end of onshore wind and solar energy. The industry has proved capable of adapting and, of course, existing renewable generation will continue to benefit from their guaranteed 15-year contracts paid for by higher bills for everyone else. How long will it be before a new technology appears over the horizon? Already research is proceeding at a pace on windows doubling up as solar panels.

Dieter Helm, professor of energy policy at the University of Oxford, has been quoted as saying that concentrating on renewable has allowed countries such as Britain and Germany to go on burning coal rather than less polluting gas. Coal fires about a quarter of all electricity gene3rated in the UK and whilst carbon capture and storage is being promoted, although Drax clearly disagrees, no cost-effective solution has so far been found.

There still remains one intractable decision in the secretary of state’s in-box – what to do about nuclear energy. The saga over the new nuclear plant at Hinkley Point seems no nearer resolution. Analysis by HSBC has described the EPR model as too big, too costly and still unproven, saying its future was bleak. It has also pointed out that wholesale power prices have fallen by 16 per cent since November 2011 when the government agreed a “strike price” for Hinkley Point’s output- effectively a guaranteed price of £92.50 per MWh, inflation-linked for 35 years and funded through household bills, “With the problems encountered by France’s EPR model and a strike price likely to be double the UK wholesale price by the time of opening, we see ample reason or the UK government to delay or cancel the project,” it has said.

None of this will have any effect upon security in the short term, of course. EDF now admits to further delays and that it won’t be ready by 2023. In the mean time for the same price as Hinkley Point C, more than 10 times as much gas-fired power capacity could be built in a fraction of the time.

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