UK Faces Higher Energy Bills this Winter due to Limits on Renewables

The current decision by the UK government to limit new renewable energy generation has disappointed the renewables industry. The industry sees this as a “missed opportunity” while the green campaign group, Greenpeace has berated government ministers for “outdated thinking”.

The government is restricting renewable installations by setting arbitrary limits on the amount of capacity that can be subsidised through the contracts for difference (CfD) scheme. This means that consumers will face higher energy bills than necessary this winter.  The limits are being supported despite the UK’s urgent campaign to stop importing Russian gas and to protect consumers from the full impact of soaring natural gas prices.

The way the system of “contracts for difference” works is by renewable energy generators bidding for contracts to produce power, but the government can set an overall limit on how much capacity it wants in the auctions as well as set limits on how much cash it is prepared to provide in the form of incentives.

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Ministers will authorise contracts for about 12GW of new renewable energy generation, to begin construction this year, with much of it likely to come on stream before the autumn of 2023. Although this is the biggest auction so far, the renewable energy industry has estimated that there are about 17.4GW of projects that have already been granted planning permission and are “shovel ready”. This includes 8.5GW of offshore wind, alongside 3.9GW of onshore wind and 5GW of solar. Greenpeace said that few of these projects will go ahead without the contracts that let generators lock in prices for their power.

This shortfall will result in consumers being deprived of the energy savings on bills that come from renewable energy. Renewable energy is now cheaper than fossil fuels which have risen to sky-high prices since the Russian invasion of Ukraine. While onshore and offshore wind and solar power all now command about £40 per megawatt, gas fired power generation costs about £140 per megawatt hour. Increasing the amount of renewable capacity would help to ease energy prices and mean that households would feel less strain during the winter of 2023-2024 when bills are forecast to still be high. In fact, if the 12GW of new renewable energy generation the government is planning for this year had been available last winter, energy bills would have been about £100 lower for the average household.

The Department for Business, Energy and Industrial Strategy (BEIS) has set out plans for the next CfD auction, to be held on 5th-6th July. During the auctions, generators will bid for contracts to produce green power at a guaranteed per-unit rate. This round will see the government award contracts to a combined 5GW of new onshore wind and solar installations with neither allowed to take more than 3.5GW in total.

It was expected that the government would set a cap of 7GW on new onshore wind capacity. However, the plan isn’t to set a cap but instead to limit the incentive pot to £200 million, which industry expects will amount to a de facto cap of 7GW.

Many groups, including unions, the CBI employers’ organisation, the National Farmers’ Union, and green and consumer groups, called for the government to increase the amount of renewable energy generation.

Doug Parr, a policy director for Greenpeace UK, said:

“We have a global climate emergency which requires low carbon power, we have a cost-of-living crisis which requires cheap power, and we have a war in Ukraine that requires domestic power. By an amazing stroke of luck, renewables are low-carbon, cheap, domestic and can be deployed faster than the alternatives. Capacity limits on cheap renewables are outdated thinking.”

Back in March this year, research from Carbon Brief’s Dr Simon Evans said that 649 onshore wind and solar projects with a total capacity of 10GW already have planning permission. If they went ahead, they’d save Britain more gas than it currently imports from Russia.

Total renewable capacity grew by 3.4% to 49.44GW in the year to December 2021, which is a significant drop compared with an average annual rise of about 18% over the previous 11 years.

However, a government spokesperson defended the UK government’s record in bringing renewable energy capacity online.

“The Covid pandemic and its aftermath understandably slowed infrastructure deployment across the country. That said, nearly 40% of our electricity now comes from renewable sources, and since 2010 we have delivered a 500% increase in the amount of renewable energy capacity connected to the grid. The contracts for difference scheme has been hugely successful in boosting UK energy supply and reducing our dependence on volatile fossil fuels, with competitive auctions reducing the price of offshore wind by around 65% since 2015.”

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