After months of haggling over the costs related to subsidizing renewable energy, the UK Energy and Finance ministries have hammered out an agreement that will triple the nation’s support for clean energy.
The policy is expected to boost the share of renewables in the UK to 30% of the energy mix by 2020 – much higher than the 20% European Union target – creating thousands of green jobs in the process.
Britain’s current target is mostly for wind – 31 gigawatts of planned offshore and onshore wind – which would bring renewables to 11% of the energy mix by 2020. Many worred that target would be unachievable with big subsidy cuts.
The "Levy Control Framework," which will be published later this week, will boost spending on solar, wind and other renewable energy projects to 7.6 billion pounds ($12.12 billion) a year by 2020, compared with the current 2.35 billion pounds.
"Today we’ve reached a landmark agreement on energy policy that’s going to deliver a clear, durable signal to investors," says a spokesperson for British Prime Minister David Cameron.
As usual, critics point to the costs of providing those subsidies.
Some say households could get a 20% increase on utility bills, but supporters say any increase in bills will be mainly due to higher gas prices and investment in infrastructure. In fact, one of the main reasons for supporting renewables is to reduce the use of costly natural gas (it costs much more in Europe than in the US).
Cameron’s spokesperson points out that by 2020, households should actually see lower utility bills.
The policy will create tens of thousands of jobs and incentivize at least 40 billion pounds of private sector investment, leading to a massive expansion of the country’s renewable energy industry, Maria McCaffrey, Chief Executive of Renewable UK told Reuters.
The Guardian says the legislation is "probably as good as it was going to get, but it is not very good."
That’s because the policy postpones setting a target to reduce greenhouse gas (GHG) emissions. A 2030 target – considered crucial for meeting the larger goal of cutting GHG emissions 80% by 2050 – won’t be decided until 2016, which means corporations like Vestas and Gamesa still lack the long term certainty to invest in the UK. "The UK has already lost out in the manufacture of onshore turbines; now offshore turbine production is jeopardised too," says The Guardian.
And the policy doesn’t only subsidize pure renewables, it also supports other "low-carbon producers" – nuclear and fossil fuel plants fitted with carbon capture and storage technology. It guarantees investments in natural gas power plants and leaves open the possibility for fracking in the UK’s Blackpool region.
They are "staking our energy future on the belief that global gas prices will fall and costs will be cushioned by gas fracked from beneath Blackpool rock, says The Guardian, and because nuclear is also subsibized, that will "gobble up an uncertain share of the green investment subsidy."
Finally, it excludes energy efficiency altogether – the most effective green energy policy of all. The UK is projecting energy demand to rise by two-thirds, while it’s declining in Germany, Europe’s manufacturing heartland, says The Guardian.
Also under the agreement, a new government-owned company will be formed to manage contracts for low-carbon projects, and it puts in place a legal structure to support capacity auctions starting in 2014.
And it will pay backup power plants, mainly gas-fired, to be ready to fill supply gaps when renewables can’t meet demand.
"This is a durable agreement across the coalition against which companies can invest and support jobs and our economic recovery," says Ed Davey, Secretary for Energy and Climate Change. "They will allow us to meet our legally binding carbon reduction and renewable energy obligations and will bring on the investment required to keep the lights on and bills affordable for consumers."
Reforms are urgently needed because about a fifth of the UK’s aging power plants face retirement by 2020 that use coal, gas or nuclear. The government estimates that 110 billion pounds of investment in low-carbon energy are needed to replace that infrastructure. Recently, the UK’s coal consumption has fueled by US exports.
Despite the uncertainty over its energy policy, there have been some innovative approaches to renewable energy investment emerging from the UK.
Here’s an interview with Ed Davey: