The European Commission (EC) has approved the UK government’s subsidy system for renewable energy, ruling that it is in line with European Union state aid rules.
The ‘contracts for difference’ (CfD) scheme will pay a guaranteed price for electricity generated from projects such as offshore wind farms, with the cost added to consumer bills, and aims to give investors certainty to back low-carbon generation.
Technologies such as onshore wind, solar farms, and ‘green’ gas from landfill or sewage sites will compete against each other in auctions for financial support.
A Government pot of £200M a year will be open from October, the first round of funding allocations for CfD.
The budget will be split between three technology groups: established technologies, like onshore wind and solar; less established technologies like offshore wind; and biomass conversions.
The EC also found that providing public support worth £9.7bn to five offshore wind farms, which were awarded CfD funding without competition to avoid delays in investment, also met the rules.
The Commission said the projects furthered European Union objectives such as promoting renewable energy and environmental protection, without unduly distorting competition
EC vice-president in charge of competition policy Joaquin Almunia said: “The UK contracts for difference encourage all renewable energy technologies producing electricity to compete against each other for support beyond 2016.
“It is a fine example of how to promote the decarbonisation of the economy with market-based support mechanisms, at the lowest possible cost for consumers.”
Energy and Climate Change Secretary Ed Davey said: “This shows that our major reforms to the electricity markets are urgent and needed to turn around the historic neglect of the sector
“We are the world leader in investment for low-carbon energy and energy security. The average annual investment in renewables has doubled since 2010 - with a record breaking £8 billion worth in 2013.
“And we’ll continue to lead in building a low-carbon electricity sector based on home-grown energy sources, reducing our reliance on polluting fuels and volatile energy markets at the lowest possible cost to consumers.”