The government is undecided about the levels of subsidies and guarantees it will grant low carbon energy developments, energy secretary Ed Davey said last week.
Davey said that he understood investors were “concerned” about the uncertainty but added that work still had to be done before the Energy Bill is passed next April.
“We’re looking at the system,” he said, adding that he recognised that “the issues need to be resolved”.
Davey made his comments following criticism from MPs on the Commons Energy Select Committee that uncertainty about feed-in tariff subsidies for generators could lead to higher costs for consumers unless government underwrites them. There is concern that investors’ financing costs will increase to reflect the uncertainty about funding guarantees.
The government hopes to alter its existing feed-in tariff model to guarantee the earnings of large scale low carbon energy generators and help to offset the high cost of low carbon electricity generation compared to fossil fuels.
This would be done via the proposed “contract for difference” - a long-term agreement between the generator and purchaser that defines the amount of subsidy, based on topping up cost shortfalls or deducting cost surpluses in line with wholesale price fluctuations.
In the initial consultation last year investors were led to believe the government would underwrite a potential shortfall. However, latest proposals suggest suppliers would share this liability. “There’s a lack of clarity now in both the short and medium term, and that’s bad news for investment,” said trade body RenewableUK director of policy Gordon Edge.