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Ministers undecided about renewable subsidies

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.

Readers' comments (1)

  • What on earth are the government playing at? My own recent experience at the micro-generation end of this market - in domestic solar panel installation - tells the same sad and pathetic story. The 'investors' - home-owners or tenants - shy away from installing panels largely because of the perceived inconsistency and lack of integrity of Feed-in-Tariffs and the underlying government strategy. In a word people have no TRUST in the policy or the FIT. In addition, the frequent and dramatic changes to FIT's (down from 43p per kWh in March to 16p now) have created a stop-start industry that is barely sustainable: refer to DECC's data for new installations per week to see the massive short-term peaks and troughs in work as FIT changes approach and pass. All this is a tragic and costly waste of the opportunity for house-holders to produce renewable energy and avoid some of the huge financial burden that is going to fall on all of us from increasing domestic fuel bills.

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