UK Energy Deal Triples Subsidy for Renewables

on Nov 23, 2012

On 23 November 2012, the UK Department of Energy and Climate Change (DECC) announced that it had reached an agreement on energy policy, with the energy deal seeing subsidies for renewables tripling by 2020. And while the agreement was achieved at the cost of dropping the 2030 carbonisation target, it is nevertheless hailed as a significant change for the energy market and as a victory for the renewable energy sector.

**Renewable Energy Levy Tripled**
After what the Financial Times called “one of the most vicious coalition rows of this Parliament”, the UK finance and energy ministers reached a deal to triple the support for renewable electricity generation by 2020. As announced in the DECC press release, under the agreed Levy Control Framework (LVC), the amount of market support to be available for low carbon electricity investment will be set at £7.6 billion in real terms in 2020, with the current LVC budget being £2.35 billion.

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“The important thing is the two parties have come together to create the biggest boost to clean energy, which Labour failed to do as one party,” the Liberal Democrat energy secretary Ed Davey pointed out, as quoted by the FT. “Investors and industry have been asking for this.”
**Signal to Investors**
Bloomberg reports that the energy deal will help provide utilities such as SSE Plc (LON:SSE) and Electricite de France (EPA:EDF) with certainty over the scale of support which the UK government is willing to grant clean energy. “It’s the most significant change around in the energy market for more than 20 years,” pointed out Gordon Edge, director of policy at trade association RenewableUK, as quoted by Bloomberg. RenewableUK’s CEO, Maria McCaffery, in turn commented that the agreement provided the industry with the kind of assurance it was looking for. “The UK government is sending a clear message that 30 percent of our electricity will be from renewable sources by 2020,” noted Ms McCaffery, as quoted by The Guardian, adding that “the lion’s share” would come from wind energy.

In addition to boosting renewables, the deal is also expected to support new nuclear power, as well as the commercial use of carbon capture and storage.
!m[Agreement Seen As Providing Certainty To Investors ](/uploads/story/885/thumbs/pic1_inline.png)“This is a durable agreement across the Coalition against which companies can invest and support jobs and our economic recovery,” said Mr Davey in the DECC press release, adding that the decisions reached would “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.”

There are doubts, however, how affordable consumer bills would be, with the extra cost passed on to companies and households by means of higher energy bills. The FT quotes Mr Davey as saying that the costs which some newspapers have been reporting are “utter rubbish” and that it would cost £20 a year per household in 2012, rising to just under £100 in 2020.

The increased subsidies for renewables did not come “for free”, with Mr Davey agreeing to drop a demand for a 2030 decarbonisation target for the power sector. Under the agreement, the decision to decarbonise the sector is to be made by the next government in 2016. In addition, the Chancellor of the Exchequer George Osborne won an agreement for a “gas strategy”, which will be published alongside the Treasury’s autumn economic statement on December 5. The FT notes that that the strategy in question will also give a cautious green light for “fracking” – the controversial technique for shale gas extraction.


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