The new budget, announced today (31 July) by Secretary of State for Energy Security and Net Zero, Ed Miliband, delivers a £500m increase on the funding set, in March, by the previous government.
The nature of the scheme means the central government’s budget will not be impacted. The budget is neither a spending commitment nor a subsidy but provides an incentive for investments in clean energy through the offer of a fixed ‘strike’ price for renewable energy generation – reducing the risk for developers.
The budget is around seven times higher than that allocated for allocation round 5 (AR5) which was regarded as a ‘disaster’ given its failure to attract any bids from offshore wind developers. With the bulk of AR6 (£1.1bn) ring-fenced for offshore wind projects, there is more budget available for the sector than in all of the previous auctions combined.
“Last year’s auction round was a catastrophe, with zero offshore wind secured, and delaying our move away from expensive fossil fuels to energy independence,” said Energy Secretary Ed Miliband. “Instead, we are backing industry to build in Britain, with this year’s auction getting its biggest budget yet.”
Support for solar
Despite the focus on wind, the budget for ‘Pot 1’ for established technologies such as ground-mounted solar power has also been significantly increased – from £120m to £185m (in 2011/12 prices).
Solar Energy UK has welcomed the increased support scheme budget saying: “More investment into solar energy can be expected following today’s Government announcement on support for the sector.”
Chris Hewett, Chief Executive of Solar Energy UK, commented: “This is further very welcome news for the solar sector, following yesterday’s consultation on planning rules and the approval of three large-scale solar farms only a week after the election.”
“While all depends on the results of the coming auction, the increased allocation should allow many more projects to go ahead, driving down carbon emissions and energy bills alike”.
In today’s announcement the government set the maximum strike price for offshore wind for AR6 at £73/MWh, with onshore wind at £64/MWh, solar at £61/MWh, floating offshore wind at £176/MWh, geothermal at £157 MWh, and tidal at £261/MWh.
Solar Energy UK highlighted the low cost of solar generation saying: “The maximum strike price for solar power in the coming AR6 auction is £61/MWh, again expressed in 2011/12 terms. While raised due to the impact of inflation, it is still lower than any other technology, reflecting again the value presented by expanding solar generation.”
Need to think bigger
Another industry voice highlighting the need to think beyond wind is Christophe Williams, CEO of Naked Energy, who commented: “We can’t just focus on wind. The National Grid doesn’t have the capacity to support the electrification of everything – the Government needs to decarbonise heat as well as electricity. Otherwise, net zero won’t be attainable – we need to think bigger than just wind.
“Heat is responsible for 37% of UK emissions, yet is consistently forgotten about. Investment into renewable heat will not only reduce our emissions, but distributed heat decarbonisation can free up more grid capacity for green electricity – it’s a win-win.
“A positive step would be to re-introduce the Renewable Heat Incentive for commerce and industry, and make sure it stays in place. We should also introduce an advantage for local suppliers, much like the Inflation Reduction Act did in the US. Giving a 10% bonus on products designed or made in the UK would provide a huge boost for renewable energy.
“Hardware businesses need patient capital, which makes it difficult to secure traditional investment from fund managers looking for three-year exits. More funding from the Government to kickstart these kind of projects will make it much easier to secure this investment from the private sector.
“We have an opportunity to become world leaders in renewable energy, and it won’t require historical levels of funding. All we need is the Government to provide the support and clarity that will nudge us in the right direction. We have the innovation and the resources to take care of the rest.”
Increasing investor confidence
RenewableUK chief executive, Dan McGrail, welcomed the positive step by the government in increasing the budget with its potential to unlock more investment in renewable energy projects. “These new wind and solar farms will improve our energy security, drive economic growth, support thousands of new green jobs and ensure we continue to create a lowest cost electricity system for billpayers.
“This builds on a series of positive announcements from government which are increasing investor confidence in the UK, including ending the ban on onshore wind in England and approving new large-scale solar farms.”