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Subsidies

Subsidy 1 - Renewables Obligation (RO)

6.40 In April 2002 the Renewables Obligation came into effect3. It is an obligation on electricity suppliers to source a specific and annually increasing proportion of electricity from eligible renewable sources or pay a penalty. The proportion is measured against total electricity sales (as shown in Table 5.5 contained in the electricity chapter of this Digest (DUKES)). The Obligation is intended to incentivise an increase in the level of renewable generating capacity and so contribute to our climate change targets. Examples of RO eligible sources include wind energy, wave and tidal energy, landfill gas, sewage gas, geothermal, hydro, photovoltaics, energy from waste, biomass, energy crops and anaerobic digestion. Ofgem which administers the RO, issues Renewables Obligation Certificates (ROCs) to qualifying renewable generators. These certificates may be sold by generators directly to licensed electricity suppliers or traders. Suppliers present ROCs to Ofgem to demonstrate their compliance with the obligation.

6.41 When the Obligation was first introduced, 1 ROC was awarded for each MWh of renewable electricity generated. In 2009, ‘banding’ was introduced into the RO, meaning different technologies now receive different numbers of ROCs depending on their costs and potential for large scale deployment; for example offshore wind receives 2 ROCs/MWh while onshore wind continues to receive 1 ROC/MWh. The more established renewable technologies such as sewage gas and landfill gas receive 0.5 ROCs/MWh and 0.25 ROCs/MWh respectively. A review of the current bands across the UK started in October 2010 and will set the bands for the period 2013-17. Banding reviews ensure that as market conditions and innovation within sectors change and evolve, renewables developers continue to receive the appropriate level of support necessary to maintain investments within available resources. Subject to parliamentary and state aid approval the new bands will come into effect on 1 April 2013 (with the exception of offshore wind for which new bands will come in on 1 April 2014).

Subsidy 2 - Feed-In Tariffs (FIT)

6.43 Feed-in Tariffs are a financial support scheme for eligible low-carbon electricity technologies, aimed at small-scale installations with a capacity of less than 5 Megawatts (MW). FiTs support new anaerobic digestion (AD), solar photovoltaic, small hydro and wind, by requiring electricity suppliers to make payments (generation tariffs) to these generators based on the number of kilowatt hours (kWh) they generate. An additional guaranteed export tariff of 3.2p per kWh is paid for electricity generated that is not used on site and exported to the grid. The scheme also supports micro combined heat and power installations with an electrical capacity of 2 kW or less. A comprehensive review of the FiTs scheme was launched in February 2012 and has two parts, the first considers support for solar PV and the second other technologies and administrative issues. On 24 May 2012 DECC announced new tariffs for solar PV, to come into effect from 1 August 2012, with further announcements later in the year relating to other technologies. Any changes implemented as a result of the review will only affect new entrants to the scheme and there is no intention to retrospectively adjust support levels. Policy information and statistical reports relating to FiTs can be found at: www.decc.gov.uk/en/content/cms/meeting_energy/renewable_ener/feedin_tariff/feedin_tariff.aspx and www.decc.gov.uk/en/content/cms/statistics/energy_stats/source/fits/fits.aspx respectively.

Subsidy 3 - Renewable Transport Fuel Obligation (RTFO)

6.44 The Renewable Transport Fuel Obligation, introduced in April 2008, placed a legal requirement on road transport fuel suppliers (who supply more than 450,000 litres of fossil petrol, diesel or renewable fuel per annum to the UK market) to ensure that 5 per cent (by volume) of their overall fuel sales are from a renewable source by 2013/14, with incremental levels of 2.5 per cent (by volume) for 2008/09, 3.25 per cent (by volume) in 2009/10, 3.5 per cent (by volume) in 2010/11, and 4.0 per cent (by volume) in 2011/12, and 4.5% (by volume) in 2012/13. Under the RTFO all obligated companies are required to submit data to the RTFO administrator on volumes of fossil and renewable fuels they supply . There is a monthly reporting process required of fuel companies under the RTFO, issuing Renewable Transport Fuel certificates in proportion to the quantity of biofuels registered. The RTFO (amendment) Order, made in 2011, introduced mandatory carbon and sustainability criteria for all renewable fuels and double rewards for some fuel types, including those made from waste materials. Once the data on volumes of fuels supplied and sustainability criteria have been checked by the RTFO administrator and independently verified Renewable Transport Fuel Certificates are issued depending on the quantity and type of renewable fuel registered.. Information on the RTFO policy can be found on the DfT website at: www.dft.gov.uk/publications/rtfo-guidance/

6.45 The verified RTFO biofuels statistics, including information on origin and sustainability for obligation year 2010/11 were published by DfT on 29 March 2012 and can be found at: www.dft.gov.uk/statistics/releases/verified-rtfo-biofuel-statistics-2010-11/.

Subsidy 4 - Renewable Heat Incentive (RHI)

6.46 On 28 November 2011, the Renewable Heat Incentive opened for applications. The scheme provides tariffs for commercial, industrial and community renewable heating installations. The incentive is expected to promote the delivery of renewable heat (equating to 12 per cent of heat coming from new and diversified renewable sources) and save 44 million tonnes of carbon by 2020. For applications made between 28 November and 31 December, 15 have been accredited for RHI tariffs, reflecting a total capacity of 2.3 MW. 13 of the applications were for biomass schemes, and 2 for heat pumps. Policy information on the RHI can be found at: www.decc.gov.uk/en/content/cms/meeting_energy/renewable_ener/incentive/incentive.aspx

FIT Explained ROC Explained

Even the renewables companies admit that the generation of power from wind would not be viable without subsidies and mid- 2012 there was a dip in the number of proposals for windfarms while the industry waited to find out if subsidies were to be cut - and if so by how much. In the event, there were some reductions, but they still remain at a high level.

Several types of subsidy exist, some designed to encourage power generation, others intended to penalise those who do not meet government targets, some relating to the use of the end product(s). The following list is taken from the Dept of Environment & Climate Change’s (DECC) own documentation.

The first two of these subsidies are the ones which exceed the GDP of a small nation and which are primarily responsible for the soaring cost of fuels and electricity.

Owner

No. of Farms

Largest Farm

Total  **

Vattenfall

Swedish - state owned

6

Thanet, off Kent coast

£139,909,578

Dong

Danish - state owned

4

Walney Island, Cumbria

£110,499,542

Scottish Power

Spanish owned

21

Whitelee, Glasgow

£97,719,429

Statkraft

Norwegan - state owned

2

Sheringham Shoal, Norfolk

£85,254,160

RWE

German owned

27

Rhyl Flats, N. Wales

£74,306,966

E.ON

German owned

18

Robin Rigg, Cumbria

£67,613,426

Centrica

Owned by British Gas

5

Dowsing, Lincolnshire

£56,664,410

SSE

Scottish owned

11

Halyard Hill, Ayrshire

£54,314,301

Fred Olsen

Norwegian Shipping coy

3

Crystal Rigg, Lammermuir

£35,685,359

Falck

Italian owned

6

Fort Augustus, Scotland

£31,773,019




£753,740,191

Some of the larger subsidy Cost Estimates

projected subsidy per annum **

Subsidy 5 - Renewable Heat Premium Payment (RHPP)

6.47 The Renewable Heat Premium Payment scheme was launched in August 2011 to householders and social landlords, and provided a one-off payment to support the purchase of renewable heat technologies. Between the scheme launch and the end of 2011 there were 883 installations across all the technologies, with a total capacity of around 4.5 MW. Of these, 326 were air source heat pumps with a total capacity of 1.7 MW; there were also 102 biomass boilers (total capacity 1.3 MW), 147 ground source heat pumps (0.8 MW), and 308 solar thermal panels (0.8 MW). 172 The RHPP scheme was extended in April 2012 to run until the end of the 2012/13 financial year. Further information on the RHPP scheme can be found at: www.decc.gov.uk/en/content/cms/meeting_energy/renewable_ener/premium_pay/premium_pay.aspx   

In the Energy & Climate Change Select committee meeting of 2nd July 2013, DECC and Davey agreed that Onshore wind power is twice the price of gas (before price reductions expected from shale gas are factored in). Offshore wind is 3 times the price of gas. And that’s without including the cost of back-up.

By 2020, green charges and tax will make up £620 of the typical annual bill for gas and electricity, according to the Taxpayers’ Alliance. Punitive green taxes will help inflate the average family energy bill by almost a third to £1,900 by the end of the decade according to Mail Online.

Read on to see some of the green charges which householders will pay.

Why is Wind Power More Expensive Than Nuclear?

The current wholesale prices for electricity from Coal, Gas and existing Nuclear is about £50 per MWHr. Onshore Wind is paid a total of about £100/MWHr because of subsidies, and Off-Shore about £150. Single Farm Turbines receive £220/MWHr or more depending on their size. The average cost of electricity will rise with every additional Wind Turbine and this flows into consumers bills.

Currently nearly 40% of UK electricity is generated from Coal and costs £50/MWHr. What will the effect be on consumer bills when this is replaced by new forms of generation costing twice as much?

While wind power only provided 2% or 3% of the total electricity generated it had a minimal impact on average prices, even though the price paid for wind energy was 2 or 3 times more expensive than power from coal or gas.  However, with the ever-increasing numbers of turbines, the percentage of power from wind is rising and now exceeds 5%. The high cost of wind can no longer be concealed from consumers.