U.K. Renewables Target at Risk as Onshore Wind Subsidy ScrappedAlex Morales
Britain’s retreat from generating electricity from land-based wind turbines puts at risk its ability to meet European Union renewable energy targets at the cheapest possible cost.
The decision on Thursday by Energy Secretary Amber Rudd to cut off assistance to onshore wind leaves the country reliant on more expensive technologies to take up the slack from the underperforming heat and transport sectors, said Infinis Energy Plc Chairman Ian Marchant.
“The question you have to ask now is what makes up the gap?” Marchant said by phone. “Heat and transport are already failing. They’re not going to make it. If you say ‘I’m not going to subsidize any more onshore wind,’ the only thing that can take up the slack is offshore wind. That costs 40-50 pounds a megawatt-hour more.”
The U.K. is under pressure to show how it will meet the EU goal of deriving 15 percent of its energy from renewables by 2020. The European Commission on Tuesday expressed concern about whether existing policies would be sufficient. Only three of the bloc’s 28 members produced a smaller proportion of energy from renewables than Britain in 2013.
To reach the renewables goal, Britain is seeking renewables to build a 30-percent share in the power sector, 12 percent in heat and an EU-mandated 10 percent in transport. The separate transport goal means power can only pick up slack from the heat sector, where renewables provide about 3 percent of energy. In 2014, renewables provided 19.2 percent of the U.K.’s electricity.
Analysis by the accounting firm PWC shows that if heat only achieves half of the government target, 40 percent of power will need to come from renewables in 2020.
“The government has the challenge -- its electricity contribution is on target, but its proposed heat contribution is well behind target,” Maf Smith, deputy chief executive officer of the RenewableUK industry group, said in an interview.
Smith estimates about 3 more gigawatts of onshore wind will be built by 2020 following the elimination of subsidies, compared with the government’s forecast of 5.2 gigawatts. That would add to the 8.3 gigawatts that’s already built.
Rudd said the current pipeline is big enough “for onshore wind to play a significant part in meeting our renewable energy commitments.”
The subsidy cut will take onshore wind off a trajectory where it could be cost-competitive with fossil fuels by 2020, according to Smith. He said the lifetime cost per megawatt-hour of onshore wind by 2020 could fall as low as 65 pounds ($103) in 2020 from 75 pounds to 85 pounds now.
Wind vs Gas
Smith said new projects for all forms of generation -- including gas -- are more expensive than the current wholesale power price of about 40 pounds because the U.K. has “very old plants” that long ago paid back their capital costs.
Two other project developers agreed that onshore wind could become cost-competitive by the end of the decade.
“It’s not far away, is it? Five years. I think that’s plausible,” Ecotricity Group Ltd. Chief Executive Officer Dale Vince said by phone. He said it “doesn’t make sense” to cut the cheapest form of renewable energy from assistance programs.
Fellow developer Juliet Davenport, CEO of Good Energy Group Plc, said the timeline was “reasonable,” assuming the government fixes problems with the wider energy market that make it “very difficult” for all technologies to get long-term debt financing.
“The energy market is broken in terms of getting long-term investment,” she said.
Rudd said she’ll end one subsidy program -- the Renewables Obligation -- for large-scale onshore wind projects a year early, and signaled she intends to do the same with a second program called contracts for difference.
“It is damaging to the overall investment climate because here is a well-flagged and trodden promise of government that has now been changed almost at the last minute,” Marchant said. “It’s the noise and the smell around yet another flip-flop change in policy.”