UK Plans to Move Wind Farms to New Subsidies to Cut Costs
(Bloomberg) -- The UK will seek to speed up efforts to cut the costs of green electricity by reducing exposure to more-expensive gas.
Energy Secretary Ed Miliband and Chancellor of the Exchequer Rachel Reeves will announce a series of steps to delink power and gas prices Tuesday, according to government officials. One measure will involve offering a new voluntary fixed-price subsidy for older wind and solar farms.
With the UK’s cap on energy prices expected to surge 20% this summer as a result of the Iran war, Prime Minister Keir Starmer is under pressure to reduce bills for consumers. At the same time, Miliband has said the government’s response to the war should be to double down on green power and his goal of virtually eliminating fossil fuels from the electricity mix by 2030.
Even as the share of renewables rises in the UK power mix, gas retains a stubborn grip on prices. Green subsidies in the UK are paid for via consumer power bills and about one-third of electricity generation receives the prevailing wholesale price via a now-retired scheme called the Renewables Obligation. The wholesale power price is mostly set by gas because it is often the country’s “marginal” fuel, the last — and most expensive — fuel brought on to meet demand.
Newer projects get cheaper fixed contracts and the government has so far failed to convince older projects on the RO to move to those Contracts for Difference.
With gas costs rising sharply last month, the issue is front-of-mind for policymakers, not only in Britain but throughout Europe.
As part of the latest effort, the government will increase the windfall tax on projects still on the RO in a bid to encourage them to shift to CfDs, the Guardian reported. A spokesperson for the Treasury said they don’t comment on tax speculation.
Miliband will use his speech on Tuesday to resist calls from critics for him to reverse or slow the government’s clean-power drive.
“As we face the second fossil fuel shock in less than five years, the lesson for our country is clear: The era of fossil fuel security is over, and the era of clean energy security must come of age,” he will say, according to a government statement.
The new so-called Wholesale Contract for Difference will be offered on a voluntary basis to projects on the RO, one of the people said. Those who sign up will continue to receive the RO, but it will be measured against a fixed price CfD, meaning the price will be more stable. These will be offered within the coming year.
UK power stocks dropped after the plans were first touted by Reeves last week, with the news raising fears that lower electricity prices would hurt earnings for generators such as SSE Plc and Centrica Plc.
“For years, the idea of de-linking gas and electricity prices to make the most of homegrown British renewables has been on the table, and the government is taking another step towards that which is useful for stabilizing our bills,” said Jess Ralston, head of energy at the Energy & Climate Intelligence Unit, a non-profit research and analysis organization.
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