Think tank urges UK Chancellor to change energy policy

Analysis by the Green Alliance think tank has found that building more renewable energy capacity with public money would cost less than the current subsidy regime in the UK, despite government claims that subsidies are too expensive. The research demonstrated that the current system, under which fossil fuel generation also receives extra support, is more costly than a simplified system that would favour renewables. The Green Alliance urged the Chancellor to lift restrictions on new renewable generation, arguing this would be cheaper for the UK’s future energy supply.

Building more renewable energy capacity with public money would cost less than the current subsidy regime in the UK, a new analysis has found, despite government claims that subsidies are too expensive.

Ministers have justified the slashing of some incentives to install solar panels, and ending support for onshore wind, on the basis that subsidising the construction of green energy was adding too much to energy bills. The government does not subsidise renewable generation directly but allows for incentives to some technologies through additions to consumer bills.

But a pre-budget analysis by the Green Alliance thinktank has found that the current system – under which fossil fuel generation also receives extra support – is more costly than a simplified system that would favour renewables.

The analysis comes as the government’s energy policy has been thrown into disarray by the potential collapse of its deal with the French state nuclear company EDF to build two new nuclear reactors at Hinckley Point. EDF’s finance director resigned over the issue, and the company is now seeking extra support from the French government to go ahead with the construction. This is despite the UK government’s agreement to pay EDF about twice the usual electricity price for its power.

The Green Alliance urged the chancellor, amidst the resulting turmoil and uncertainty in the electricity market, to lift restrictions on new renewable generation, arguing this would be cheaper for the UK’s future energy supply.

Under the government’s flagship electricity market reforms, companies compete for contracts to supply electricity. These can include fossil fuel generators such as coal-fired power stations and gas plants.

As a result, fossil fuel generators can receive bill-payer support far above the current wholesale electricity price. By the Green Alliance’s estimates, renewables receive an extra payment of £40 per MWh above the wholesale price, with gas at £32 per MWh.

Onshore wind power has come down rapidly in price in the last five years, as have solar panels, and are close to being on a par with fossil fuel generation. However, as well as ending the bill-payer subsidy to onshore wind, the government has drastically altered the planning regime to make it extremely difficult to build any new wind farms.

According to the Green Alliance, this means the UK will miss out on the economic benefits of the much lower cost of onshore wind, driving up the cost of electricity overall.

Restricting the support available to other renewable forms of energy would also have a dampening effect, the report suggested, and end up more costly for the bill payer.

Dustin Benton, lead author of the study, said: “Subsidy-free renewables are within sight, but their cost is exaggerated by current policy. To meet carbon targets and protect consumers from higher costs, we should focus on how to make all renewables cheaper than other forms of power. The chancellor should use the budget to correct this imbalance and so reduce the cost of low-carbon subsidy.”

He said subsidies for renewables could be largely eliminated by 2025 if the policy were changed.