The government has just announced significant cuts in Feed-in Tariff (FiT) subsidies for renewable energy, stating the need to cap spending on renewable energy to £100m from 2016 to the end of 2018/19 in order to rein in public spending. This will see the subsidies cut by 65% from the 8th Feb. Sheffield Renewables, like most other community energy and commercial renewable energy organisations, depend on these subsidies in order to make schemes financially viable. A significant drop in renewable energy installation is predicted as a result of these cuts. Sheffield Renewables is now forced to look for alternative sources of funding that will make projects considerably more complicated to implement. The government has also removed the tax breaks (SEIS/EIS) given to investors in renewable energy; these encouraged investment and were the equivalent to up to 50% tax back.
At the very same time, a £175m deal has just been awarded to a handful of companies in order to provide ‘diesel farms’, comprising of traditional diesel engines to be used as standby for generating electricity. With this most recent contract, £5m will be paid just for having the engines on standby and further payments made when they generate electricity. In a separate deal, another energy company was also awarded a similar contract to provide 20 MW of capacity on standby. Investors in these archaic, polluting deals will also be eligible for 30% EIS tax relief.
These deals are part of the new ‘Capacity Market’, which opens up the potential for generating to everyone; yearly auctions will dictate who provides the standby potential. Companies that win the auctions must guarantee the ability to provide a set amount of electricity at any time, or face fines. In theory this could be a good system, improving energy security and guaranteeing electricity at peak times. In reality the capacity market will add £1 billion to household bills each year. This is more than is paid to onshore wind, which produces 5% of all electricity generated in the UK (according to D. Vince, founder of Ecotricity). This is a high price for patching up a crumbling energy network, when what is really needed is solid commitment to invest in a mix of low carbon alternatives.
Amber Rudd, energy and climate change secretary recently stated that, ‘My priority is to ensure energy bills for hardworking families and businesses are kept as low as possible’, this is an admirable statement. This is however where the admiration ends. Clearly, diesel farms are not the way to achieve this. Rudd also stated around 18 months ago, ‘I want to unleash a new solar revolution – we have a million people living under roofs with solar panels and that number needs to increase’. She has now cut subsidies to the solar industry, who were in the process of weaning themselves off subsidies, and were projected to have done this by 2020, this will no longer be the case. In order to gain some perspective of the cost of our energy system put on to households, FiTs added £9 on to household energy bills, with the cuts in subsidies reducing this to around £6, so these cuts destroy an industry and don’t achieve a significant reduction in the cost to households. Hinkley C on the other hand is adding £14, nuclear power overall is adding £79, and the cost of the Capacity Market is adding £27 per year on to household bills. While the cost of decommissioning Sellafield Nuclear power station will be a one off £2,500 per household.
In summary this does not give the impression that the government is shaping the energy market in an economically favourable way for tax payers, or exploring and promoting a low carbon energy market, which would be favourable to the environment and future of the human race.