Renewable energy feed-in tariffs offer hope

By Andrew Whitehead on Feb 16, 10 10:27 AM in Law

For energy lawyers like me, February is proving to be an exciting month.

First up, details of the government's long awaited feed-in tariffs for small-scale renewable energy were finally published. I say long awaited, because many here in the UK have for years been gazing longingly at equivalent schemes in continental Europe - especially Germany - which have successfully delivered large amounts of installed renewables and associated products, services and jobs.

Feed-in tariffs are basically a set of guaranteed payments for exporting renewable energy onto the grid from a variety of technologies. This new scheme will come into force on 1st April, but only for renewable generation below 5 MW. For larger schemes, the government holds faith with its current subsidy scheme, the so-called Renewables Obligation, which forces electricity suppliers to source an increasing proportion of their supplies from renewables.

We've seen plenty of debate about whether the tariffs are high enough, and the upfront cost of installing say, domestic photovoltaic (PV) panels on the roof of your house - typically £10,000 - is still going to put off many.

However, what the feed-in tariff scheme will offer is a stable and long term revenue stream and the tariff levels should be sufficient to facilitate a large scale coordinated roll out of domestic renewable installations across our region and elsewhere. The key issue is whether we can find the PV panels and other kit in sufficient quantities with skilled - and preferably local - installers to fit everything.

More groundbreaking however, was the government's announcement of its plans for a renewable heat incentive (RHI). This could well be the first support programme for renewable heat of its kind anywhere in the world, and perhaps demonstrates that the spirit of innovation is alive and kicking in the UK.

But let's not get carried away. The RHI won't come into force until next year and there's still plenty of detail to be worked through. In essence, the scheme will provide a subsidy for qualifying renewable heat sources, such as ground and air source heat pumps, solar thermal heating, biomass boilers and so on. Crucially, it will even support larger scale schemes such as renewable district heat and community heating schemes, and the injection of biomethane into the gas grid.

But here's the rub. The subsidy will be paid for by suppliers of fossil fuels for heating (for example your gas supplier if you have a gas boiler), and like the feed in tariff, as you might expect the consumer will ultimately foot the bill.

And this is where it starts to get tricky, because also hitting the mat this month was a somewhat alarming report from the industry regulator Ofgem, warning of increases in fuel bills of up to 60% by 2016 if the government fails to take action to address looming power shortages.

Concerns about a capacity gap and the closure of coal fired and nuclear power stations in coming years are not new, and the government is looking largely to new nuclear build and offshore wind to close that gap. But what's new about Ofgem's latest thinking is its pessimism. It questions the ability of our current market structures to attract the £200bn investment needed in our power sector by 2020 and warns that we could start to feel the pain as early as 2013, with an increasing reliance on short term and expensive options to bridge the gap.

It's been 20 years since the Tories privatised the energy sector, and we have the most liberalised power market in Europe. With Ofgem now advocating greater state intervention - with its most radical proposal being a centralised energy buyer to control the amount and type of new capacity - we face the prospect of a future Conservative government unpicking key aspects of our current market structures.

Ed Miliband has been sticking to the government line, that our Low Carbon Transition Plan announced last summer will take us safely through to 2020, but concedes that a more interventionist energy policy will be needed for the longer term.

Perhaps now is the time to look afresh at market structures in the energy sector. Feed in tariffs and the RHI are welcome developments, but they are policy initiatives designed to meet EU renewable energy and carbon reduction targets, and need to operate within a broader energy policy framework which also delivers security of supply and affordability for consumers.

However, we should tread carefully. One thing private sector holds dear is a stable environment for investment, and the UK is competing globally for investment in energy infrastructure. This is the paradox for government - whoever wins the election.

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