Clean Growth Strategy signals another big week for energy
It’s been a big week for energy.
The Department for Business, Energy and Industrial Strategy’s long-awaited Clean Growth Strategy was published on Thursday, after a series of teaser announcements provided good news for renewables.
On Wednesday BEIS issued an early statement committing funding of £557 million for less established CfD allocation starting in spring 2019.
This was swiftly followed by confirmation that this competition will be open to bids from Scottish remote islands wind projects (subject to EU State Aid approval).
Although both announcements provided much-needed certainty, questions remain
Whether Thursday’s Clean Growth Strategy provided answers, in many cases, isn't clear.
As Scottish Renewables Chief Executive Claire Mack said:
“The renewed support for offshore wind deployment and innovation, and the commitment to work with the industry on a Sector Deal, is to be welcomed, and will help move the UK towards its goal of reducing carbon emissions while delivering affordable energy and clean growth.
“It is however disappointing that no commitment has yet been made to allow onshore wind and solar PV - the cheapest forms of new power generation - to compete for contracts to sell the clean power they produce.”
While there is little mention in the Clean Growth Strategy of onshore wind’s role in making progress towards our targets, there is recognition of the importance of the Government’s independent Cost of Energy Review, led by Prof Dieter Helm, in identifying ways to deliver the Government’s carbon targets and ensure security of supply at minimum cost to both industry and domestic consumers:
“Once Ministers have had the opportunity to consider the review’s proposals, the Government will incorporate its recommendations into the further development of the Clean Growth Strategy as appropriate.”
The Clean Growth Strategy also signalled that the UK Government, despite making some progress to close the gap, expects to fall short of meeting its fifth carbon budget, relying instead on past success to offset missed targets with the rapid power decarbonisation that we’ve seen to date and on the option to buy international carbon credits.
Below is a summary of what the Clean Growth Strategy means for each part of our energy industry.
Rest assured that this document is just the start of a journey, and that Scottish Renewables will continue to engage with ministers and officials, coordinating closely with UK trade associations, to ensure that the value renewables can offer to the UK energy system and wider economy is well understood.
Summary of measures affecting renewables
Carbon pricing: Government remain committed to carbon pricing to help reduce emissions in the power sector. Further details on carbon prices for the 2020s will be set out in the Autumn 2017 Budget.
Levy Control Framework: The existing LCF will be replaced by a new set of controls beyond 2020/21. These will be set out later this year.
Renewable technologies and projects: BEIS state they will “improve the route to market for renewable technologies such as offshore wind” through the £557 million budget for the less established technologies and the measures below.
Offshore wind: Government will work with industry as it develops an “ambitious Sector Deal for offshore wind”. Provided costs continue to fall, this could result in 10GW of new capacity built in the 2020s.
There may also be opportunities for additional offshore wind deployment in the 2020s, if this is cost-effective and deliverable. The Government will work with the Crown Estate and the Crown Estate Scotland to understand the potential for deployment of offshore wind in the late 2020s and beyond.
Solar and small-scale generation: While the Government states that it wants to see more people investing in solar without subsidy, options are being considered on the Government’s approach to small-scale low-carbon generation beyond 2019 – an update will be provided later this year.
In the meantime, the Strategy confirms a reduced VAT rate of 5% for where an installer installs solar panels with a battery in residential accommodation (if the installation conditions are met). The tax treatment of technologies such as solar, storage and heat networks will also be kept under review.
Wave and tidal: The plan reaffirms the current BEIS position on wave and tidal: “More nascent technologies such as wave, tidal stream and tidal range could also have a role in the long-term decarbonisation of the UK, but they will need to demonstrate how they can compete with other forms of generation.”
Heat: BEIS states that, by 2050, the UK will likely need to fully decarbonise how we heat our homes. The Strategy summarises a number of actions to aid decarbonisation of heat including the commitment to work with industry through an industry taskforce to set out an effective long-term market framework for the heat sector beyond 2020.
Beyond the Renewable Heat Incentive (funded out to 2021), Government’s ambition is to phase out the installation of high-carbon fossil fuel heating in new and existing off gas grid residential buildings during the 2020s, starting with new homes. BEIS are considering a range of policy options to support this, and are investing £10 million in an innovation challenge fund to support low carbon heating systems. They will involve consumers and industry in developing a new policy.
Government has commissioned research into different heat demand scenarios, the use of hydrogen, what changes might be needed to the electricity grid in response to large-scale uptake of heat pumps, the role that bioenergy might play in decarbonising heat, and international activity. BEIS plan to publish initial findings from a number of studies later this year, and a full report on their review of the evidence by summer 2018.
Renewables innovation: The Government, in partnership with the Research Councils and Innovate UK, expects to invest around £177 million to further reduce the cost of renewables, including innovation in offshore wind turbine blade technology and foundations. New innovation opportunities are likely to arise in a number of areas, including floating offshore wind platforms and advanced solar PV technologies. BEIS also expects to invest £184 million out to 2021 in research, development and deployment of innovative energy efficiency and heating technologies and the gas network.
These will address the key innovation challenges to meet our long-term goals, including developing better energy efficiency and heating technologies.
Interconnection: The plan highlights the potential for at least 9.5GW more interconnection by the early-to-mid 2020s; this is in addition to the 4GW today and the 4.4GW under construction.
Network innovation: Ofgem is making available up to £525 million of regulated expenditure between 2016 and 2021to GB electricity network companies. The goal is to support smarter, flexible networks, from enabling the integration of clean generation through to customer-focussed energy efficiency measures.
This builds on previous network company innovation which delivered 4.5 – 6.5 times more benefits for consumers than it cost. £265 million will be invested in smart systems to reduce the cost of electricity storage, advance innovative demand response technologies and develop new ways of balancing the grid.
Transport innovation: Invest around £841 million of public funds in innovation in low-carbon transport technology and fuels, including ensuring the UK builds on its strengths and leads the world in the design, development and manufacture of electric batteries through investment of up to £246 million in the Faraday Challenge.