Shrinking renewables sector dealt further blow with Renewables Obligation closure
The UK's renewable energy industry is at risk of "rapidly shrinking" as one of the main financial support mechanisms for large-scale renewable electricity projects has now closed for new capacity developers.
Established in 2002, the Renewables Obligation (RO) scheme has accredited more than 23,500 generating stations, comprising of 25GW of installed capacity. Today (March 31) marks the closure of the scheme to new generating capacity, although some installations may qualify for a grace period.
Between 2015 and 2016, more than 23% of the UK’s electricity was generated by RO accredited power stations, according to the Renewable Energy Association (REA), compared with just 1.8% from Feed-in Tariff (FiT)-supported generation.
The RO closure is unlikely to boost the uptake of new renewables installations, which have dipped to their lowest annual levels for new capacity installations in four years. In response to the closure, the industry and green groups are warning that a lack of political clarity could see the prospects of the industry shrink.
REA’s head of policy and external affairs James Court said: “The renewables industry has been able to grow by having this stable, consistent policy mechanism. Without the RO, the industry is left with the Contracts for Difference mechanism, while this does support new generation auctions take place at unpredictable intervals and the policy is prone to Government more directly picking winners.
“Renewables such as solar and onshore wind are already the cheapest form of electricity in many situations and are tantalisingly close to being able to be built with no direct subsidy, but in the meantime, they need support to get over that final hurdle.”
Devil in the data
In 2016, around 25% of the UK’s generated electricity was sourced from renewables, up from around 7% in 2010. Data released from the Department for Business, Energy, and Industrial Strategy (BEIS) the day before the RO scheme closure indicated that electricity from renewables shrunk in 2016.
Specifically, the data revealed that cumulative annual growth rate for solar PV capacity deployed between 2011 – when the closure was first announced – and 2015 sat at 47%, although recordings for last year was minus 35%.
In fact, separate data from the International Renewable Energy Agency (IRENA) found that, in 2016, the number of new renewable capacity additions reached its lowest level since 2012, with 3,289MW brought online, compared with 5,765MW in 2015.
Energy Minister Jesse Norman has previously reaffirmed the Government’s commitment to “cleaning up our energy system” through support of a “more competitive” Contracts for Difference (CfD) scheme.
Last year, the Government confirmed that £730m would be dedicated to the next wave of CfD auctions for offshore wind and “other less-established technologies” – double the amount put into the first CfD auction.
In response to the RO closure, the industry has urged BEIS to reintroduce technologies that are covered by the Pot 1 and Pot 3 CfD auctions – such as solar power, onshore wind and energy-from-waste – and use the forthcoming Industrial Strategy and Clean Growth Plan (formerly the Emissions Reduction Plan) to support renewables.
Friends of the Earth campaigner Alasdair Cameron said: “The sector faces a looming policy gap in the next few years as existing schemes come to an end without replacement, and key technologies remain locked out of the market. Renewables can be built quickly, cheaply and effectively, but the government needs to provide a reliable route to market with, more competitive auctions, and an end to the de facto ban on onshore wind and punitive tax rises on rooftop solar.
“Frankly, the time for prevarication is over – the world is in the midst of a renewable energy revolution and the UK government needs to get on board and seize the huge opportunities it presents.”
Market regulator Ofgem has been quick to reiterate that the closure of the scheme does not impact capacity that has already been accredited, and noted that it would continue to issue RO certificates and monitor compliance on the scheme, and will also consider grace periods for applications made prior to the closure.
But, the UK’s Committee on Climate Change has warned that the country is not presently on track to meet its Fourth (2023 to 2027) and Fifth (2028 to 2032) Carbon Budgets. And for some firms, the closure of RO will inevitably make any long-standing climate goals harder to reach.
Schneider Electric’s UK and Ireland president Tanuja Randery is one such critic of the decision, noting that renewables are “critical” to meeting long-term climate goals during a period where energy demand is expected to double.
“The UK has always been a leader in energy and climate change, and renewables are essential if we are to maintain that position and hit our 2050 targets,” Randery said. “Subsidies and schemes such as the RO, have played an important role in helping to balance our fuel sources and make it attractive to invest in new forms of renewable energy.
“With support for new renewable generation being cut off and the lack of a clear vision, the industry is facing an exodus of skills and investment that could see a growing industry rapidly shrink.”