Conservatives back-track on Renewable Obligation Subsides

Less than 2 months since the Conservatives came to power and already promises made in the manifesto are being broken.

The Renewable Obligation Subsidy has been one of the most successful renewable energy subsidies implemented in the UK, helping raise £800m in 2014 to help onshore wind projects generate 5% of the UK’s electricity.

Given its success, plans to scrap the subsidy have come as quite a shock to those in the industry. Renewable UK, trade association for the wind industry, has warned of job losses into the thousands and millions of pounds worth of investment to be sacrificed if the cancellation is to go ahead.

Launched in 2002, the Renewable Obligation Subsidy was set up to encourage the building of wind farms and promote the use of other low-carbon energy sources. It placed an obligation on energy suppliers to source more of their electricity supply from renewable sources and, as a result, the UK became the 3rd largest producer of onshore wind, and the largest offshore wind energy supplier, in the world.

However, in a recent statement by Energy Secretary, Amber Rudd, 31st March 2016 will see the RO terminated, which is in direct contrast to the pre-election manifesto promises that the subsidy would continue until March 2017.

In the statement Rudd assured the UK public that this government has a “long-term plan to keep the lights on and homes warm,” She continues “as part of or plan, we are committed to cutting our carbon emissions by fostering enterprise, competition, opportunity and growth. We want to help technologies stand on their own two feet, not encourage a reliance on public subsidies.”

This reversal of policy has come at a difficult time for the UK energy market. With market confidence in North Sea oil dropping, instability is rife and this news will not help proceedings. Statistics released in 2013 highlighted the huge growth in energy imports over the last decade, in relation to exports. In 2003, fuel imports corresponded to 104 million tonnes (oil equivalent), by 2013 this had risen to 164 million tonnes (oe).

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As imports increased, exports decreased from 127.7 million tonnes (oe) in 2003 to 85.4 million tonnes (oe) in 2013. This means that in 10 years the UK saw net exports decline from +23.7million tonnes (oe) to -78.6 million tonnes (oe).

Two-thirds of North Sea oil and gas projects have been cancelled due to lack of investment, and Renewable UK is afraid the same fate will come to wind power if funding is withdrawn. Despite promises of a ‘grace period’ for those currently working on projects where significant investment commitments have been made, it is unlikely that this will be enough to prevent a decrease in output and a withdrawal of investment generally.

Renewable UK has warned that this policy will result in people’s energy bills actually increasing, as a direct result, due to a viable low-cost energy alternative being sacrificed and Love Energy Savings have already commented on what impact the end to offshore wind farm subsidies will have on UK businesses, in terms of energy prices being used as a political tennis ball.

It is always expected that, in the cold light of day, promises made during the campaigning stages of an Election are proven to be unachievable in practice. While Rudd has promised a grace period, we are unsure whether or not this will be enough to ensure renewable projects remain productive.

The goal to reduce reliance on public subsidy and encourage independence is one worth pursuing but it is crucial that the process is done sensitively, with as little disruption to current projects as possible.