EMR plan has sting in its tail

Megan Darby asks whether the introduction of auctions from day one will accelerate uptake or undermine renewables.

When the Energy Act became law on 18 December, it was an occasion more for quiet relief than partying in the streets. After years of hard work and intense debate, the foundations of a new market framework had made the statute books. It was the end of the beginning.
Publication of the final delivery plan for Electricity Market Reform the very next day reminded the industry there was still room for surprises. Eggborough power station looks set to close after government decided to ration go-early support, scuppering its biomass conversion plan (see p18). Meanwhile, developers of “mature” renewable technologies including onshore wind, large-scale solar and hydro were told they must compete for subsidies from day one. They had been expecting to enjoy a period of unconstrained access to support contracts.
Maf Smith, deputy chief executive of Renewable UK, which represents wind and marine developers, says that decision could be “severely detrimental”. “Auctions being introduced at the start of the regime risks sending shockwaves through the industry,” he says. “We’re talking about projects that will have been developed years previously, with substantial money having been invested in bringing them to consent. The energy market is exceedingly sensitive to any decisions that don’t look to be based on robust policy and this could have an impact on all forms of much-needed energy investment.”
The Renewable Energy Association is rather more sanguine. Chief executive Nina Skorupska says: “The transition to auctions acknowledges and could accelerate the cost reductions of the more established technologies, which is good news for industry and ratepayers. But if it is rushed, it will undermine investment, so we are glad to see government has listened to our concerns and will consult industry before reaching a decision.”
Why the change? It is partly a response to signals from Brussels. In guidance published last month, the European Commission emphasised member states should increasingly expose renewable generators to market prices. The UK ignores that advice at its peril, because the Commission will ultimately decide whether to approve EMR state aid.
The government claims the pipeline of development projects is strong enough to bear a little competition. The support budget is capped by the Levy Control Framework and the majority is already committed (see graph). It leaves a small pot for new developments and allocating contracts by auction should, in theory, make the money go further.
Cuts to onshore wind support also play well with those affronted by the sight of turbines in rural Britain. The strike price cut was spun as a crackdown on those unsightly windmills. Paradoxically, the government’s figures suggest it will have the opposite effect: it has revised its deployment projections upwards, from 9-12GW by 2020 in the draft plan to 11-13GW in the final version.
It remains to be seen whether auctions can get more for less. If so, government really will have something to celebrate.