Budget 2016 can put the UK on a path to subsidy free renewables

Monday 14 March 2016
Dustin Benton Dustin BentonActing deputy director020 7630 4522dbenton@green-alliance.org.uk

Current government energy policy will involve spending £420 million more than necessary in low carbon subsidy between 2020 and 2025 and create a low carbon generation gap, according to new economic analysis[1] published today by the think tank Green Alliance.[2]

The Chancellor can fix this in his 2016 Budget by committing to support a wider range of renewable energy technologies in the early 2020s and creating conditions which will allow most technologies to be subsidy free after 2025.

The study finds that:

• The cost of new low carbon electricity generation is being exaggerated by the Treasury. The method behind the Levy Control Framework (the government’s cap on low carbon generation)[3] risks exaggerating by over six times the 2025 subsidy for low carbon generation, because the calculations incorporate the cost of building any generation, whether low or high carbon. Green Alliance’s analysis makes the case for a fair comparison, showing that the low carbon subsidy is, in reality, only the additional cost of building low carbon generation, above that of new gas plants.

• Current government policy is heading for a low carbon generation gap of at least 20TWh, nearly as much as the total output of the proposed Hinkley Point C Power Station, because it is slowing down the delivery of renewable energy projects.

•New nuclear power stations will only replace retired nuclear plant so are highly unlikely to lower the UK’s power sector emissions in the next decade. Only offshore and onshore wind, tidal and solar power can achieve the necessary level of low carbon power by 2025.

•The lowest carbon scenario in the study also has the lowest subsidy costs, (falling to £0.23bn in 2025, compared with £0.33bn with current policy), and saves £420 million over five years compared to the higher carbon, current policy scenario. This is because the low carbon scenario is achieved with a package including cheaper onshore wind, solar and electricity saving.

•The additional ‘new generation premium’ identified using the cost of new gas generation would come to £1.87 billion in 2025.

Dustin Benton, lead author of the study said: “Subsidy free renewables are within sight, but their cost is exaggerated by current policy. To meet carbon targets and protect consumers from higher costs, we should focus on how to make all renewables cheaper than other forms of power, which is already the case for the best solar and wind projects.

"The Chancellor should use the 2016 Budget to correct this imbalance in UK energy policy and, by doing so, can reduce the cost of low carbon subsidy. Our research suggests that this can be largely eliminated by 2025 if policy backs the cheapest and most scalable projects.”


Dustin Benton, head of energy, Green Alliance (available for interview)
Mobile: 07729 525288

[1] The report, Beyond subsidy: how the next levy control framework can get us there, is published today by Green Alliance.

[2] Green Alliance is a charity and independent think tank focused on ambitious leadership for the environment. Since 1979, it has been working with a growing network of influential leaders in business, NGOs and politics to stimulate new thinking and dialogue on environmental policy, and increase political action and support for environmental solutions in the UK.

[3] The current levy control framework runs to 2020, and is capped at £7.6bn. The next LCF is likely to run from 2020 to 2025, and is expected to be announced at the Budget.

[4] All costs are stated in 2012 prices.

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