Larger community renewable energy schemes to receive extra support

Energy and Climate Change Minister Greg Barker said: "The expansion of our reformed Feed-in Tariff will encourage even more communities to get on board.”

New proposals to benefit community energy schemes have been unveiled by the Government.

In its response to feedback from community groups on the type of financial incentive that works best for them, the Department for Energy and Climate Change (DECC) has said it will increase the generation threshold under which community projects are eligible for feed-in tariffs (FITs) to enable larger projects to benefit.

Support for community renewable projects over 5MW is currently available under the Renewables Obligation (RO). But this pays a lower amount per kilowatt-hour than that available under FITs.

The reforms, to be written into the Energy Bill and underpinned by secondary legislation, will permit community schemes up to 10MW in size to continue to benefit from the levels of support available to those below 5MW.

Projects such as solar PV on school roofs or panels on libraries, community owned wind turbines and hydro power from local streams could all benefit under the proposed new rules.

There is also money on offer to pay for excess power exported back to the grid.

Energy and Climate Change Minister Greg Barker said: "The Coalition is determined to drive a step change in the deployment of community energy.

"We want to help consumers, businesses and communities generate more of their own clean, green electricity locally, becoming less reliant on centralised power generation. The expansion of our reformed Feed-in Tariff will encourage even more communities to get on board.”

The announcement comes on top of the launch last week of a £15 million Renewable Community Energy Fund to help community groups with the cost of feasibility studies and seeking planning permission.

DECC is also keen to explore what needs to be done to kickstart even more projects across the UK, with a call for evidence currently underway and the UK’s first community energy strategy to be launched in the Autumn.

The call for evidence wants to hear about the potential benefits of community energy, the barriers to community energy, and what might be innovative and new approaches.

The proposed changes to the FITs rules will be made as part of the Energy Bill process. Once this Bill comes into force, the Government will consult on what it will mean in practice for community schemes.

The Solar Trade Association welcomed the proposals. Its chief executive, Paul Barwell, said: “Community solar farms on lower grade agricultural land help farmers diversify their risk away from increased weather risks to their land, while at the same time fostering dual purpose land use and biodiversity. Community ownership will help secure better community acceptance for more ambitious solar farms over the existing 5MW threshold.”

However, the STA  believes that there is still an issue which needs clarifying that is preventing many community schemes from getting off the ground.

Currently all solar schemes over 50kW (the size of e.g. a school scheme) are subject to very stringent capacity constraints. For example, in any quarter, if more than 200MW of capacity of 50kW+schemes is installed, this will result in a 28% cut in all the tariffs from 50kW through to 5MW.

Furthermore, for schemes over 250kW (larger commercial or community schemes), the FIT is too low to work, leading to just a handful of projects at this size since last July. This is despite schemes over 250kW being more cost effective than many large-scale renewables supported under the Renewables Obligation (RO).

STA Head of External Affairs, Leonie Greene, said: “Solar is being unfairly constrained. It is this 'normal' mid-size of solar, dominant in markets overseas, that needs urgent attention.”

The STA is currently finalising its best practice guidance for high standards in solar farm construction, which recommend avoiding prime grade agricultural land, and provide a set of criteria which developers, builders and land tenants can use to ensure best practice.

Davey buys £20m for onshore wind in exchange for £500m for gas

Subsidies for onshore wind farms will be reduced by 10%, not the 25% demanded by the Treasury, says Energy Secretary Ed Davey, but at a long-term cost to carbon emissions.

To win this agreement, the Department has had to concede that gas generation will continue "to play an important part in the energy mix well into and beyond 2030, while meeting our carbon budgets".

This "important part" is ensured with a grant of £500 million for gas field exploration. To put this in context, the dispute between the Treasury and DECC centred over a difference of around just £20 million in support for 1GW of onshore wind.

The effect on greenhouse gas emissions after 2030 is likely to be alarming. David Nussbaum, chief executive of WWF-UK, sent a letter to David Cameron yesterday, complaining of "a clear bias on the part of Mr Osborne towards investment in new gas-fired power stations" which would imperil the UK's climate targets and could raise bills for consumers.

“The proposal that emissions from gas plants built before 2015 will effectively never have to limit their emissions jeopardises our ability to meet UK carbon targets," he said. “The announcement on this, which was slipped out late on a Friday and which had the Chancellor’s fingerprints all over it, is another example of the Treasury’s malign influence on energy policy."

John Sauven, Greenpeace's executive director, also commented that: “The Treasury is fighting tooth and nail to oppose a 2030 decarbonisation target or support for future renewables targets. Mr Osborne has rebranded himself Mr Polluting Gas. It's up to Nick Clegg to stick what's left of Lib Dem principles back into this process."

£25 billion investment

However, marine energy developers will celebrate a 250% increase in their support from 2 ROCs (renewable obligation certificates) to 5 ROCs per MWh, subject to a 30MW limit per generating station.

"The case for investment in renewable energy is so strong and that is why, across government, we are backing it," said Energy Secretary Mr. Davey, making the announcement.

He said that representatives of industry and business support the subsidy cut of 10%, but not of 25%. “And that will bring forward investment between £20 and £25 billion between 2013 and 2017, and create hundreds of thousands of jobs," he promised.

"No one would want to over-subsidise an industry," he said.

He tried to reassure the wind industry by saying that there would not be a further change in the support levels or targets for carbon reductions in the autumn.

"The climate legislation says that if there has been a change in any of the generation costs for a renewable technology, whatever it is, we should have a review. So if it does change dramatically, then of course everyone agrees that we should have a review."

When pressed by James Naughtie on the Today programme this morning, Ed Davey said that meeting emission reduction targets depended on carbon capture and storage and nuclear power coming on stream by 2030, as well as major investment in renewables. He did not mention demand reduction.

"We don't have a target for the amount of energy to be generated from renewable sources at the moment," he said. Mr Davey said that there was cross-party agreement on the legally-binding targets to reduce carbon emissions. "What we're discussing is whether there should be an intermediate target for decarbonising the power sector. There is a debate to be had about that, around the Energy Bill," he said. That is expected in the Autumn.

The announcement of the results of the Banding Review consultation for the Renewables Obligation was delayed last week, following intervention from the Treasury, but was finally announced today.

The Department for Energy and Climate Change (DECC) quantified the impact on consumer bills between 2013 and 2015, as a reduction of £6 off household energy bills next year and £5 the year after.

By 2017, DECC hopes that this will deliver as much as 79 TWh of renewable electricity per annum in the UK, 11 TWh more than at present, which still not enough, just 74%, of the 108TWh of electricity needed to meet the UK’s 2020 renewable energy target.

The Renewables Obligation is the Government’s main mechanism for supporting large-scale renewables, and the review covers the final period of support, 2013-17 (2014-17 for offshore wind), before the scheme ends.

The announcement comes ahead of the Government's Global Investment Conference and series of 17 business summits taking place at the British Business Embassy at Lancaster House during the upcoming Games, which aim to secure further investment into the UK.

John Cridland, CBI Director-General, welcomed the announcement, saying it “will help to encourage investment into our energy sector, creating jobs and supporting growth". He also thought that "the Government is right that gas should play a crucial role in any future energy mix. We have argued that there is no need for a false choice between renewables, nuclear, gas, and carbon capture and storage. It’s clear from the evidence that we need a diverse supply.”

Support for onshore wind from 2013-17 will be reduced by 10% to 0.9 ROCs, guaranteed until at least 2014 but could change after then if there is a significant change in generation costs.

If there is evidence of significant reduction of generation costs in early 2013, then subsidies will again reduce in April 2014. The Government will also consider how local communities can have more of a say over, and receive greater economic benefit from, hosting onshore wind farms.

Biomass and solar

There will be a new band to support existing coal plant converting to sustainable biomass fuels. This will increase the amount of renewable energy produced at less cost to consumers.

The new enhanced co-firing band will be split into two new bands: mid-range at 0.6 ROCs/MWh, and high-range co-firing at 0.7 ROCs/MWh in 2013/14, rising to 0.9 ROCs/MWh from 2014/15.

This was welcomed by Dorothy Thompson, Chief Executive of Drax, the country's largest coal burning plant, which is in the process of conversion to be able to burn more and more biomass. She said that she is now “confident that we can transform Drax into a predominantly biomass fuelled generator".

Generators will need to burn at least 50% biomass in a unit to be eligible for support. Bioliquids are excluded from this.

There will be a consultation on lowering the support level for standard co-firing to 0.3 ROCs/MWh in 2013/14 and 2014/15, increasing to 0.5 ROCs/MWh from 2015/16.

Support for generation using 100% biomass is to be set at 1.5 ROCs/MWh, degressing to 1.4 ROCs/MWh for new accreditations and additional capacity added after 31 March 2016.

There will be no immediate reduction in support for large-scale solar, but, as with onshore wind, the level will be kept under review. Installations under 5 MW will only be eligible for feed-in tariff support.

New landfill gas generating capacity will not receive any support from 1 April 2013, but new generators using gas wholly from closed landfill sites will be eligible for support at 0.2 ROCs/MWh and electricity generated using new waste heat to power generating capacity will be eligible for 0.1 ROCs/MWh at both existing stations as well as new stations using gas from any landfill site.

The gas bill

In return for this extra 11 TW hours, DECC has given its commitment to a new dash for gas, provided that gas remains cheap.

It will have “a key role in ensuring that we have sufficient capacity both to meet everyday demand and complementing an increasing amount of relatively intermittent and inflexible generation", the DECC statement says. "We do not expect the role of gas to be restricted to providing back up to renewables, and in the longer term we see an important role for gas with CCS."

£500m of grants are being made available for large shallow water gas fields in the UK Continental Shelf, and more information on the Government's strategy will be set out in the Autumn.

The full bill impacts of current bandings and 2013-17 bandings:

Absolute contribution to average household electricity bills of RO support costs under current bands and the revised bands

£2011 prices	2013/14	2014/15	2015/16	2016/17
Current bands	44	47	49	50
Revised bands	38	42	50	53
Difference between revised and current bands	-6	-5	1	3

(Using household electricity demand before the impact of other policies)

Bandings for all technologies:

Table 1 - Bandings under the Renewables Obligation

Renewable electricity technologies	Current support (2012-2013) ROCs per MWh	Post-consultation decisions
		Level of support (ROCs per MWh)	Comment and other changes
Advanced gasification	2	2 in 2013/14 and 2014/15; 1.9 in 2015/16 and 1.8 in 2016/17	One ACT band supporting ‘standard’ and ‘advanced’ ACTs at the same ROC level
Advanced pyrolysis
Anaerobic digestion	2	2 in 2013.14 and 2014/15; 1.9 in 2015/16 and 1.8 in 2016/17	Closure of band to new projects at or below 5 MW from 1 April 2013, subject to consultation
Biomass conversion	No current band but 1.5 ROCs under current banding arrangements	1	New band. Unit by unit approach. No energy crops uplift. Change to definition of relevant fossil fuel generating station.
Biomass conversion with CHP	No current band but 2 ROCs under current banding arrangements	1.5 in 2013/14 and 2014/15	New band. Unit by unit approach. No energy crops uplift. Change to the definition of relevant fossil fuel generating station. Close band to new accreditations from 1 April 2015.
Co-firing of biomass (standard)	0.5	Solid and gaseous biomass (less than 50% biomass co-fired in a unit): 0.3 (proposed) in 2013/14 and 2014/15; 0.5 from 2015/16.	Unit by unit approach. ROC levels in 2013/14 and 2014/15 subject to further consultation.
		Bioliquids (less than 100% biomass co-fired in a unit): 0.3 (proposed) in 2013/14 and 2014/15; 0.5 from 2015/16.
Co-firing of biomass (enhanced)	No current band but 0.5 ROCs under current banding arrangements	Mid-range co-firing (50-less than 85%): 0.6	New band. Unit by unit approach. Excludes bioliquids (other than energy crops). Cost control mechanism to be introduced, subject to consultation
		High-range co-firing (85-less than 100%): 0.7 in 2013/14; 0.9 from 2014/15
Co-firing of biomass with CHP (standard)	1	0.5 ROC uplift in addition to prevailing ROC support available to new accredit-ations until 31 March 2015	Unit by unit approach. Close band to new accreditations from 1 April 2015.
Co-firing of biomass with CHP (enhanced)	No current band but 1 ROC/MWh under current banding arrangements	0.5 ROC uplift in addition to prevailing ROC support available to new accredit-ations until 31 March 2015	New band. Unit by unit approach. Close band to new accreditations from 1 April 2015.
Co-firing of energy crops (standard)	1	0.5 ROC uplift in addition to prevailing ROC support for co-firing of biomass (standard). No uplift available for mid-range or high-range co-firing.	Band to be closed, subject to consult-ation. Unit by unit approach. Changes to definition of energy crops.
Co-firing of energy crops with CHP (standard)	1.5	0.5 ROC uplift in addition to prevailing ROC support for co-firing of energy crops (standard). Band not available for mid-range or high-range co-firing.	Band to be closed, subject to consultation Unit by unit approach. Changes to the definition of energy crops. Close band to new accreditations from 1 April 2015.
Dedicated biomass	1.5	1.5 until 31 March 2016; 1.4 from 1 April 2016	Introduction of a supplier cap, subject to consultation
Dedicated biomass with CHP	2	2 in 2013/14 and 2014/15	Changes proposed to add fossil derived bioliquids, to exclude biomass conversion and to close this band to new accreditations from 1 April 2015
Dedicated energy crops	2	2 in 2013/14 and 2014/15; 1.9 in 2015/16 and 1.8 in 2016/17	Changes to the definition of energy crops
Dedicated energy crops with CHP	2	2 in 2013/14 and 2014/15; 1.9 in 2015/16 and 1.8 in 2016/17	Changes to the definition of energy crops.
Energy from waste with CHP	1	1	Decision to retain support at current level following consultation
Geothermal	2	2 in 2013/14 and 2014/15; 1.9 in 2015/16 and 1.8 in 2016/17
Geopressure	1	1
Hydro-electricity	1	0.7	Closure of band to new projects at or below 5 MW, from 1 April 2013, subject to consultation.
Landfill gas	0.25	0 for open landfill sites	New bands for closed landfill sites and Waste Heat to Power.
		0.2 for closed sites
		0.1 for new Waste Heat to Power band at open and closed sites.
Microgeneration	2	2 in 2013/14 and 2014/15; 1.9 in 2015/16 and 1.8 in 2016/17
Offshore wind	2 in 2013/14; 1.5 from 2014/15 onwards	2 in 2013/14 and 2014/15; 1.9 in 2015/16 and 1.8 in 2016/17
Onshore wind	1	0.9	Closure of band to new projects at or below 5 MW, from 1 April 2013, subject to consultation
Sewage gas	0.5	0.5
Solar photovoltaic	2	Banding proposals subject to re-consultation. Closure of band to new projects at or below 5 MW, from 1 April 2013, subject to consultation.
Tidal impoundment (range) – tidal barrage (<1GW)	2	2 in 2013/14 and 2014/15; 1.9 in 2015/16 and 1.8 in 2016/17
Tidal impoundment (range) – tidal lagoon (<1GW)
Tidal stream	2	5  up to a 30 MW project cap. 2 above the cap.
Wave
Standard gasification	1	2 in 2013/14 and 2014/15; 1.9 in 2015/16 and 1.8 in 2016/17	One ACT band supporting ‘standard’ and ‘advanced’ ACTs at the same ROC level
Standard pyrolysis

Alongside publication of the banding review results, DECC has also published an assessment of how incineration of waste to produce energy and heat can be made more efficient.

DECC has not yet published its impact assessment.

UK Solar industry predicts 1GW of installations in the next year

We're going to see a lot more of these in the UK.

The UK solar industry now sees a bright future for itself following last Friday's decision by the Supreme Court to refuse the Government permission to appeal on the ruling that solar PV installations registered after December 12 last year and before March 3 this year could qualify for the 43.3p kWh subsidy rather than the 21p rate the Government tried to enforce.

Many companies have plans for large-scale solar in particular because they see new possibilities from the Renewables Obligation Certification scheme (ROCs), which gives two ROCs for each MWh for schemes over 5MW, and under which there is no size limit.

There is even talk of solar farms as large as those found in Europe, up to even 40MW in size, in the south of England. One player predicts 1GW of plant installed in the UK over the next year.

Emma Hughes of Solar power Portal says that "now that the feed-in tariff fiasco has reached a conclusion many are looking forward to working in the UK solar industry in 2012, especially now there is opportunity under the Renewables Obligation."

REC Solar, Canadian Solar, Q-Cells and many others are all of the opinion that if the component prices decline as expected, and energy bills continue to rise, opportunities for ground-mounted solar to become cost-effective will increase.

REC Solar is hoping to double its capacity this year by installing approximately 60MW, a large proportion of which will be ground mounted.

Superhomes

At the domestic and business consumer level, more than anything else the government has done, the installation of panels on so many roofs across the country has got people talking about energy and its importance.

All over the country this weekend, owners of homes who had installed green equipment or upgrades threw open their doors for visitors interested in doing eco-refits themselves.

Besides solar PV systems, visitors to the 'green showhomes' on these tours saw every type of upgrade from simple insulation and draught proofing measures to complete overhauls and rebuilds, involving many types of green heating from woodchip fired boilers to solar water heating systems, and even in one case, a tank which combined four different kinds of heating.

Many of those on the tours had had their interest in the subject first aroused by seeing solar panels on neighbours roofs.

This indicates that a chief aim of government policy has succeeded: increasing public awareness in energy matters, even though investment in photovoltaic technology in this country is not cost-effective at the level of subsidy initially set by the feed in tariffs.

But although many of the thousands of people on these tours knew about the Feed-in Tariffs, a high level of ignorance was revealed about the follow-up schemes, the Renewable Heat Incentive and the Green Deal, indicating the huge amount of work that the Government yet has to do to publicise these initiatives.

The 'Superhomes' tours were organised by volunteers in many towns and cities in England and Wales, either by the network members themselves, or local Transition Towns groups.

Several were oversubscribed, indicating the increased popularity of the subject, further evidence of which was the changed nature of last week's Ecobuild exhibition in London, which was far more upbeat, corporate and mainstream than it had been in previous years, with much floor space taken up by solar and heat pump installers.

Speaking at the Ecobuild exhibition, Energy and Climate Change Minister, Greg Barker said: “This is an aspirational agenda. We know people are always looking to improve their home even in times of austerity. It’s part of the British DNA.”

John Gaffney, who organised a tour in and around Llandeilo in Carmarthenshire, said “many of the homes we have seen this weekend who have solar photovoltaic panels installed still think it is worth the investment even with the reduced tariff."

“It seems so complicated from the outside, knowing what to do," said one of the super homes tourists, Peter Jones of Llangadog, "But seeing what other people have already done is a terrific help in getting ideas about what is possible in your own circumstances."

A highlight of this tour was a home which had both water and space heating supplied by both a ground source heat pump and solar water heating panels, with the electricity for the pumps supplied by photovoltaic solar panels supported by FITs. “We generate more energy than we need, so we are still actually paid by the energy supplier after we have used all the energy ourselves," said owner Caroline Langdon.

Green Deal red tape removed

Last week, Greg Barker sought to remove doubts that the Green Deal implementation would be delayed, but did say there will be a “managed” roll-out of the scheme, meaning that some aspects will launch before others, chief of which may be the Energy Company Obligation, which is simpler to arrange.

He said that the Government would be responding to the Green Deal consultation in April and secondary legislation would appear “by summer recess”.

"This doesn't affect the planned October launch,” he said.

He told attendees to the exhibition that red tape was being removed from those who wanted to become accredited installers, including the requirements to have a surety bond in place prior to being authorised; to hold warranties for the 25 year length of the plan when they were longer than standard industry warranties, e.g. for boilers,; and the requirement that installers pay for an Independent Conciliation Service.

Instead, a new Green Deal Ombudsman capable of handling complaints will be appointed.

"Remove stamp duty"

UK Green Building Council chief Paul King has called the Government’s handling of the solar FITs “catastrophic” and said it is now crucial that the Government instills confidence in businesses preparing for the Green Deal.

This weekend, many visitors on the superhomes tours expressed fears that if they invested in renewable heat systems that the tariff rate for these would be reduced in the future. Many appeared unaware that tariff rate reductions did not affect those whose installations had met the deadlines.

In this respect the public perception arising from the solar FITs fiasco has been extremely damaging.

To rebuild confidence, and create more publicity, Paul King has called on the Government to link the Green Deal with stamp duty and council tax, making less energy efficient homes pay more through the tax system.

He said it didn't matter if the implementation of the Green Deal was delayed if it meant that its integrity would be preserved and the fine detail was in place and did not have to be amended subsequently.

He said: “I would much rather delay it rather than go and blunder it as it will take 10 years to get it out of the public consciousness.

Collective energy purchasing

In a further bid to engage consumers with energy purchasing, today, Ed Davey has written to all of the energy suppliers asking them to support collective purchasing schemes as another way of helping householders engage easily with the electricity market and bring prices down.

He wrote: "I want to make it easier for consumers to club together and use their collective purchasing power to engage with the market and to get good deals on their gas and electricity."

This was a key part of the Consumer Empowerment Strategy that Ed Davey launched as a Minister in the Department for Business Innovation and Skills last year.

He said particular you want to see schemes that reached out to “include more vulnerable customers and people who don't shop around for their gas and electricity".

The purpose of the letter is to encourage all energy suppliers to engage with these organisations on their ideas.

Feed-in Tariffs budget to be slashed by 10%

The level of support for Feed-in Tariffs is to be reviewed, as the budget must be slashed in 2014/15 by at least £40m or 10 per cent.

Energy minister Chris Huhne has praised FITs for introducing renewables to individuals who would not have traditionally considered installing them, but said that there has to be a review because the recent Spending Review called for a reduction in the scheme's projected costs.

Huhne was responding to questions on the Financial Times' Energy Source blog last week on a wide range of questions covering feed-in tariffs, the Renewables Obligation, emissions targets and green jobs in the UK.

"These savings will be achieved through the planned first review of the scheme in 2012, to take effect in April 2013, unless higher than expected deployment requires an early review," he said.

Solar panel and other installers have expressed alarm over Government noises that there is to be a review. If the tarrif rates are to be changed this would affect decisions on whether to invest in micro-renewables by householders.

Huhne also said his department was keeping an eye on whether FITs were encouraging the development of "large, industrial-scale, greenfield based solar farms", which would "distort the available funding for domestic solar and other technologies".

"Whilst we won't act retrospectively, we stand ready to take measures to limit the access of such schemes to FITs if that is shown to be necessary", he said.

The Government is also to consult on the proposed support levels for the Renewables Obligation after 2013 in summer 2011, and give its response in autumn 2011, says Secretary of State Chris Huhne.

Attempting to assure investors, he said that changes to bands, if any, will come into effect from 1 April 2013 (2014 for offshore wind).

"The RO will remain in place until 2017, so developers can make decisions now, knowing what their support mechanism will be" he continued. "We are also consulting on whether to give developers the choice between the two mechanisms in advance of 2017, and would genuinely welcome views. From 2017, the whole RO mechanism will be grandfathered, so developers can know that investments made now will be protected."

Support levels for new projects between 2013 and 2017 are decided by last March's banding review, and the Government recently announced that it is speeding up that process.

Carbon tax to hit electricity generators

A second effective 'carbon tax' is to be levied - in addition to the Carbon Reduction Commitment for large electricity users - this time targeting all companies that import fossil fuels into the economy.

The proposal, together with various ideas as to the level of the tax, comes in two linked consultations being conducted by the Treasury and DECC in a search for policies that will stimulate the investment necessary to meet the targets set by the Climate Change Committee (CCC) and others for de-carbonising the economy and reducing overall greenhouse gas emissions.

The specific CCC target is a reduction in carbon-intensity of power generation to below 100gCO2/kWh by 2030. In 2009 this figure was around 490gCO2/kWh.

Ofgem has estimated that to achieve such a drastic reduction in nineteen years implies the investment of around £200bn in new generation, electricity networks and gas infrastructure.

Only reform of the electricity market can deliver this, DECC says. The consultation argues that such reform must include support for the price of carbon - the creation of a floor price - to provide long-term certainty for investors around the additional cost of running polluting plant.

This is an admission of the failure of the EU-ETS (Emissions Trading Scheme) to deliver this support so far. Currently the price of carbon is remaining stubbornly below 15 Euros, and needs to be at least double this to stimulate investment. It is also volatile and unpredictable.

Supporting the price of carbon

The proposals state that from 1 April 2013 a 'carbon price support mechanism' will be introduced by applying the climate change levy (CCL) to all fossil fuels used in electricity generation and taxing their use and, in the case of oil, removing rebates.

According to HM Revenue and Customs, there are 255 of these companies, which break down as follows:

Energy product No. of registered suppliers
Electricity: 117
Gas: 71
Solid fuels: 36
LPG: 31

The Treasury says that the exact rates for the tax will take account of the commodities’ average carbon content and will be known as the ‘CCL carbon price support rates’. The consultations discuss different levels - from £20/tCO2 to £50/tCO2, with the preferred rate being £30/tCO2.

According to the Treasury's own reckoning, the only scenario that leads to the required carbon-intensity of power generation by 2030 is a carbon price support starting at £3/tCO2 on top of the prevailing EU ETS price in 2013, rising to target a combined carbon price (support plus EU ETS) of £40/tCO2 in 2020 and £70/tCO2 in 2030.

However this scenario also results in the highest rise in domestic energy bills. A single pensioner's bill would rise by 35% in 2020, compared to 16% if the starting support price was £1/tCO2, rising to £30/tCO2 in 2020. Adopting that scenario, however, leads to a carbon-intensity drop to only about 120gmCO2/kWh.

Other policies

DECC, in a linked consultation about the best policy context for the tax, offers four scenarios, of which it prefers a combined set of policy tools that include contracts for difference and carbon price support plus Emissions Performance Standards and a capacity mechanism. One reason for this is that "the [cash] flows from government to generators would be lower than without carbon price support."

An Emissions Performance Standard (EPS) would limit how much carbon the most carbon intensive power stations - coal - can emit, and encourage carbon capture and storage.

Long-term contracts for feed-in tariffs, a revised Renewables Obligation, much more low-carbon generation, and demand-management strategies also figure in the consultation as collectively being necessary to secure the targets.

Capacity payments would be introduced to encourage security of supply through the construction of flexible reserve plants, a policy which acknowledges the intermittent and inflexible nature of much low-carbon generation.

"The key factor in the effectiveness of the policy is the reaction of potential investors, and whether the mechanism is “bankable” for the purposes of raising finance for new low-carbon generation investments," says DECC.

Can Britain follow Germany with feed-in tariffs?

The government plans to implement feed-in tariffs by April 2010 to incentivise renewable electricity installations up to a maximum capacity of 5 MW. The consultation document looks at how it could work and best practices from other countries.

It does a good job of setting out the options, but stops short of specific proposals. The following variables are considered:

A fixed tariff pays an overall amount per unit of electricity generated, independent of market price. A premium tariff is an amount paid on top of the market price. In a stepped tariff the amount varies according to type of technology, scale, and local conditions. A flat tariff takes no account of this.

Proposals by the working groups for the Renewable Energy Association, mentioned in the last issue, suggested that all renewable energy generators would be paid a fixed renewable tariff for all energy produced (a “generation tariff”), and an additional price for that exported to the grid, set at a level established between the supply company and the beneficiary and subject to market competition. This is Taken up in one of these consultation documents but not others, which argue on the whole for fixed, stepped tariffs.

At a domestic scale most individuals will use much of their generated electricity themselves, and their use may be unpredictable so they may still be cautious about investing in these technologies because the payback period will, even with these subsidies, be considerable without other grants for installation. The main document says that a generation tariff will be a fixed price, set at different levels for different technologies and installation sizes. "We expect to lower the tariff levels for new projects over the years, but any individual installation, once starting to receive a tariff at a certain level, will continue to receive the same generation tariff level throughout its entire support period under the FITs".

To give long-term certainty to investors, the consultation process to "require suppliers to purchase exports from FITs generators at a guaranteed minimum price". The tariff level will have to be sufficiently high to attract the level of uptake needed to meet targets. The report notes that "due to the fact that small generators provide only small amounts of electricity to the grid, they may have difficulty in securing the same wholesale price for exports that a large-scale generator can access, and may receive a much lower price".

Criticism has been made that the proposals are not being examined at the same time as those for renewable heat, which is to be introduced a year later. This is especially bizarre since the report does look at the electricity-only component of combined heat and power technologies.

FITs or RO?

The consultation proposes that from 1 April 2010 installations of 50kW and below eligible for FITs will only get the option of receiving FITs. However, those from 50kW to 5MW will be able to choose between the RO and FITs.

Deadline for responses: 15 October 2009. See the DECC consultation page

How it might work in practice

A house (it could be an office building) generates 2,500 kilowatt hours (kWh) per annum (e.g. from a solar PV panel). They use 1,500kWh of the electricity they generate. 1,000kWh is exported, because it is generated at times when the household does not use it. The household uses a total of 4,500kWh per annum. Therefore, it needs to import 3,000kWh from an electricity supplier.

If the tariff for generation is, for example, 30p/kWh, the householders will receive a FITs payment of £750 per annum (2500kWh x 30p) for the electricity they generate. They will also receive a payment for the electricity they export; assuming a price of 5p/kWh this would be £50 (1000kWh x 5p). They also derive a benefit from the 1,500kWh they generate and use on-site as that will offset 1,500kWh they would otherwise have had to buy from their electricity supplier. Assuming an import price of 10p/KWh this would be a saving of £150 (1500kWh x 10p).

If FITs were delivered by a "generation only" tariff, and generators were required to pay import rates for all electricity used (including that generated on-site) the household would receive much more: £950 per annum (2500kWh x 38p).