UK CO2 freeze 'no impact' on RE

The UK government today promised to “maintain” its ambition for renewables, despite Chancellor George Osborne’s pledge to shield businesses from the cost of supporting wind and solar.

In his annual Budget today, Osborne laid out a plan to cap the cost of emitting carbon from fossil fuel-fired power stations in an ostensible sop to the country’s energy-intensive manufacturing sector, which benefits from cheap electricity.

The government claims that the move will in no way affect the amount of support available to renewables via the Levy Control Framework, nor dent its “ambition to increase renewable generation” in the years ahead.

RWE npower chief executive Paul Massara, however, questioned the notion that Britain can change the rules governing its energy industry yet again and still attract investors.

“Changing the carbon price support that is the foundation of the new Energy Act less than three years after its inception will impact on … [Britain’s] ability to find investors for the billions of pounds worth of energy infrastructure that Britain still needs to build an energy future that is both secure and low carbon,” Massara says.

Gordon Edge, director of policy at the trade group RenewableUK, said the announcement could "chill the mood of some investors in clean energy projects".

Amid tumbling carbon prices within the EU’s Emissions Trading Scheme, the UK several years ago announced plans for the so-called Carbon Price Floor as a way to bolster investment in low-carbon energy infrastructure.

The price floor – which went into effect last April – essentially acts as a top-up to whatever emitters are required to pay for carbon permits under the EU ETS.

Today, however, the UK government said it would cap at £18 ($30) per tonne of CO2 the difference between its Carbon Price Floor and the EU ETS carbon price between 2016/17 and 2019/20 – claiming that doing so will save British businesses £1.5bn a year by 2019, making them more competitive with their Continental rivals.

The carbon price freeze is good news for Britain’s coal-fired generators, which will remain competitive against gas and renewables for longer as a result, says Phil Grant, an energy specialist at the consultancy Baringa Partners.

With the carbon price freeze in place, power prices in Britain will be about £2/MWh lower in 2016/17 than they otherwise would have been, says Grant.

Separately, the government will from 2016/17 offer up a new pot of £500m per year to help energy-intensive industries offset the higher electricity costs resulting from the UK’s Renewables Obligation and feed-in tariff.

While providing no new support to wind and solar, Osborne also offered another £60m ($100m) to help develop technologies related to carbon capture and storage.

Osborne says the budget will “radically reduce the costs of energy policy for business – particularly in manufacturing – while improving security of supply and maintaining the government’s ambition to increase renewable generation”.