Cutting onshore wind subsidies too fast is the wrong target

July 9, 2012

Entering the village of Gwytherin, visitors are met with a large sign; a picture of a wind turbine with a big cross through it. Underneath the image, it says simply “No to wind”. Almost every house in the tiny, North Welsh village has a smaller version in their well-kept windows. The local pub, the Lion Inn, hosts meetings for opponents of the 14 new turbines proposed for nearby Denbigh Moor.

While opinion polls regularly show clear support for wind power, people are often less enthusiastic when a clutch of 100-metre spinning blades are proposed close to their homes. MPs’ mailboxes bulge with complaints from well-organised groups wherever a wind farm is proposed. This swell of opposition led to the letter signed by more than 100 Tory MPs earlier this year calling for cuts to onshore wind subsidies. Even Tim Yeo, a Tory renewables advocate, opposes wind developments in his own Suffolk constituency.

This concern led to the current internal government stand-off over subsidy levels for onshore wind. DECC released a consultation proposing a 10-percent reduction in subsidy levels, which the industry broadly supports. Since then, reports have suggested that the Treasury, and perhaps Number 10, wants a 25 per cent cut in subsidy. With the usual understatement, industry lobbyists claim this will ‘kill dead’ the industry. Yeo has called a select committee hearing tomorrow to test evidence for cost reductions.

The move for further cuts appears to be driven by short-term politics. It is not clear what evidence supports it. This is dangerous. It gives inconsistent signals to generators and investors, likely raising the cost of low carbon development. Crucially, onshore wind is the wrong target. If your primary concern is the impact of renewable generation on bills – which it should be – then targeting one of the cheapest low carbon technologies is bad economics.

For every gigawatt of onshore wind capacity you do not build, you will likely have to build an extra gigawatt of offshore wind, spending an extra £1.2bn in capital costs. Bills for both householders and businesses will inevitably rise. Government could save £12bn for billpayers over the next eight years with a greater focus on onshore wind and biomass and a reduced focus on offshore wind (and still meet Britain’s target for renewable energy).

Of course, getting people to love onshore wind they can see from their front room is tricky. The industry recognises it needs better ways of sharing the benefits with local communities. The view from Gwytherin may appear less despoiled if every time a turbine blade swooshes through the air villagers earned money.

Any system of subsidies inevitably leads to this kind of unsavoury political wrangling: Officials propose cuts to protect tax or bill payers; lobbyists shriek threats of mass job losses and legal action; rival consultants are called in to scrabble together evidence; uneasy compromise is reached. It was the same for FiTs. It is now happening with ROCs. It has already started with CfDs. Different acronyms, same rent-seeking mess.

The Government must support low carbon technologies. It has a crucial role in directing big investments in research, development, demonstration and deployment of low carbon technologies. And government does have to make choices about which technologies to support. But this should be based on two questions: does the technology have a good chance of future cost reductions so that it can eventually compete without subsidy, and will the technology likely have a global impact on emissions reductions?

Sadly, the UK’s current policy is driven by another question: Which existing technologies can meet the arbitrary 2020 Renewable Energy Target. This is why government is ramping up offshore wind, a still-immature technology where costs are going up, not down (partly driven by the squeeze on the supply chain created by the need to get 13GWs into the sea in the next eight years). Not only will this approach push up bills unnecessarily towards the end of the decade (made worse by any move away from onshore), but what happens to these industries when the main driver of support runs out? 2018 onwards could be a bleak time for renewable generators.

As Ed Davey has said, our destination should be a market where different low carbon technologies compete freely. That will likely require a better carbon pricing regime, be it taxes or an improved EU Emissions Trading System. But this latest politics-driven scuffle reminds us how far we are from that.

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