Government plans for low carbon energy generation could add millions more pounds than necessary to consumer bills according to a new study from the Green Alliance, which has called on George Osborne to correct the issue in this week’s Budget.
The think-tank’s report - Beyond Subsidy: How the next levy control framework can cut carbon at least cost – claims current policy will involve spending £420 million more than necessary in low carbon subsidy between 2020 and 2025.
The report claims the cost of new low carbon electricity generation is being exaggerated by the Treasury. It states the method behind the Levy Control Framework (LCF) risks exaggerating it by more than six times the 2025 subsidy for low carbon generation as the calculations incorporate the cost of building any generation, whether low or high carbon.
Green Alliance’s analysis argues that the low carbon subsidy is, in reality, only the additional cost of building low carbon generation, above that of new gas plants.
At an expected £2.7 million requirement, the lowest carbon scenario expects to see new LCF costs after 2020 to be around a third of the costs of the first LCF period (£7.6 billion). This strategy would also deliver 90TWh by 2025, considerably higher than others relying on new nuclear and offshore wind.
This would fill a projected low carbon gap of 20TWh forecast by the report for 2025, which is expected to be caused by recent policy decisions that have slowed down renewable deployment.
Green Alliance says the government’s current approach, requiring £0.33 billion, has implemented significant barriers to further deployment of clean energy technologies and would only deliver just 70TWh of low carbon power as a result.
It also says constraining the deployment of technologies will slow the pace at which they can come down in cost, which would see subsidy payments double per MWh by 2025, making the low carbon transition more expensive.
The think-tank has therefore called on the chancellor to address the issue when he steps up to the dispatch box to deliver his Budget on Wednesday. It has called on Osborne to commit to a wider range of renewable energy technologies in the early 2020s and help them move to a subsidy free model after 2025.
Dustin Benton, lead author of the study, said: “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.”
In order to accomplish this, the report calls on the chancellor to use the Levy Control Framework (LCF) to allow the cheapest and most deliverable projects to deploy faster, via subsidy free contracts and a feed-in tariff for electricity efficiency, dubbed ‘negawatts’.
It has also followed on from recent calls from industry and MPs and claimed greater transparency around the LCF should be achieved to give investors more confidence to invest and lower the cost of less mature technologies.
It also suggests that spending on new nuclear plants should be separated from the LCF to prevent delivery uncertainties from undermining cost reduction in renewables, while the size of the LCF should be automatically adjusted if the carbon floor price does not rise to its planned trajectory.
Green Alliance claims the overall approach laid out in its report would require a strategy which minimises the cost of subsidy rather than the size of the levy.