Osborne’s budget shuns solar in support of gas

The Chancellor, George Osborne, has today announced a raft of proposals to help stimulate the UK’s flat-lining economy. During the budget announcement, the Chancellor introduced a number of controversial proposals that are designed to support the gas industry, in an attempt to kick-start the lacklustre economy.

Osborne issued an infrastructure document alongside the new Budget that proposes 6.7GW of new gas plant capacity, flying in the face of advice issued by the IEA, who warned against a ‘lock-in‘ to fossil fuel generation which would expose the nation to unpredictable oil pricing. 

Today’s Budget has also confirmed that not only will Enhanced Capital Allowances not apply to recipients of FiTs and RHI payments, but regular Capital Allowances for expenditure on solar PV will be reduced from the standard rate (18 percent) to a “special” rate of just 8 percent. One of the justifications given by Treasury for a lower write down rate for solar was that the solar FiT tariff lasts for 25 years, longer than other technologies. However, the Department of Energy and Climate Change (DECC) is currently consulting on reducing the tariff lifetime to 20 years.

The Chancellor’s proposals have largely angered the UK renewable industry, most notably the solar industry. The Solar Trade Association (STA) has expressed its disappointment that the world’s largest renewable energy market in 2011 has been overlooked despite delivering dramatic price falls and a 70 percent increase in global installs. 

Reacting to the announcements, STA Chief Executive, Paul Barwell, said:  “Enhanced Capital Allowances are immensely valuable for helping projects over the initial investment hurdle. We would argue there is a case for extending ECAs to solar PV, as looking forwards FiTs alone are unlikely to give businesses the rates of return they need to invest.

“We also don’t agree that ECAs should end for solar thermal. The Renewable Heat Incentive was calculated on the basis that ECAs were available. Their removal places more pressure on DECC to provide more support for solar thermal – or risk alienating important investors.

“We cannot understand why solar has been singled out for rough treatment on Capital Allowances when it’s a popular technology which will soon reach grid parity and provide businesses with a real alternative to dependence on fossil fuels.”

The CBI welcomed the Chancellor’s oil and gas tax relief programmes. John Cridland, CBI Director-General, stated that the new proposals will: “Unlock investment and help ensure our security of energy supply. Companies will now look forward to seeing the detail of the gas generation strategy which must join the dots on the Government’s approach to energy generation and act as a positive signpost to investors.”

The Renewable Energy Association welcomed the Chancellor’s noticeably more positive tone towards renewable energy but warned that he is wrong to equate renewable energy to higher costs. According to DECC’s own modelling, a high renewable energy scenario would cost no more than continuing the nation’s current energy mix in the future. The REA also reiterated that a thriving domestic renewable industry would create a high proportion of inflation-free energy, a better balance of trade deficit and, most importantly, more jobs. 

The REA questioned the Chancellor’s justification of gas-fired electricity’s major support because “gas is cheap,” whilst promising to keep an eye on the costs of renewable energy to families, when both Ofgem and the Committee on Climate Change clearly demonstrated that gas, not renewables are responsible for the continued escalation of utility bills.

REA Chief Executive Gaynor Hartnell, said: “It is short-termism in the extreme to hand out tax breaks to oil and gas because crude oil prices are soaring.  Energy security demands we invest in energy sources that won’t run out.”

However, the REA welcomed some of the proposals outlined in the Budget, including the Chancellor's focus on clean energy infrastructure investment and his acknowledgement that renewable energy will pay a 'crucial part' in the energy mix.

The solar industry, so often at loggerheads with Government policy decisions will feel largely aggrieved with the Chancellor’s Budget. Barwell concluded: “Solar is demonstrably delivering exceptional price drops, but the UK industry needs stability and confidence. The Chancellor said 'stability comes first' - that should also be applied to solar."