Select committee panel pins LCF overspend blame on solar

Witnesses at an energy and climate change select committee hearing on Tuesday claimed solar is responsible for a purported overspend in the Levy Control Framework (LCF).

The claims come despite lucrative contracts under the Final Investment Decision Enabling for Renewables (FIDeR) mechanism – which take up approximately one-third of the LCF budget being granted to offshore wind and biomass, and the government’s own assertions that LCF expenditure cannot be apportioned to any one technology.

The select committee is holding an ongoing inquiry into the impact of government policy on investor confidence in the UK’s energy market and yesterday heard from representatives from Carlton Power, Drax Power, DONG Energy and EDF.

The LCF was referenced and Drax Power’s Andrew Koss spoke of the uncertainty caused by the dramatic change in LCF forecasts between the government budget in March and a further disclosure in July. During this time the LCF went from having £1 billion of budget to recording an overspend of £1.6 billion.

This £2.6 billion movement, Koss said, had caused doubts to emerge over the “underlying assumptions and projections” and urged the government to give more visibility over the workings of the LCF.

Conservative MP Antoinette Sandbach probed further, suggesting that those within the industry must’ve known about the true scale of renewables deployment under the LCF.

EDF’s director of strategy and corporate affairs Paul Spence replied, stating that it was difficult to know the true generation of intermittent generators before laying the blame firmly at solar’s door.

“I think what was more of a surprise was the distributed generation which none of us were involved in building, particularly solar and the pace of development of small scale solar projects was something that, with hindsight, surprised us. And the consequence for the LCF was therefore something we hadn’t anticipated,” he said.

Spence’s comments come despite the majority of LCF expenditure having been attributed to contracts awarded under the FIDeR mechanism, a precursor for competitive tenders under the Contracts for Difference programme.

Eight contracts under FIDeR – three of which were handed to DONG Energy, whose head of regulatory affairs Danielle Lane was also on the panel – were awarded roughly a third of the LCF budget of  £7.6 billion to deliver circa 4.5GW of renewable energy capacity.

Spence’s comments also come just a fortnight after energy minister Andrea Leadsom said the projected overspend could not be attributable to any one technology. When asked by Labour MP Helen Hayes how much solar had contributed towards LCF expenditure, Leadsom replied: “The projected overspend in 2020/21 is not attributable to an individual technology but rather a collection of factors, for example changes in wholesale prices, accelerated developments in technological efficiency and higher than expected uptake of demand led schemes.”

And Leonie Greene, head of public affairs at the Solar Trade Association, pointed flaws in Spence's argument. “12GW of solar would absorb around 14% of the LCF, so it isn’t true that solar has run away with the LCF budget. We were very surprised in the solar industry that contracts absorbing around a third of the 2020 LCF budget were awarded without competition and mostly to more expensive technologies than solar," she said.

And further analysis conducted by the STA has revealed that even with the anticipated build rush under the RO, all solar constructed under it would cost just £467 million by 2020 - equivalent to 5.6% of the entire LCF budget.

"Really the biggest surprise is that DECC is severely limiting solar’s forward growth based on deployment projections made several years ago, before major cost reductions were achieved in solar. Intelligent energy policy needs to keep up to speed with technological advances and cost breakthroughs – that is in the interest of consumers. 

"We are now seeing global projections for future clean investment measured in trillions of pounds, with solar set to dominate. So it is very difficult to comprehend why DECC has proposed spending just £7 million on solar over the next 3 years. The UK should be making solar investment much more of strategic priority if it wants to strengthen our stake in the future global clean energy market," Greene added.

This article has been amended from its original version to include comment from the Solar Trade Association.