UK think tank Policy Exchange has accused the Department for Energy and Climate Change of “reckless and wasteful” management of renewable subsidies and recommended sweeping cuts to the small-scale feed-in tariff to help curb an overspend.
In its The Customer is Always Right report, issued today, Policy Exchange argues that energy bills have soared in recent years partly due to DECC’s failure to keep a firm handle on Levy Control Framework (LCF) spending, which the Office for Budget Responsibility recently said could exceed £9 billion per year by 2020.
“The government placed insufficient emphasis on consumer affordability, and policy and network costs have spiralled as a consequence,” the report stated.
Policy Exchange has recommended a number of actions in order to curb LCF spending in the future and bring consumer bills down, however they are unlikely to gather support from the renewables industry.
Policy Exchange recommends imposing a subsidy cap of £70/MWh under all subsidies for large-scale projects and “significantly” cut subsidy support for microgeneration immediately, labelling the small-scale feed-in tariff (FiT) as an “enormously wasteful” scheme.
Analysis conducted within the report has argued that the FiT could survive a cut to as little as 5p/kWh and still deliver a return of 7% – more than 8% if a Green Deal finance loan is taken to pay for installation – based on DECC cost assumptions of £1,522 per kW.
Policy Exchange argues that the current expected return of more than 12% per year is evidence that the small-scale FiT is “unnecessarily generous” and far exceeds DECC’s targeted return of between 5-8%, and that cutting the FiT would bring it back in line with expectations.
The report also criticises the way in which the LCF budget is perceived to “prop up losers” rather than “pick winners” with regards to awarding contracts for unproven or costly technologies, suggesting instead DECC should continue to reward proven and mature renewable technologies with further support, helping them move towards grid parity.
This flies in the face of recent policy decisions taken by the department to curtail support for onshore wind – currently the lowest cost renewable energy technology – a year earlier than planned, a move which has already attracted substantial criticism and accusations of being politically, rather than economically motivated.
Policy Exchange does however consider any argument that subsidies for proven technologies be removed as “false”, and even goes as far to suggest that the LCF be extended in order to incorporate all subsidies which have an effect on levies providing it is managed more efficiently and subject to greater scrutiny and more regular reporting.
Other recommendations from the think tank include scrapping the 2020 renewables target while resisting pressure to install a new target for 2030 and revamping of the Green Deal scheme which it said has “failed to deliver” on its initial premise.
The report’s author, Richard Howard, said that increases in household energy bills has not been principally the fault of government policy. “Government should take its decarbonisation commitments extremely seriously but must also recognise that what consumers really want is affordable energy. That is why we are proposing that there should be stronger consumer oversight over policy decisions, and that government should look at ways to meet energy and climate objectives at lower cost to consumers,” he said
Policy Exchange’s report is the latest in a string of studies from the likes of Cornwall Energy and the Competitions and Markets Authority which has criticised the government’s tendering processes and subsidy allocation for renewables.
Speaking to Solar Power Portal earlier this week, energy and climate change secretary Amber Rudd acknowledged the budgetary overspend within the LCF and said the government was “looking carefully” at the cost of solar subsidies. In the coming months Rudd will lead both an in-depth review of the feed-in tariff and the allocation of resources under the second CfD round, scheduled to take place in October.