Chris Huhne answers your questions – Part one

In this first weekly readers’ Q&A session of 2011, Chris Huhne, the UK energy secretary, answers your electricity-market related questions.

In the first of two posts, he addresses the limits of feed-in tariffs, what will happen to the renewables obligation and how to keep green jobs in the UK.

In the second post, published above, he discusses ths cost of emissions targets, the chances of another oil shock and what should happen to the “big six” power companies.

Next in the hotseat is Jack Gerard, the head of the American Petroleum Institute, who will be answering your questions next Friday, January 14th. Send in your questions for consideration by the end of Sunday, January 9th – to energysource@ft.com.

But for now, over to Chris:

Renewables obligation for wind

Onshore wind still needs the support of government in the form of the renewable obligation (RO). Does the UK coalition intend to continue to maintain this level of support?
Alistair Hinton

We are maintaining the banded RO, and are committed to not changing the rules for existing investments, including onshore wind. Support levels for new projects between 2013 and 2017 are decided by the banding review, and we have just announced that we are speeding up that process.

We will consult on the proposed support levels in summer 2011, with the government response in autumn 2011. Changes to bands, if any, will come into effect from 1 April 2013 (2014 for offshore wind).

Gap between RO and FITs

How can the need for consultation and time for implementation of the new feed-in tariff (FIT) regime be squared with the chilling effect of removing the renewables obligation (RO)? How do you avoid a hiatus in investment?
Ken Rumph, Cleantech research, Nomura Code

It’s precisely because we aim to build long-term confidence in the UK as a place for renewable energy investment that we’re taking the time now to consult and implement the new arrangements in the best way possible. The consultation we published last year also sets out our proposals for a smooth transition from the RO.

From 2017, the whole renewables obligation mechanism will be grandfathered, so developers can know that investments made now will be protected.

The RO will remain in place until 2017, so developers can make decisions now, knowing what their support mechanism will be. We are also consulting on whether to give developers the choice between the two mechanisms in advance of 2017, and would genuinely welcome views. From 2017, the whole RO mechanism will be grandfathered, so developers can know that investments made now will be protected.

Reductions to feed-in tariffs

The wording of the spending review and recent comments by Greg Barker have left the farming community and the renewable industry worried about the government’s intentions regarding FITs (especially as many of them have already invested substantial resources in new projects).

Could you spell out what would constitute the “undue increase” that was mentioned – how many MW installed capacity would trigger an early reduction in FITs?
Niels Kroner, professor, European University at St Petersburg

The scheme we inherited leaves open the prospect of large, industrial-scale, greenfield based solar farms distorting the available funding for domestic solar and other technologies. We are monitoring the situation closely and, whilst we won’t act retrospectively, we stand ready to take measures to limit the access of such schemes to FITs if that is shown to be necessary. If needs be, this could be done separately from the full review of FITs announced as part of the spending review.

Removing FITs

When will the unrealistic FITs be removed from wind and solar power generation?
Peter Bowers, chairman, ICDM

I’m full-square behind using FITs to encourage an ambitious roll-out of the widest possible range of domestic and community scale renewables. The incentive they provide drives behavioural change among individuals and community groups who don’t usually engage with the electricity market.

I’m full-square behind using FITs to encourage an ambitious roll-out of the widest possible range of domestic and community scale renewables.

At the same time we need to ensure we get value for money. The recent spending review confirmed we will review the level of support provided by the FIT for small scale renewables, to reduce the scheme’s projected costs in 2014/15 by at least £40m or 10 per cent. These savings will be achieved through the planned first review of the scheme in 2012, to take effect in April 2013, unless higher than expected deployment requires an early review.

Green jobs

If UK electricity consumers are to pay higher prices to achieve environmental goals, what steps will the government take to ensure that new subsidies will support job creation and the development of major new industries at home?
Ian Simm, Chief Executive, Impax Asset Management

First of all, under our electricity market reform plans, UK electricity consumers will pay lower bills in the long run than they would if we had stuck to Labour’s plans. But I agree we need to make sure the UK benefits from the jobs and new renewable industries – that is why we’ve earmarked 60 million for infrastructure for offshore wind manufacturing.

The private sector will be the engine of green growth and we need to ensure that we create favourable conditions to drive investment in the transition to the low carbon economy. This will help the UK to strengthen its position as the sixth largest market in the world for low carbon and environmental goods and services, while increasing on the current 910,000 UK jobs in this sector. We’re already seeing exciting investment announcements in offshore wind turbine manufacturing.

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