A row over wind subsidies has been raging in Whitehall for months and on Monday I brought you a leaked letter showing the outlines of a compromise put forward by George Osborne to energy secretary Ed Davey.
Today we had the official announcement of the compromise – which came after the intervention of Cameron and Clegg – and it includes one or two surprises; for example a new £500m tax break to boost offshore drilling in shallow water gas fields in the North Sea.
But the outlines are as we reported two days ago and again in this morning’s FT. Onshore wind subsidies (not offshore) will be cut by 10 per cent rather than the 25 per cent that chancellor Osborne had demanded.
Yet there has been no agreement over a 2030 “carbon goal” which the committee on climate change has called for to decarbonise the electricity industry.
Davey said today that the issue would be revisited later in the year; the Lib Dems believe that the carbon goal was “decoupled” from the wind subsidy issue.
In reality, however, the Treasury is adamant in its resistance to the proposal, believing that it would put off investors in gas plants.
“What George Osborne cares about most is a credible gas strategy,” says one government official. “Gas investors are worried that if the scope of renewables subsidies could make gas unviable, which is why we don’t want any new decarbonisation targets.”
Osborne believes that his refusal to endorse a 2030 target means that the decision can be delayed indefinitely.
Meanwhile Davey also made a firm pro-gas announcement today, as demanded by the Treasury, saying that gas would play an “important role” in the power sector for decades to come.
The government “sees gas continuing to play an important part in the energy mix well into and beyond 2030”, said the energy secretary.
“Through the 2020s, and beyond if gas proves cheap, we expect it to continue to play a key role ensuring that we have sufficient capacity both to meet everyday demand and complementing an increasing amount of relatively intermittent and inflexible generation…We do not expect the role of gas to be restricted to providing back-up to renewables.”
Davey also announced the new £500m gas field allowance for marginal fields – in addition to the £3bn oil field tax break in the March Budget.
The fact that onshore wind subsidies are only being cut by 10 per cent has been presented as a victory for the Lib Dems. It is likely to prompt annoyance from Tory MPs, of which 101 signed a petition earlier in the year calling for deeper cuts.
But Davey said the agreed level was only guaranteed until 2014 and “could change after then if there is a significant change in generation costs”.
The energy department will launch a review into onshore wind costs in the autumn, to report in early 2013, to see if there is a need to change subsidy levels. This will also look at how local communities can have more of a say over, and receive greater economic benefit from, hosting onshore windfarms.
Meanwhile renewables groups are unhappy about a proposal to limit support for small-scale solar from the renewables obligation from next year – even though investors can still apply for the separate “feed-in tariff” scheme. This will introduce “uncertainty and delay for investors in solar power”, according to the Renewable Energy Association.
“Today’s announcement gives just eight months of forward certainty for RO solar, so deployment is set to slow,” the group warns.
As for other moving parts of the whole green debate: In the leaked letter Osborne said he wanted to insert a clause into the energy bill enabling the government to shut down the FiT programme at any time. He also wanted to ensure that Britain would meet part of its 2020 renewables targets by buying in clean energy from elsewhere in the EU. Neither of those issues have been resolved and will be argued over yet again in the autumn.
Jim Pickard
Kiran Stacey