The Government has announced this morning that the onshore wind subsidy is to be cut by 10% and that this will help to reduce energy bills.
The Department of Energy & Climate Change (DECC) has announced a cut in onshore wind subsidies of 10% although it’s reported that the Treasury and many backbench Tory MPs wanted an even bigger cut of 25%.
The new subsidies mean there are new bandings for around 30 renewable energy technologies such as wind, solar and wave power. The chairman of the Commons Energy Committee, Tim Yeo, said the 10% cut was “perfectly acceptable to reflect growing efficiency and falling costs of turbines”.
The changes in the subsidies are designed to encourage investment in energy generation over the next 5 years and help to reduce energy bills by around £5-£6 a year.
As things stand at the moment around £44 of a domestic energy bill goes towards subsidies for renewable energy and would have increased to £50 by 2016-2017. Today’s announcement will mean that in 2012-2014 bills will be £6 less and £5 less in 2014-15. But by 2015-16 they will begin to increase again.
However, changes in subsidy levels will only be guaranteed until 2014. There will be both an onshore wind consultation and a large scale solar consultation later on in the year with levels of subsidy falling if the cost of wind and solar falls. These reviews are regarded as negative, possibly affecting confidence amongst potential investors.
According to the DECC the renewable subsidies could mean investment of up to £25billion in the economy between 2013 and 2017. The Energy Secretary, Ed Davey, said “Renewable energy will create a multibillion-pound boom for the British economy, driving growth and supporting jobs across the country. The support we’re setting out today will unlock investment decisions, help ensure that rapid growth in renewable energy continues and show the key role of renewables for our energy security”.
However, there has been criticism from some quarters that the cut is actually a victory for those supporting gas generated electricity. The DECC admitted that if gas “proves cheap” then it will become an important part of the UK’s energy generation post 2030. The Government has also announced tax breaks worth £500m for shallow water gas fields in order to help increase investment in gas fields not regarded as economic.