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Secretary of State for Energy and Climate Change, Amber Rudd, recently announced an early end to the Renewables Obligation (RO) funding for onshore wind farms that have not yet received planning consent. This was met by consternation from many in the renewables sector and opposition parties.
Much of their arguments have focused on the amount of renewables capacity that would be lost and the set-back to our efforts in combatting climate change and moving to low-carbon energy sources.
This blog looks at the numbers in detail and finds the changes to capacity, while not large, are still likely to be significant.
The UK currently has 8.3 GW of operational wind capacity and a further 1.7 GW under construction. According to DECC’s Renewable Energy Planning Database, a total of 7.1 GW (289 onshore farms) is ‘in planning’: a planning application has been made but consent not yet granted. However, this is unlikely to be the true figure.
Wind farms of <5 MW can receive Feed in Tariffs. Of the 289 farms in planning, 59 – a total of 146 MW – should be eligible and therefore unaffected by the RO change. This leaves 7 GW.
In 2014, 57% of onshore wind applications were rejected . It follows that if future farms saw a similar attrition rate, only 3 GW of those wind farms in planning would get consent. It should be noted there are also proposals to give communities more say in wind farm planning; however, it is unclear if this would decrease or increase the number of farms getting consent.
At present, DECC assumes around 70% of onshore wind farms that are granted permission will actually get built . So, before the changes were announced, we could expect around 2.1 GW currently in planning to be constructed. In other words, this RO policy change is likely to curtail a 2.1 GW of new onshore wind, rather than the 7.1 GW suggested by the raw numbers.
DECC assumes a load factor of 26.5 %  for onshore wind (meaning turbines are expected to produce just over a quarter of their capacity). As such, the 2.1 GW of onshore capacity expected to be built would generate only 4,875 GWh annually (26.5% of 2.1 GW = 0.55 GW, multiplied by 8,760 hours in a year) or 1.5% of the UK total of 335,000 GWh .
While 1.5% doesn’t sound like much, the gap between forecast generation and demand during winter 2014-15 was around 6%. In capacity terms, the projected ‘loss’ is potentially significant: tightening the margin between demand and generation by around a third.
The UK’s 2020 target of 15% renewables refers to energy, not just electricity. The 15% target comprises three sector specific targets: 31% for electricity, 12% for heating/cooling and 10.3% for transport .
Both renewable heating/cooling and transport are currently 4.8% renewable and have seen a year-on-year proportional increase of around 0.5% since 2010 . There are no indications that this trend will accelerate, so we can expect them both to increase from around 3% to 7.8% by 2020, missing their targets.
There is potential for renewable electricity to make up the shortfall in heating/cooling and transport but looking at electricity’s progress, this seems unlikely.
Under the 2009 Renewable Energy Directive calculation methods, renewable electricity in the UK accounted for 17.8% of generation, lower than the 19% recently reported . Since 2010, renewable electricity has seen an average year-on-year increase of 2.6% . If this trend continues, we would expect renewable electricity to increase by 15.6% to reach 33.4% by 2020, just 2.4% over the renewable electricity target of 31%.
However, the RO changes mean such continued increase in renewables over the next few years is less likely. This will potentially leave the UK struggling to reach its 31% target. As we have seen, the 4,875 GWh likely to be ‘lost’ through early curtailment of onshore wind funding represents 1.5% of total generation. Therefore, we need to revise down the forecast increase in renewables from 15.6% to 14.1%. As such, the total proportion of renewable electricity by 2020 - all other factors being equal - will be 31.9%, not 33.4%.
This would mean the renewable electricity target is met, but by less than 1%. Not only is this incredibly tight, it would also eliminate any possibility of electricity making up for the predicted shortfall in heating/cooling and transport.
It follows, there is a significant risk that the overall 15% renewable energy target will be missed.
The risk of missing targets is obviously damaging. However, a greater potential threat of the RO changes is the likely knock-on effect it will have on investor confidence. The changes have already caught out several wind farm developers who have made significant investments ahead of submitting planning applications.
The changes go wider than those who are directly impacted. It will also affect developer and investor confidence in other renewables and potentially across the whole energy sector.
Prior to the RO changes there have been alterations to the funding arrangements for solar PV  and there are signs the market is slowing  . Several planned off-shore wind farms have also been halted or scaled back .
This situation is likely to worsen as investor confidence weakens in the wake of the decision to curtail RO. While it is impossible to predict by how much, all the indications are that, consequently the UK’s ability to meet its 2020 targets is further threatened.
In terms of MW/MWh capacity alone, the early curtailment of the onshore wind RO is not as negative as the headlines would suggest: representing a decrease (or rather, a non-increase) of 1.5% of the UK’s total. However, as both the UK’s current capacity margin and projected meeting of 2020 targets are so tight, it does represent a significant risk.
These are known risks (or at least forecast risks) based on readily available numbers. As with all major policy changes, a greater risk is from the unquantifiable effects: we know that any relatively sudden change to the funding system will damage investor confidence. In turn this will affect the renewables sector in a myriad of ways, such as potentially further scaling back investment in other technologies like solar PV and offshore wind. But we don’t know when, or by how much.
Stopping the RO will not save government any money - it’s paid by the electricity suppliers, not the Treasury. It is a political not an economic move, which is worrying. As ICE has long argued, what the energy sector - particularly renewables - needs is not only governmental will, but also policy stability.