On the face of it, the Department of Energy and Climate Change (Decc) came out of the carnage better than expected: a 30% cut in administrative costs but just 5% annual cuts for four years, and capital spending increased. Promises of big money were made for renewables and carbon capture and storage, and a new green investment bank was confirmed.
But if the winners were technologists and big businesses, the losers appeared to be the poor, who will see energy efficiency grants designed to improve fuel poverty slashed.
Businesses welcomed the setting up of a green investment bank, designed to unlock private sector funds to stimulate green business and make the transition to a low-carbon economy.
The energy secretary, Chris Huhne, wants the bank to have up to £6bn of funds and crucially to be able to raise many billions more of private-sector financing to achieve the £200bn investment in new electricity grids, power stations and windfarms required in the next decade. The Treasury wants the bank to act like a limited fund and is opposed to any government-backed borrowing.
Debate over the future of the green investment bank continues to rage in Whitehall, despite the chancellor's announcement that it would receive £1bn in public funds and proceeds from future asset sales. This morning the deputy prime minister, Nick Clegg, wrote to Liberal Democrat MPs telling them that the government had provided £2bn. One Whitehall source told the Guardian: "The budget was £2bn at breakfast time on Tuesday, but only £1bn by lunchtime."
"Energy companies will be disappointed by the initial funding for the green investment bank. The £1bn is a tiny sum compared with the annual level of investment required in new energy infrastructure, so they will be looking more to the promised energy market reform to drive new investment," said Richard Gledhill, climate change partner at accountancy firm PwC.
"Although £1bn sounds a lot, it may not be enough to leverage the billions of pounds of extra private-sector cash needed to kickstart the low-carbon revolution," said Tim Yeo, who chairs the energy and climate change select committee.
One sting in the tail for business was the decision to plough money collected from large businesses under the so-called Carbon Reduction Commitment scheme back into Treasury coffers "to support the public finances". The original plan had been to redistribute the cash to businesses that did most to cut their carbon emissions, so the move – which was not specifically referred to in the chancellor's announcement – will be seen by many in business as a stealth carbon tax.
Environment groups accused the government of deserting the poor for dismantling the £280m Warm Front initiative after 2011. This provided means-tested grants for energy efficiency measures such as home insulation.
Unexpectedly saved from the cuts was the feed-in tariff, an initiative which pays a subsidised premium price to anyone who generates renewable electricity on a small scale and exports it into the national grid. However, the Treasury has placed a cap on funding for the scheme, raising the possibility that it might review the rate ahead of schedule.
Although the Renewable Heat Incentive (a similar scheme due to be introduced next June) was scaled down by 20% from its original projections, the new £860m scheme to reward companies who invest in renewable energies was widely welcomed.
"This is excellent news for the UK solar industry. It's exactly what the market needs in order to fulfill its fantastic potential. The outcome of today's review could not have been better," said Ray Noble from the Renewable Energy Association.
£200m will go to stimulate UK-based offshore windpower, but the most financially ambitious initiative announced yesterday was to spend "up to" £1bn on a single commercial-scale carbon capture and storage (CCS) plant for a coal power station. Four such plants were originally planned as part of the government's CCS competition.
"This gives certainty to the market and ordinary people will gain, too. This will provide a strong boost for green jobs. I would be very surprised if we did not get much more than the £1bn promised for the green investment bank," said the climate minister Greg Barker.
Comments
20 October 2010 7:13PM
What a waste of tax payer's money.
20 October 2010 7:29PM
...it only pays for one demonstration plant for carbon capture and storage.
20 October 2010 10:01PM
A demonstration plant is so much sexier than installing boring old loft insulation in pensioners' houses, isn't it?
20 October 2010 10:26PM
Much of DECC funding (ie the 30% ort so nuclear clean-up costs) is ring-fenced, so the actual cuts elsewhere will be higher than 5%.
The Renewable Heat Incentive will be welcome to UK’s green energy consumers, however it will smaller and start later than originally planned. But, in principle any subsidy for renewable heat looks good. The devil is in the detail, much of which is absent.
I have yet to find out whether the RHI includes solar thermal (eg solar water heating) as being eligible, and if so at what funding level. DECC’s reference to “prioritising the most cost effective technologies” is not encouraging here. What do they mean by cost-effective? If they prioritise (a) just money in terms of cost efficiency, then solar thermal is not that great: just a bit better than PV (solar electricity). But if DECC instead prioritise (b) environmental efficiency then solar thermal is streets ahead of almost every renewable heat technology!
How late will the RHI start? According to trade body sources, that the level of support per technology (eg x pence per kilowatt-hour for x years) is still under debate. And there are no laws in place to make it happen either. Industry is hopeful that the actual levels will be announced in early December 2010. This should give consumers a nice green Christmas boost! However that the RHI programme will cost 20% less than planned and it must not have “runaway potential” either.
So the government may start off gradually perhaps by targeting off-gas-grid areas first (sensibly, such homes offer the best value for money in carbon saving terms) or perhaps (and much worse) put some kind of capping mechanism in place which would bring the whole industry to its knees if it were ever implemented. The actual start date for eligibility for funding will not happen until perhaps June 2011,once the extensive legalities (such as getting a bill through parliament and approved by competition wonks in Europe) are complete.
How will the RHI be funded? Interestingly, the RHI will be funded from Annually Managed Expenditure (AME), and not from a (controversial) levy on fuel bills, as was originally planned, something which DECC diplomatically describe as “complex”. So what other funding mechanism could / should it have used?
Will 17.5% VAT be applied to on dirty domestic fuel – to fund the RHI (and fuel poverty alleviation) and to deliver general energy market rebalancing? At this stage, it appears not. This issue-dodging either shows a lack of vision or political timidity. Perhaps fuel VAT will go up to 10% in January 2011 at the same time as general VAT goes up to 20%. Will there be a generally new carbon tax – gradually increased over time? Again, apparently not. Also disappointing, suggesting again a limited strategic vision of the UK government. Both represent potential green taxation losses.
Green DIY gets sidelined again. Is there support for DIY energy saving measures such as DIY loft insulation and DIY solar – via VAT reduction to 5%. Apparently not. Again suggesting blinkered environmental vision.
Stable feed in tariffs (FIT’s) for PV’s? Hmm. Only if they don’t become a runaway success story. I fact it looks as if there may in fact be some microgeneration market rebalancing on the way: even as if some technologies will soon be cut out of eligibility subsidy. DECC say that feed-In Tariffs will be refocused and rebalanced on “more cost-effective carbon abatement technologies” saving £40 million in 2014-15. On the upside, this date is a year or so later than the industry had expected, which is encouraging. Hopefully any FIT funding / scope changes will only be implemented “at the first scheduled review of tariffs” unless higher than expected deployment (ie runaway success!) requires an early review. That’s the downside. This “unless” is significant. I suspect that Feed in Tariffs for PV’s at their current level may not last for the full three years they were initially planned to last for.
Unfortunately, fuel poverty “gaming” is now on the agenda. Currently defined as where over 10% of household income is spend on fuel, it seems that the government plans to “redefine” it downwards very soon! They say “To ensure the available resources are focused most effectively in tackling the problems underlying fuel poverty, the Government intends to initiate an independent review of the fuel poverty target and definition before the end of the year.” How do honest governments solve particularly tricky problems? Simple – they just redefine them to be smaller! Could do better, guys!