The government has announced today (22/11/12) a £7.6bn cap on the subsidy payments under the Renewables Obligation (RO) and Feed-in Tariffs (FiT) in 2020. At the same time, it has reiterated its commitment to providing 30% of all electricity generation from renewables in the same year. Are these two aims both achievable? Probably yes – using an assumption about the mix of generating technologies, each benefiting from different RO rates, £7.6bn of support will get the UK close to 30% renewables by 2020 at a total cost of about £90 per domestic customer.
In 2011, the government published an outline of how it expected to get to 30% renewables. It provided a range of estimates of the installed capacity of the main technologies for achieving the target.
|Technology||Range of likely capacity in 2020|
|Offshore wind||11-18 gigawatts|
|Onshore wind||10-13 gigawatts|
|Biomass electricity generation||4-6 gigawatts|
For simplicity, I use a single number for each type; offshore 14 gw, onshore 12 gw and biomass 5 gw. How much electricity will this produce in a typical year? This requires us to estimate the output of each technology as a percentage of what would be achieved if the generator worked flat out all the hours of the year (the ‘capacity factor’)
|Technology||Assumed capacity factor|
This mix would produce about 111 terawatt hours a year which is just over 30% of current electricity demand. Demand by 2020 may be higher than it is today, or it might be lower. (Over the last few years, electricity demand has fallen quite sharply – partly as a result of recession, partly because of efficiency gains).
|Offshore||46 terawatt hours|
|Onshore||30 terawatt hours|
|Biomass||35 terawatt hours|
|Total||111 terawatt hours|
|Total 2011 production||368 terawatt hours|
So, if the 2011 predictions are accurate, the UK will get 30% electricity from the 3 main renewable technologies though personally I doubt that biomass will grow much. Solar PV, hydro and marine renewables are additional to these forecasts but together their contribution is unlikely to be more than 5%, probably about balancing the shortfall I think is likely in biomass generation.
Will the proposed cap on support in 2020 provide enough cash to incentivise the increased installation? New offshore wind earns about £90 a megawatt hour from ROCs, onshore about £40 and biomass averages about £60. So the question to ask is: what will the estimated levels of electricity output from these new installations, multiplied by the RO subsidy per megawatt hour, actually cost?
To get the answer, we need to know the current RO cost (about £2.1bn this year) which pays for existing installations. This leaves about £5.5bn to fund the new installations. (The RO itself stops accepting new sites in 2017 but I’ve assumed the level of support remains at the same level in any scheme replacing it).
What will the levels of operating generation be at the end of this financial year? These are my rough estimates.
|Technology||End 2012/13 operational generation|
|Offshore wind||3 gigawatts|
|Onshore wind*||5 gigawatts|
£2.1bn pays for the subsidies for these technologies. Will the remaining £5.5bn pay for the new capacity due to come on stream by 2020?
|Technology||Capacity installed between 2012/13 and 2020|
|Offshore wind||11 gigawatts|
|Onshore wind||7 gigawatts|
Applying the RO to these new installations yields a cost of about £5.0bn per year, less than the available £5.5bn. The subsidy cap announced today, 23rd November 2012, will therefore pay for enough new capacity to fulfil the UK’s promises to get 30% of its electricity from renewable sources.
In addition, smaller installations, such as PV developments, will take subsidies from the separate FiT scheme. The cost of FiTs will probably rise to almost £400m this year and will increase in future years as new PV roofs and farms are put in place. The FiT rates in place will encourage large schemes but the cost is unlikely to rise very much from today’s levels. Probably correctly, the government has decided to prioritise large scale RO developments rather than hundreds of thousands of more expensive household FiT installations.
In summary, the FiT cost is likely to rise much more slowly than in recent years. This will mean that it will use up all the remaining £500m in 2020 but will not massively exceed this figure. The £7.6bn promised in subsidy for 2020 is enough to buy the renewable energy necessary in 2020 to meet the government’s 30% target.