The unrecognised implication of today’s announcement about the strike prices for low-carbon technologies is that the government has cut its ambition for the size of the UK offshore wind industry in 2020. A month ago it said that its delivery plan ‘indicated deployment of up to 16 gigawatts by 2020’. Today (4th December 2013) it says that ‘DECC modelling suggests that 10 gigawatts is achievable’ (My italics). It then backs off further, stating that the 10 GW figure ‘is not a target’ and that ‘actual deployment will depend on technology costs’. Perhaps as importantly, the government is now talking – albeit in very abstruse language – of reducing the strike prices of ‘mature technologies’ if and when they become too successful. In other words, the strike prices published today for PV and onshore wind are far from guaranteed. If, as I expect, developers put far more PV farms on the ground than DECC is forecasting, the prices paid will be reduced.
In their analysis of the strike prices, the media focused on the changes made since the draft figures were published in July 2013. Much was made of the increased price for offshore wind. This emphasis was wrong.
Strike prices for offshore wind/MWh
Despite what the government wanted us to believe, this wasn’t the key difference between July and now. Nor were the small, and unsurprising, reductions in subsidy for solar and onshore wind, and quite sharp cuts in landfill and sewage gas payments the critical new developments.
The real change is the major reduction in the degree of commitment to building a very large offshore wind industry. In the July draft document, offshore wind was ‘projected’ to reach 8 to 16 gigawatts by 2020. The July document goes on to say that ‘the upper end of this range is reached if costs come down to meet industry aspirations and there is some delay to nuclear and CCS’ (which there has been - no nuclear station will be built before 2023 at the earliest). In November, the language was firmed up and ‘deployment of up to 16 GW by 2020’ was indicated in DECC’s published roadmap.
Today, we’re told that ’10 GW is achievable’, not ‘projected’ as it was earlier in the year. As a consequence, the target for the share of renewables in electricity generation is also softened. The final strike prices provide ‘a basis for renewable electricity to achieve at least 30% of generation by 2020’ DECC said. By contrast, the July projections told us that low carbon generation would actually represent 30-35% of all sources of electricity by 2020, not that it provided ‘a basis’ for achieving this target.
The other big change is in the language on ‘competition’. What DECC means by this is that if technologies start to look as if they will be too successful (and therefore absorb too much subsidy), then the government will conduct reverse auctions to drive down the strike price. The installations requiring the lowest prices will get the available pot of subsidy. This may well be a good idea but it is an idea entirely lacking from the July consultation. Of course the risk is that the benefit of a secure strike price – principally that it gives investors the confidence to spend millions in planning large wind or PV installations – will disappear if the price can actually change overnight.