The UK’s Renewable Obligation and Feed-in Tariff have
now, thankfully, closed. Unfortunately, the Department of Business, Energy and
Industrial Strategy has announced an attempt to restore subsidies in a covert
form, via the mysteriously named “Smart Export Guarantee” (SEG).

On the 9th of June BEIS released documents relating to upcoming secondary legislation, The Smart Export Guarantee Order 2019, a proposal to amend the Electricity Supply Licence to require large electricity suppliers (i.e. retail providers of electricity with more than 150,000 domestic consumers) to offer specifically designed off-take tariffs to renewable electricity generators up to 5 MW in capacity. This has been mistakenly reported by the British media as relating principally to “small scale” generators, with the Telegraph, for example, illustrating its story with a photograph of PV panels on the slate roof of a country cottage.

.However, 5 MW is sufficient for 20 acres of ground-mounted solar panels, or 2 wind turbines of 150 metres in overall height, and in fact it is such far-from-micro generators that are the most probable beneficiaries of this scheme.

Examination of the government’s detailed proposals shows that the SEG is designed to establish a camouflaged backdoor route by which subsidies to onshore wind and to ground-mounted solar can be restored.

This contravenes the Treasury’s ruling that there should be a moratorium on new subsidies for the sector until the total consumer cost starts to fall, which is not expected until the mid to later 2020s. The Chancellor and his colleagues should be furious at this attempt to evade stated public spending limits.

Superficially, the level of the tariff offered is left to
individual suppliers to decide, although it must be positive at all times,
meaning that renewable generators will never have to resort to negative pricing,
whereby a generator pays to dump their unwanted electricity on the markets.

However, in spite of the absence of a mandatory tariff
level, the Department’s “Consultation Response” makes it very clear
that government will be applying pressure to ensure that the rates are
“appropriate”. Ofgem is to provide “guidance” (see p. 18 of the Consultation
Response), and in a thinly veiled threat BEIS writes that “Government will
consider reviewing these tariff setting arrangements, if it becomes clear that
small generators are not able to access a competitive range of export tariff
options.” (p. 15, and also see p. 13).

Indeed, at one point BEIS observes that:

“We will consider reviewing the tariff setting arrangements if we consider that offerings are not reflective of market values or unreasonable discounts are being factored in.”

In other words, the SEG proposal forces suppliers to offer a
positive tariff to renewables, leaving them free to set the tariff at any level
they like so long as Ofgem and BEIS agree that it is “rational”. They can offer
any tariff they like so long as it is above the market rate, or
“reflective of market values” to use BEIS’ euphemism. Of course,
given the uncontrollable output of wind and solar, the actual merchant value of
their electricity is low, well under that of the wholesale price commanded by dispatchable,
generators responding to market demand, so even a guarantee of the wholesale
price would constitute a subsidy of a significant kind.

BEIS repeatedly refers to the SEG as a “market-based
solution” or “market driven” instrument. In truth, the real-world
result of the Smart Export Guarantee will be to put suppliers under pressure to
offer above market rates to renewables. The Department of Business Energy and Industrial
Strategy, not the market, will decide what price is reasonable.

BEIS will deny it, but this is obviously a veiled market
coercion backed up with the threat of punishment if suppliers don’t do what,
with a wink and a nudge, they are told. The Smart Export Guarantee is a support
mechanism, a subsidy under another name. Indeed, it is State Aid.

Strikingly, there is no closure date for the SEG programme
(p 18), so without a clear decision from a future government it will apply in
perpetuity. In some ways this makes the Smart Export Guarantee worse than the Renewables
Obligation or the Feed in Tariff which, though foolish, were at least time
limited. A generator had a limited number of years of entitlement to subsidy,
and the schemes delivering those entitlements had clear closure dates. The SEG
tariffs, on the other hand, will probably be available to a generator for as
long as they wish to stay in the market, and the SEG itself would remain a mandatory
regulatory requirement on suppliers until a future government decided to cancel
it.

In spite of the powerful market distorting character of the
intervention, BEIS has decided (pp. 7, 37) that there will be no central and
public register of the SEG contracts, the spurious justification offered being
that it would “create additional burdens while offering limited
benefits” (p. 7). The convenient outcome of this decision is that the
consumer cost of the SEG policy will be almost impossible to calculate. Her Majesty’s
Treasury, for example, will have no idea how much the SEG is distorting the
market, and the costs will not appear in the Office for Budget Responsibility’s
calculation of the burden of environmental policies. Futhermore, the general
public will be unable to determine how much the SEG is costing consumers
through increased prices and bills.

In point of fact, as the Impact Assessment itself admits, it
is not possible to estimate the cost of the policy since the tariffs to be
offered are not known and the market response is “uncertain”. The
policy is uncosted and uncostable. That is surely unacceptable.

However, the Impact Assessment does present some estimates
of the policy’s consequences, but these are misleading. Without any
justification, the department predicts (in Table 2) that net effect of the
tariffs will be to encourage the construction of only trivially, small
quantities of new capacity, 1.6 MW per year of wind, one medium sized wind
turbine, and 11 MW per year of solar, a handful of sites. These are ludicrous
estimates, and if they were true, then the SEG would be an absurdity, a heavy
bureaucratic imposition on energy suppliers for, in effect, zero benefit.

In fact, and BEIS surely knows this, with favourable tariffs
uptake could be very high, as it was with the Feed-in Tariff (FiT), which
delivered 6,000 MW of capacity in few years. The SEG could easily encourage
solar and wind capacity as rapidly and on a comparably large scale, and if it
does there will inevitably be significant consumer costs. The FiT is now adding
£1.5 billion per year to consumer bills. The Impact Assessment does not address
the clear possibility, indeed likelihood, that the SEG will result in similar
or even greater consumer burdens.

Indeed, it appears that this entire scheme has been expressly
designed in order to conceal the probable costs and subvert any reasonable
public oversight of and control over the scale and allocation of these new subsidies
for renewable generation. Mr Clark, Secretary of State at BEIS, has made many
questionable decisions during his tenure. The Smart Export Guarantee could
easily prove to be one of his worst.

The post UK Government Proposes Backdoor Subsidies to Onshore Wind and Solar appeared first on The Global Warming Policy Forum (GWPF).

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June 15, 2019 at 11:06AM