Onshore wind: how much investment would be affected by early closure of the subsidy?

Published: 8th Feb 2016

In brief

Claim

£350 million has been invested in projects that will fall on the wrong side of the cut-off deadline for the Renewables Obligation (RO) subsidy.

Conclusion

This much has been invested in some of the projects expected to qualify for the RO before the early closure was announced, according to an industry body. It’s not known how many of those projects will miss out on funding due to the early closure.

“We have had estimates from the independent renewable energy group to say that the projects that have fallen just the other side of this cut-off deadline that the Government have imposed have costs in the region of £350 million.”

Baroness Worthington, 21 Oct 2015

The government intends to close the subsidy offered to onshore wind by the Renewables Obligation a year earlier than had been planned. A group of renewable energy generators has said that its members had £350 million invested in onshore wind projects which were expected to receive the subsidy when the government made its announcement.

It’s not clear how much of that money has been invested in projects that will now miss out on funding. It's also not clear how much was invested in projects by other developers who are not members of the group.

Not all of these projects are set to lose the subsidy

The Independent Renewable Energy Generators Group (IREGG) says its members have invested £350 million in on-going projects that they thought would qualify for the Renewables Obligation (RO) subsidy. The proposal for closing the RO included a grace period which allowed projects which had planning permission when the early closure was announced on the 18th of June to qualify for the subsidy up to the original closure date in 2017.

Baroness Worthington said that £350 million had been invested in projects that fell on the wrong side of this cut-off.

IREGG has confirmed to us that most of this £350 million has been invested in projects that will be “built out under the grace period”—in other words, not all of this was invested in projects that missed the cut-off for funding. That means that the early closure is unlikely to mean that all of these projects are cancelled.

This doesn’t include all projects that could face difficulties

The members of IREGG are only part of the onshore wind sector. The £350 million figure is unlikely to include every pound of investment in projects currently underway, and some of those may not qualify for the grace period.

Some projects could still face problems

IREGG argues that projects that qualify for the grace period could still face problems due to the early closure.

It says that uncertainty about the exact operation of the grace period could mean that funding is hard to find until it’s too late for projects to be built in time for the grace period.

The government had tabled an amendment indicating that it would be willing to extend the deadline for qualifying for the RO beyond 2017 if a project’s funding was affected in this way.

It’s difficult to tell how much has already been invested in projects that could be cancelled

It’s not easy to come up with an exact figure for the amount of investment that’s gone into projects that could be cancelled due to the early closure of the RO. Estimates for the amount of capacity cancelled due to the closure of the RO, and for the costs of that capacity, both vary significantly.

A very rough estimate would put investment in projects that may be cancelled at somewhere between £20 million and £30 million. That’s using the government’s best estimate for the amount of capacity cancelled, 200 megawatts, and cost estimates from the Department of Energy and Climate Change and industry group RenewableUK.

But the amount of capacity that could be cancelled is uncertain, with the government’s impact assessment saying that between 0 and 2,500 megawatts could be cancelled due to the early closure.

And estimates on how much would have been invested in these cancelled megawatts also vary. The projects that the Impact Assessment said could be cancelled had all applied for planning permission without having it granted; those in the development stage.

Estimates of the cost per megawatt of capacity vary, from £115,000  to £150,000 in today’s prices.

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