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Davey accuses government of 'butchering UK's renewables on the basis of Alice in Wonderland economics'

January 7, 2016 11:46 AM
By James Murray in Business

wind_turbineFormer energy and climate change secretary Ed Davey slams Conservative ministers, as Carbon Brief investigation reveals energy bills likely to be lower than thought in 2020

Former Energy and Climate Change Secretary Sir Edward Davey has launched a blistering attack on the government, accusing it of "butchering the UK's renewables on the basis of Alice in Wonderland economics".

Davey, who was knighted in the New Year's Honours List and is currently chair of community energy specialist Mongoose Energy, offered the blunt assessment in response to revelations official government projections suggest average domestic energy bills will be lower in 2020 than previously thought.

An investigation by the Carbon Brief website today detailed responses to a long-running Freedom of Information request relating to the government's levy control framework (LCF) spending cap for clean energy subsidies and ministers' repeated assertion the cap is on track to be breached by £1.5bn in 2020, leading to higher energy bills for households. Ministers have repeatedly claimed steep cuts to renewable energy subsidies were urgently required to keep rising energy bills under control.

The government has rejected requests from the renewable energy industry to show its LCF calculations and demonstrate how it expects the projected "overspend" to play out.

However, in response to an FOI request from Carbon Brief the Department of Energy and Climate Change (DECC) released a series of emails between officials last summer showing that even before ministers moved to slash renewable energy subsidies the government expected an average household energy bill would be £1,222 in 2020, around seven per cent lower than the £1,319 projection made the previous year.

The fall was largely the result of lower than anticipated fossil fuel prices, which in turn would have resulted in higher clean energy subsidies as under the government's current subsidy mechanism clean energy generators are guaranteed minimum prices for the power they produce.

However, the emails show officials expected the fall in wholesale power prices to more than offset the increase in subsidies, resulting in lower than expected overall energy bills for consumers.

Davey said the revelations provided further evidence the government had slashed renewable energy subsidies on the false premise there was excessive upward pressure on energy bills. He also urged ministers to now release the full detail of the calculations used to project a £1.5bn overspend on the LCF.

"How the alleged overspend on the LCF was calculated unfortunately remains a mystery," he said in a statement. "The scandalous lack of openness and transparency on that crucial calculation means the Conservatives are decimating a whole industry, with no convincing hard evidence to justify their decisions.

"These emails do at least confirm what I've argued all along... I told [George] Osborne we needed an LCF where investment spend was robust to short term fluctuations in wholesale fossil fuel prices. He wouldn't accept our plans to design out the problem, but agreed instead to a 20 per cent contingency above the levy control ceiling, if wholesale prices turned out lower than expected.

"Now that they have, and because Lib Dems aren't there to keep them honest, the Conservatives are failing to use that contingency. This is Alice in Wonderland economics, which is butchering the UK's successful renewables industry."

Solar and wind energy industry insiders have argued in recent months that a modest overspend against the LCF's original cap that made use of the 20 per cent contingency budget would add just a few pounds a year to bills while ensuring the UK meets its renewable energy targets and delivers emissions reductions at a lower cost than current plans to build new nuclear capacity.

Dr Gordon Edge, director of policy at trade body RenewableUK, today called on the government to now make its LCF calculations clear in order to publicly demonstrate whether there was room in the budget for continued support of clean energy projects.

"We have repeatedly called on government to explain its methodology behind the projected [LCF] overspend as the industry takes costs very seriously," he said. "It is vitally important that the policy debate in and outside of government is not swept up in a collective groupthink that we have massively overspent the budget. This is far from proved. We can't have a reasoned debate unless government shows its workings and interested observers can work out if the numbers are correct."

However, DECC defended the recent renewable energy subsidy cuts, arguing projections showing that energy bills would be lower than previously thought did not justify a rethink.

"We don't believe that a reduction in forecast energy bills overall due to lower wholesale prices means that it is right to therefore pay higher subsidies and break the LCF cap, especially at a time when costs of technologies like offshore wind are falling," a spokesman told Carbon Brief. "The amount of renewable energy which is affordable under the LCF cap will still happen and will achieve our ambitions, but we are not going to continue to allow the levels of previous deployment because there is not the budget for those levels and we don't want consumer bills to rise anymore."

Energy and Climate Change Secretary Amber Rudd similarly defended the decision to cut renewable energy subsidies.

"My priority is to ensure energy bills for hardworking families and businesses are kept as low as possible whilst ensuring there is a sensible level of support for low carbon technologies that represent value for money," she said. "We have to get the balance right and I am clear that subsidies should be temporary, not part of a permanent business model. When the cost of technologies comes down, so should the consumer-funded support."

Renewable energy representatives have repeatedly argued that they accept the need to cut subsidies, but have warned the pace and depth of the subsidy cuts for solar and onshore wind in particular will slow the rollout of the most cost-effective clean energy technologies.