The budget cuts were announced in the Comprehensive Spending Review (CSR) by a government that claims to be “the Greenest Government Ever” and so it is legitimate to compare that claim with the impact of the cuts on the renewables sector. The CSR set out a framework of budget cuts to be made by each government department. Much of the detail therefore has been left to individual departments to work out for themselves and so it will take a while for the finer details to emerge, but we set out below the headline announcements for the renewables and waste sectors.
Green Investment Bank (GIB):
This idea was announced by Alistair Darling in his final budget (although to be fair it was Conservative Party policy well before that announcement). The Coalition Government naturally adopted it enthusiastically and provided some initial funding information for it in the CSR.
The Government claims that the GIB will have a specific mandate to make investments in risky low carbon projects and technologies, but until the details of the GIB are published next spring it will be difficult to asses how effectively it will be able to do this. It is not known whether the GIB will be set up by legislation, whether it will be independent of the Government or whether it will be able to take the sorts of risks normally associated with an investment bank.
The GIB will receive £1 billion of public money to provide initial capital and a further sum from asset sales. The Treasury claimed last week that this could amount to another £1 billion – taking the total sum available to around £2 billion. This may seem a lot, but not when one considers that the estimated costs of moving to a low carbon economy range from £200 billion to £50 billion a year over the next 20 years.
Renewable Heat Incentive (RHI) and Feed-in-tariffs (FITS):
The RHI was introduced by the last government and was due to come into force in April 2011, its future was thought to be in doubt until the CSR confirmed that a revised scheme will come into force; albeit a few months later than planned.
The scheme will pay owners of equipment such as Combined Heat and Power plants, and biomass boilers a subsidy per kilowatt hour of heat generated. It will be funded by the Treasury through general taxation; rather than through a levy on fossil heating fuels as originally planned.
There are some crucial details missing; the rate paid per kilowatt hour of heat generated has not been determined yet, neither have the technologies that will be supported by the scheme. What we do know is that £860 million has been allocated to fund the scheme over the next four years. If, as we suspect, this represents the limit of funds available to 2015 it would be wise to ensure early implementation of any planned renewable heat projects.
The FIT regime is in danger of becoming a victim of its own success. FITs are a tariff paid per kilowatt hour of electricity generated by smaller renewable installations. The scheme has helped to spark a huge roll out of micro-renewables recently – PV cells on domestic roofs in particular. A review of the tariff paid under the scheme is due in April 2013, but the Government has hinted that this will brought forward if the huge roll out of micro-renewables continues. If you want to benefit from a guaranteed rate of FITs for 25 years, we recommend that you start work on any planned projects as soon as possible; remembering that the installation of micro-renewables on non-domestic premises still requires planning permission.
It was announced that £200 million will be made available to help support the UK wind industry. The money will go towards the development of offshore wind manufacturing facilities at port sites and wind turbine research and development. Investment in port infrastructure is vital if English ports are to compete against European ports in winning job opportunities offered by the Round 3 Wind Farm project, particularly for South Coast Ports. However, £200 million is a "drop in the ocean" compared to the sums being invested by our European counterparts.
While the Department of Energy and Climate Change (DECC) was spared the worst of the cuts, the Department for Environment Food and Rural Affairs (DEFRA) was not (DEFRA is the department with overall responsibility for the waste industry).
Of immediate concern will be the news that DEFRA has cut funding to seven waste PFI projects. The funding was allocated to pay for long term waste disposal contracts. It is not known whether any of the projects will now go ahead.
All of these projects involved energy from waste (EfW) or mechanical biological treatment (MBT). Last month, the CBI published a report “Going to Waste: Making the case for energy from waste” which pressed the Government to support EfW; highlighting the fact that diverting waste from landfill and providing a reliable source of alternative energy is a double win. In future EfW projects may turn to the Green Investment Bank for funding, but there will be plenty of other technologies chasing the same money, and any cut in funding for EfW projects is regrettable.
The Waste and Resources Action Programme (WRAP), which is a key proponent of waste recycling in the UK, receives two thirds of its funding from DEFRA. It is very likely that this funding will be cut.
Both Natural England and the Environment Agency face budget cuts and job losses. Some of our readers may not shed too many tears at the thought of fewer Agency officers roaming the land, but it is important to bear in mind the law of unintended consequences. Natural England and the EA now have the power to impose civil sanctions - such as fixed and variable monetary penalties - for some offences, rather than prosecuting suspected offenders. This could result in the revenue hungry agencies taking an even more over-zealous approach to compliance than they do presently.
To paraphrase Mao, it is too soon to tell what impact the CSR will have on the waste and renewables sectors. However, fear in advance of the CSR was beginning to have a significant drag on momentum and so, while there was plenty of bad news, it is good that, at the very least, those in the waste and renewables sectors can now begin to plan for the next few years.
One thing seems clear; the generous incentives offered under schemes like RHI and FITS and further down the line the Renewable Obligation Certificate (ROC) are not guaranteed and may not be around for projects in the future over the longer term. It may appear gung-ho to rush renewable energy projects forward in the present climate but, if your project relies on these incentives, it may well be the most prudent thing to do.