Subsidy cut threat to wind farm plans

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Concerns are growing in the Western Isles that cuts in UK budgets for the subsidy of wind farm projects could impact the development of new schemes locally.

The UK government has defended the cuts, announced earlier this week, claiming that advances in technology, along with ‘favourable market conditions’, means that it can secure ‘growth in capacity with less financial support’.

Confirmation of the budget cuts came in a statutory notice issued by the Westminster Government which shows that while the maximum upper limit of levels of subsidy available on a per-megawatt hour basis for wind generated energy (known as the ‘Strike Rate’) remains at a higher level for remote Island-based generation schemes, the overall size of the budget to support projects has been cut by two-thirds on previous funds, to £60m.

Subsidy payments are awarded through the Contract for Difference (CfD) process, an auction run by the UK government with the schemes that offer the lowest cost per unit for energy generated receiving subsidies, and those bidding above the lowest levels receiving no support from the fund.

The UK Government’s next round of auctions for schemes producing energy from 2023/24 and 2024/2025, takes place in May 2019 with local projects hoping to be amongst the bidders.

But the UK Government has also confirmed that all of the £60m budget in May’s round of auctions will be reserved for so-called ‘less established’ technologies, including Remote Island Wind Farm (RIW) projects.

A spokesperson for the UK government’s Department for Business, Energy and Industrial Strategy, said: “Technological improvements combined with government support to kick-start growth in renewables mean we are now seeing even lower prices for low-carbon technologies.

“This, together with favourable market conditions, means we can cost-effectively support a similar amount of capacity with a much smaller budget, minimising the costs to bill payers.”

Iain MacIver, Factor to The Stornoway Trust, which is working with developer, Lewis Wind Power, for the Stornoway and Eishkeen projects, said: “The case for Island projects has been made and won, but there is a real danger that that argument could now be lost in the process as the CfD pot is now much less. What was never underestimated that the CfD would be very competitive, and nothing now tells me that it won’t be very competitive. The danger is that the more you cut the CfD, the less financially viable projects become.

“CfD is your only income as a developer, and any budget cut potentially leaves developers with a choice – pull the plug on the project or rely on the market price for your energy.

“A project without CfD backing stands very little chance of raising the funds required for development.”

Western Isles MSP, Dr Alasdair Allan, commented: “The renewables sector is undoubtedly one of Scotland’s success stories, but it has been undermined by this Tory Government’s ideologically-driven cuts to support for renewables.

“Island renewable projects have the potential to produce some of the cheapest and greenest electricity and I hope that projects from the Western Isles are successful in the next Contracts for Difference auction.

“However, the budget for the next auction has been reduced substantially, and SSE have pointed out that the strike prices set out last week are now approaching “subsidy free” levels. The UK Government now need to make clear how they believe this impacts on islands renewables.”

A spokesperson for the Comhairle said: “The strike price for RIW is better than expected but the overall size of the pot is disappointingly low. A positive outcome to the auction for the Outer Hebrides will depend on where developers set their bids.

“The Comhairle’s role over the past period has been strategic and has in the main been focused on work with the UK Government, and other relevant parties, to provide a policy framework that will open development opportunities for renewable developers, of all scales, in the Outer Hebrides.

“That work has been in the main to make the case for the Remote Island Wind technology category and to make the case for a significantly scaled grid upgrade to the Hebrides that will facilitate existing developers and provide a level of additional capacity for future developers. That work has proven highly effective with the UK Government announcing the Remote Island Wind will be able to compete in the next Contracts for Difference Round (CfD) and Scottish and Southern Energy submitting a “Needs Case” to the independent regulator OFGEM for a 600MW grid connection between Lewis and the mainland grid.”