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UK's Green Energy Fund Is In Danger

The UK may not be able to fund its green energy ambitions for as long as policymakers have hoped, according to new analysis from Aurora Energy Research.

Renewable energy sources have a lot going for them, but cost-effectiveness is unfortunately not one of their advantages. To incentivize producers to install solar panels and wind turbines, countries have to sweeten the deal, most often through guaranteed, long-term, above-market prices called feed-in tariffs. Germany has passed the costs of these subsidies on to consumers in the form of a green energy surcharge on electricity bills. That’s led to German consumers paying some of the highest electricity prices in Europe. Britain has hoped to avoid that fate, and has capped the amount that consumers have to pay for the privilege of renewable energy. But wholesale electricity prices in the UK are lower than many expected they’d be, and that’s led to a larger gap between market prices and the inflated government-guaranteed rates for renewable producers, and therefore a greater than expected subsidy commitment for the British government. The FT reports:

At issue is the new system of subsidies introduced last year by the coalition. […] This guarantees developers a long-term, stable price for the energy they produce. If the market price for electricity is lower than an agreed “strike price”, they receive a top-up payment and, if it is higher, they have to pay the difference.

But the support is not unlimited. Under a scheme known as the Levy Control Framework, the government has capped the cost of energy programmes funded through customer bills. The LCF spending cap will rise to £7.6bn in 2020 from £2.35bn in 2012.

Problems like this one will continue to crop up, until solar and wind become competitive with fossil fuels on their own merits. Keep in mind that there’s a tremendous opportunity cost to all of these elaborate green subsidy programs: every dollar (or pound, as it were) spent on propping up current-generation renewables is a dollar or pound that could have been spent on the research into and development of more efficient panels and turbines, or more effective energy storage technology that could help renewables overcome their intermittency problem.

These feed-in tariffs hurt consumers and do Gaia no favors. You would think policymakers so concerned with sustainability would eschew such an unsustainable energy policy.

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  • Jacksonian_Libertarian

    The fact that wind and solar power are uneconomical means that they are not ready for development, and forcing the issue with taxpayer money through subsidies is just wasteful. Only the free market is qualified to determine whether or not a technology is ready for widespread implementation, and politicians are the last people that should be making this decision.

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