Labour has paused the next round of auctions for subsidies to solar and wind energy projects, admitting that taxpayers may not be receiving good value for money.
Energy Minister Michael Shanks announced that the contracts for difference (CfD) system, which supports renewable energy generation, will be examined to ensure it is working for consumers. The review will take place ahead of the 2027 auction round.
Under the CfD system, renewable energy generators bid for an agreed rate for the power they produce. Critics argue that while generators must repay gains if electricity prices rise above the agreed rate, they receive a subsidy from consumer bills if prices fall below it.
Ministers, including Prime Minister Andy Burnham and Chancellor John Healey, have been shifting away from the stringent green policies previously advocated. This adjustment comes amid pressure on the government regarding the cost of living.
Shanks explained that while the CfD auctions have provided investors with certainty for projects requiring significant upfront capital, they will be paused after the upcoming round. The aim is to assess whether "more significant changes" are needed to benefit the country's consumers.
James Alexander, CEO of the UK Sustainable Investment and Finance Association, expressed concern about the announcement, stating that investors could be put off and billions of pounds of capital might be at risk if clarity on the CfD process is not provided urgently.
Chancellor John Healey had previously indicated that new clean energy projects could be vetoed if they increase taxpayer costs. These costs can arise when governments pay wind farm operators to shut down turbines due to insufficient grid capacity to transmit the power.
Recent figures indicate that reliance on wind power contributed to September being the most expensive month on record for energy, with consumers facing a £505 million surcharge.
The government is reportedly concerned about the cost of "wasted wind," which occurs when wind farms are built without corresponding upgrades to the electricity grid. The National Energy System Operator has projected that the cost of disconnecting wind turbines will reach £9 billion by 2029, potentially adding up to £100 to domestic energy bills.
In February, a record amount of solar power was among over 200 new renewables projects awarded contracts. The latest auction secured 4.9 gigawatts of solar power, including a large project at the former West Burton coal-fired power station. Onshore solar schemes were agreed at £65.23 per megawatt hour, and new onshore wind at £72.24 per megawatt hour. The government noted these prices are less than half the cost of building new gas power stations. Contracts were also awarded for 1.3 gigawatts of onshore wind, including the Imerys Wind Farm in Cornwall.