UPDATE 3-UK government reaches compromise on renewable subsidies

Oleg Vukmanovic and Karolin Schaps
Reuters Middle East

* Renewables spend to rise to 7.6 bln stg a year in real


* To spur 40 bln stg of private investment, create jobs

* Renewables to provide 30 pct of energy mix by 2020

LONDON, Nov 23 (Reuters) - Britain will triple subsidies for

low-carbon power generation by 2020 after its coalition

government this week forged a compromise over how to fund wind

farms without harming the future of gas-fired power.

The compromise became possible after the government agreed

to postpone until 2016 setting a target for decarbonisation,

which was opposed by many members of Prime Minister David

Cameron's Conservative Party. The target is the extent to which

carbon emissions are to be reduced by 2030.

The deal is expected to boost the share of renewables in

Britain's energy mix to 30 percent by 2020, outpacing European

Union targets of 20 percent, and create thousands of new jobs.

"Today we've reached a landmark agreement on energy policy

that's going to deliver a clear, durable signal to investors,"

Cameron's spokeswoman said.

Under the agreed Levy Control Framework, spending on

renewable power generation will increase to 7.6 billion pounds

($12 billion) a year in real terms by 2020, from the current

2.35 billion pounds, to reduce dependence on gas.

The renewable spending plans will be funded through further

rises in household energy bills, which are increasingly

unaffordable for many consumers.

Responding to criticism from the British media, Cameron's

spokeswoman said the shift toward renewable energy was not the

main contributor to higher energy bills, which she said was due

to high gas prices and infrastructure investment.

"While the proportion of people's bills will slightly

increase in terms of the green aspects, actually when it comes

to 2020, the net impact will be that people's bills will fall,"

she added.

Others were less convinced.

"The proposals are very negative for consumers," Liberium

Capital, a London-based investment bank said.

"At face value a 7.5 billion pounds nominal rise in low

carbon support could equate to an 80 pounds (20 percent) per

household bill increase," it said.

Renewable spending will be focused on rewarding low-carbon

power producers like renewables, nuclear and fossil fuel plants

fitted with carbon capture and storage technology, a Department

of Energy and Climate Change (DECC) spokesman said.

Divisions over spending plans between energy minister Ed

Davey and finance minister George Osborne have delayed key

agreements over energy policy at a time of painful austerity

measures introduced by the government.


The new agreement paves the way for the introduction of the

Electricity Market Reform (EMR) Bill next week.

Industry group RenewableUK said the plans would create tens

of thousands of jobs, bring forward at least 40 billion pounds

of private sector investment and allow for a massive expansion

of the UK's renewable energy sector.

"The government needs to maintain this momentum in the

forthcoming Energy Bill (or EMR)," Renewable UK's Chief

Executive Maria McCaffrey said.

"Those investors put 2.5 billion pounds into the industry

this year - this will now increase exponentially," she added.

The extra investment announced on Friday will see

renewables' share of the energy mix rise from 11 percent now,

driven primarily by the 31 gigawatts of wind energy to be

installed by 2020.

The spending increase will also help to support new nuclear

power and the commercial use of untested carbon capture and

storage technologies, the government said.

"This is a durable agreement across the coalition

(government), against which companies can invest and support

jobs and our economic recovery," Davey said in a statement.

However, environmental group WWF said the postponement in

setting a decarbonisation target represented a failure of


"Having a 2030 decarbonisation target is nothing that Mr

Cameron's government should be afraid of, given that it is a key

requirement to deliver the legally binding Climate Change Act

commitments, which Mr Cameron played such a key part in

delivering," WWF's David Nussbaum said.

Nussbaum added that engineering companies such as Spain's

Gamesa and Germany's Siemens, who want to

invest in the UK's renewable supply chain, need clear long-term

government commitments before entering the market.


Reforms are required to attract the 110 billion pounds of

low-carbon energy investment that the government says is needed

to replace ageing electricity plants fuelled by gas, coal and

nuclear, up to a fifth of which face retirement this decade.

However, the EMR bill could be a boon for the gas industry.

"EMR is obviously focused on low carbon, but today's

announcements give as much to gas-fired generation as to

renewables and nuclear," said Ben Stansfield, senior associate

specialising in energy at law firm Clifford Chance.

The government on Friday committed to establishing a system

whereby backup power plants, mainly gas-fired, are paid to be

ready to fill supply gaps created when the wind does not blow or

demand rises during peak time.

Auctions for backup power plant operators will start in 2014

to provide backup capacity in 2018/19, the government said.

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