Limits on renewables ‘will keep UK energy bills higher this winter’

Consumers will face higher energy bills than necessary next winter because of a decision by the government to limit new renewable energy generation, described as a “missed opportunity” by the renewables industry, and “outdated thinking” by a green campaign group.

Ministers have decided to authorise contracts for about 12GW of new renewable energy generation, to start construction this year, with much of it likely to come on stream before next autumn. However, the renewable energy industry estimates that about 17.4GW of projects have cleared planning permission and are “shovel-ready”.

The shortfall in what the government is prepared to allow, through an auctioning system, means many of these potential projects are likely not to be built this year, and consumers will be deprived of the energy savings on bills that come from renewable energy.

Related: Energy bills likely to rise by £800 in October, says Ofgem chief

Renewable energy is now cheaper than fossil fuels, which have soared in price during the Ukraine war. Onshore and offshore wind and solar power all command about £40 per megawatt hour on the market today, but gas-fired power generation costs about £140 per megawatt hour.

Under the system of “contracts for difference”, renewable energy generators bid for contracts to produce power, but the government can set an overall limit on how much capacity it wants in the auctions, and can set limits on how much cash it is prepared to provide as incentives.

On Friday, the Department for Business, Energy and Industrial Strategy laid out plans for an auction, to take place on 5-6 July, allowing for 5GW of capacity to be competed for by onshore wind and solar, neither of which can take more than 3.5GW in total. The government was also expected to set a cap on offshore wind, of about 7GW of new capacity. Instead it set no cap but limited the incentive “pot” to £200m. Industry sources said that pot would amount to a de facto cap of about 7GW on new offshore wind capacity.

At about 12GW, this is the biggest auction so far, but still falls far below what the industry says is possible: according to industry estimates, there are about 8.5GW of offshore windfarms that could come on stream, along with about 3.9GW of onshore wind and about 5GW of solar farms.

Many groups, including unions, the CBI employers’ organisation, the National Farmers’ Union, and green and consumer groups, had called for the government to increase the amount of renewable energy generation. Research shows that renewable energy brings down energy bills for consumers: if the 12GW the government is planning had been available last winter, energy bills would have been about £100 lower for the average household.

Labour said energy billpayers would suffer. Ed Miliband, the shadow climate change and net zero secretary, said: “Once again, families are paying higher energy bills as a direct result of Conservative failure. The government is intentionally blocking access to the quickest, cheapest, cleanest forms of new power, stopping enough onshore wind and solar energy to power 3m homes. These are shovel-ready projects, with planning permission, that could be generating energy for our country at a quarter of the price of gas by the end of next year.”

He added: “This terrible decision, bowing to the concerns of a few Tory backbenchers, damages investment, forfeits good jobs across the country, keeps bills high, and continues our exposure to Putin’s gas.”

Doug Parr, a policy director for Greenpeace UK, said: “We have a global climate emergency which requires low carbon power, we have a cost of living crisis which requires cheap power, and we have a war in Ukraine that requires domestic power. By an amazing stroke of luck, renewables are low-carbon, cheap, domestic and can be deployed faster than the alternatives. Capacity limits on cheap renewables are outdated thinking.”

The new contracts for difference auction follows a pattern of slowing growth in renewable energy in the UK, according to analysis conducted by the Liberal Democrats on government data.

Total renewable capacity grew by 3.4% to 49.44GW in the year to December 2021, compared with an average annual rise of about 18% over the previous 11 years.

Wera Hobhouse, the climate and energy spokesperson for the Liberal Democrats, said: “Under the Conservatives, the UK renewables industry has been neglected again and again. The country has been left overly reliant on gas, worsening the cost of living crisis which is hitting households hard. These projects would reduce energy bills but it needs the right political leadership from the Conservatives.”

She added: “There is no question that the Conservative government must drastically increase renewable energy capacity and this starts with a much more ambitious round of auctions for clean energy projects. Recently [in the local elections], British people sent a message that the Conservatives have let them down. The lack of ambition in renewables is just another example that will leave millions vulnerable to ever-soaring energy bills.”

A government spokesperson said: “The Covid pandemic and its aftermath understandably slowed infrastructure deployment across the country. That said, nearly 40% of our electricity now comes from renewable sources, and since 2010 we have delivered a 500% increase in the amount of renewable energy capacity connected to the grid. The contracts for difference scheme has been hugely successful in boosting UK energy supply and reducing our dependence on volatile fossil fuels, with competitive auctions reducing the price of offshore wind by around 65% since 2015.”