Government promises backing for over 100 renewable energy projects

Over 100 wind farms, solar and tidal wave projects are set to go ahead under a government scheme that provides backing to renewable energy projects.

The government says a record number of generating plants will receive support – and it claims this will help to make the UK a “clean energy superpower.”

The renewables industry said it’s re-awakened confidence but there’s still a very long way to go to achieving the government’s ambition – to create a net zero carbon electricity network in this country in just six years.

How it works

Governments (Conservative as well as Labour) have supported the growth of renewables with a scheme called “Contracts for Difference.”

Through an auction, the government agrees to guarantee a price for the electricity provided by a new wind, wave or solar scheme.

On Tuesday, for example, that price was fixed at £58.87 per megawatt hour for offshore wind farms (other technologies get different prices).

If the daily wholesale price of electricity drops below £58.87, the government will make up the difference. So the generator knows it will always get that price – and that helps to convince investors that the project will make a return (making it cheaper and easier to raise money for the project).

But if the wholesale price is higher – for example, the £80 per megawatt hour we have been seeing recently – the generator has to return the difference – hence the name of this scheme: Contracts for Difference.

The government has now announced 131 schemes have qualified for support, which it says will generate enough power for 11 million homes.

Lower consumer bills

Many consumers will want to know if this is going to help them with their bills – which are set to rise by 10% from October.

Under Contracts for Difference, money is paid back by the generator when wholesale prices for electricity are above the price that’s been guaranteed by the government. Ministers say these payments have already benefited households by £18 over the last winter.

So the big uncertainty here is what happens to the wholesale price of electricity.  The problem is that right now this wholesale price is still heavily influenced by the price of the gas which is used to generate about a third of the electricity we use.

The price of gas is set on international markets. It soared during the Russian invasion of Ukraine in 2022 and has not yet fallen back to the levels seen before that crisis.

The government argues the Contracts for Difference mechanism will help to make the UK more independent of these international markets.

Getting to Net Zero

There’s still a question about whether this system will be enough to get the government to its very ambitious targets for the electricity generating system.

It wants generation to be net zero by 2030 but that involves a lot more renewable plants – not least because our demand for electricity is set to rise – possibly doubling as, for example, we use electricity rather than petrol to power our cars.

The energy research group Regen says we have just over 30 Gigawatts of generating capacity from offshore wind farms either up and running or on the way.  But Labour will need ANOTHER 30 GW on top of that by 2030.

It’s also looking for big increases from solar – raising its contribution from 15 GW to 50 GW.

Regen reckons there will have to be some bumper auctions to get there, but believes it’s completely within Labour’s powers to deliver that.

Some industry voices say we shouldn’t get too hung up on targets. They believe that even if the switch is only completed in 2033 or 2034, the direction of travel is clear. Ministers may be less relaxed about missing their own targets as their promises will be judged by the voters in 2029.

End of an era

Whatever the exact timescale, renewables will be generating more of our electricity. That raises the issue of how we handle those days when the wind doesn’t blow.

That means installing (and paying for) a network of batteries to provide a back-up along with either a gas-fired power station with Carbon Capture and Storage to remove the carbon emitted.  Or a plant burning hydrogen to generate electricity.

Ed Miliband has asked the National Grid Electricity System Operator to come up with ideas for how this can work: that report could be with us as soon as October.

This month will mark the end of one era in British industrial history, when the Ratcliffe-on-Soar power station in the East Midlands closes – the last coal-fired power station in the UK will be gone.

Another era could close by the end of this decade, when gas no longer drives the market for electricity generation. The government hopes Tuesday’s auction brings that revolutionary change much closer.