After months of uncertainty, the Government revealed the huge financial boost as it set out the measures for inclusion in the upcoming Energy Bill.
It has been estimated that the Treasury's firm commitment for the provision of £7.6 billion for the renewable energy sector between 2015 and 2020 will now act as the catalyst for at least a further £40 billion of private sector investment.
Energy Secretary Ed Davey said today's landmark agreement on energy policy would deliver a clear and long-lasting signal to investors.
He said: “This is a durable agreement across the Coalition against which companies can invest and support jobs and our economic recovery.
“The decisions we’ve reached are true to the Coalition Agreement, they mean we can introduce the Energy Bill next week and have essential electricity market reforms up and running by 2014 as planned.
“They will allow us to meet our legally binding carbon reduction and renewable energy obligations and will bring on the investment required to keep the lights on and bills affordable for consumers.”
The surprise news was welcomed by trade association RenewableUK, which said the cash support would create tens of thousands of jobs and help build up the industry to become one of the country's biggest engines for growth.
And they claimed the pledge was a sign the Treasury and the Department of Climate Change are finally working together to deliver investment, jobs and a low-carbon future.
Maria McCaffery, RenewableUK Chief Executive said: “This is a crucial announcement for the renewable energy sector. The news that there is rock solid support across Government for renewable energy, and clear evidence that Treasury and the Department of Energy and Climate Change are in step, provide the industry with exactly the kind of assurances we’ve been calling for.
"This blows the last few months of political infighting completely out of the water.
“This is proof that the Treasury really does get it – the renewable energy industry offers one of our best hopes for economic recovery. This will stimulate billions of pounds worth of investment in renewables, creating more than 88,000 jobs in wind, wave and tidal energy alone by 2021. It will enable us to hit our 2020 renewable energy targets, and make sure renewables can play their part in protecting UK consumers from unstable international power markets.
“The UK Government is sending a clear message that 30% of our electricity will be from renewable sources by 2020. The lion’s share will come from wind energy, with 31 gigawatts to be installed by the end of the decade.
“The Government also clearly understands that renewables will be an important driver in decarbonising our electricity supply by 2030. That’s great news. The Government needs to maintain this momentum in the forthcoming Energy Bill. This will give investors the confidence they seek for the long term. Those investors put £2.5 billion into the industry this year – this will now increase exponentially. Now it’s full steam ahead, so let’s get on with it."
With a fifth of the UK’s electricity generating capacity due to close this decade, reforms were required to provide certainty to investors to bring forward £110 billion investment in new infrastructure to keep the lights on and continue the shift to a diverse, low carbon economy as cheaply as possible.
The Government claims then new measures will support as many as 250,000 jobs in the energy sector.
Mr Davey announced a package of decisions around the Energy Bill, which will be introduced next week:
• The creation of a Government-owned company to act as a single counterparty to give investors confidence to enter into new long term Contracts for Difference for low carbon electricity projects.
• Powers to introduce a capacity market, allowing for capacity auctions from 2014 for delivery of capacity in the winter of 2018/19, if needed, to help ensure the lights stay on even at times of peak demand. The Government is also seeking to provide certainty to gas investors and a Gas Generation Strategy will be published alongside the Chancellor’s Autumn Statement.
• An amendment during passage of the Bill to take powers to set a decarbonisation target range for 2030 in secondary legislation. A decision to exercise this power will be taken once the Climate Change Committee has provided advice in 2016 on the 5th Carbon Budget which covers the corresponding period.
However, the list of proposals was not greeted positively on all sides after it was revealed the introduction of decarbonistaion target would be deferred until after the next General Election in 2016.
David Nussbaum, chief executive of WWF-UK said that whilst the measures set out to provide long term support for renewables were promising, the lack of a decarbonisation target represented a failure of leadership.
“The announcement by Ed Davey on the levy control framework is a step in the right direction which will at least give more confidence that the UK will meet its legally binding renewable energy target. This is good for reducing reliance on risky fossil fuels and good for the planet,” he said.
“However, the Government should have taken the next step and backed a decarbonisation target in this Bill and it is seriously disappointing that they did not.
“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 almost exactly four years ago.
“2030 is only one investment cycle away, and companies like Siemens and Gamesa wanting to invest in the UK’s renewable energy supply chain need to understand the Government’s long-term commitment to the sector if they are to invest and create thousands of new highly skilled jobs in the UK.
“Mr Cameron claimed on Wednesday that he is leading a government that is not afraid of taking tough decisions. Yet he has pushed the decision to provide long-term clarity for investors back until after the next election, which will undermine continued growth in the one sector of the UK economy that has been most resilient throughout the recession.
“We need more courageous leadership than this."
And Friends of the Earth’s Executive Director Andy Atkins added: “The Coalition has caved in to Osborne’s reckless dash for gas and banged the final nail in the coffin of Cameron’s pledge to lead the greenest Government ever.
“This decision motivated by outdated ideology will help keep the nation hooked on increasingly expensive gas, drive away green jobs and investment and jeopardise UK climate goals.
“But the fight is far from over - there’s huge public and business support for power sector decarbonisation. Politicians from all parties must fight in Parliament against Osborne’s fossil-fuel addiction.”
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