Spending Review 2010: Impact on Energy Sector

Background

The Budget released in June 2010 set out the overall level of Government spending for the four years from 2011/12 to 2014/15. The Spending Review released today is the process through which this spending is allocated to pay for all areas of Government activity including public services, social security, and administration costs. Spending Reviews aim to allocate resources across Governmental departments over several years. Each department is then able to manage and distribute this budget internally.

The Spending Review confirmed the anticipated reductions in the budgets of a number of key areas of public sector provision, including the announcement that the Department of Energy and Climate Change (Decc) will be cut by 5%. Importantly, the Government highlights their continued support for "action on renewables" and the commitment to obtain 15% of energy from renewables by 2020 in supporting the roll out of large and small scale technologies, including renewable heat.

We have set out below the key elements of the Spending Review and how they effect the renewable energy market and in particular the impact that this reduction will have on Decc.

Spending Review 2010

1. Feed in Tariffs (FITs)

   The Spending Review does not provide for any major change to FITs, it simply notes that the efficiency of FITs will be improved following the next formal review. In essence the next formal review will aim to prioritise support to cost effective carbon abatement technologies. As initially envisaged the next formal review will take place in 2013. In particular, there has been concern in the market that FITs for certain technologies, including solar pv, could be reduced before 2013. Following the Spending Review the aim to re-focus on the most cost effective technologies will be implemented at the "first scheduled review of tariffs unless higher than expected deployment requires an early review". This suggests that no change will be made to the FITs regime before the next formal review. We anticipate that there will be a high deployment for FITs, in particular solar pv, and there is concern that if an early review is scheduled that the proposed revenue for projects will reduce. An early review will only arise if the Government feel that deployment is 'higher than expected'; the expectancy levels are unknown. Please note however that this has always been the position and a market uncertainty from the outset

2. Supporting the Low Carbon economy

   Support...