2030 decarbonization target narrowly defeated

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7 June 2013, Nuclear, Solar, Wind

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The vote has effectively placed a higher value on political flexibility above the provision of greater clarity for renewable investment, ahead of the expected mid-2014 publication of secondary legislation on the details of Contracts for Differences (CfD) support.

Tory MP Tim Yeo's amendment was rejected by a narrow majority of 23 votes in the House of Commons. The amendment called for a decarbonization target range for 2030 to be set by April 2014. A decarbonization target of 50g/kWh was recommended in 2012 by the Energy and Climate Change Committee.

In a December 2012 piece titled "Energy Market Reform: the final bill has arrived," Datamonitor commented on the extension of the Levy Control Framework (LCF) to GBP7.6bn in 2020. The LCF certainly sends a positive signal to renewable investors, but is not sufficient comfort for them in light of the government's ambiguous stance on the role of renewable generation in the electricity mix.

The good news for renewable investors in the LCF is tempered by it covering all renewable generation to 2020 including existing projects under the Renewables Obligation regime and generation under the future CfDs, as well as new nuclear - all of which narrow the support available for new renewable generation capacity.

This is all driving serious reservations among renewable investors about the subsidies available post-2020, and has the potential to lead to an investment cliff. The importance the government is placing on gas, highlighted in its Gas Strategy released in late 2012, has not helped, and all signs point to a dash for gas post-2020 in the absence of a serious decarbonization target.

The bill could still potentially be amended by the House of Lords to enable a decarbonization target to be set prior to the 2016 review of the government's Fourth Carbon Budget. Without an amendment, investors will have to wait until 2016 for clarity.

A target would not change costs for consumers before 2020 but it would help to establish investor confidence before the results of secondary legislation on the details of CfD support are published. A target would also help to cement the supply chain for the wind generation industry in the UK, a political consideration given the estimated 55,000 new jobs that would result from the wind supply chain through to the 2020s.

www.datamonitorenergy.com / asken@datamonitor.com / @DatamonitorEN

Source: MarketLine

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