(MENAFN- ProactiveInvestors)UK ministers have opened a new front in the government's war on assistance to alternative energy groups. This week it announced it would remove the guaranteed level of subsidy for wood chip power generators and co-firing projects control subsidies for solar farms of under 5 mega-watts (MW) by withdrawing Renewable Obligation (RO) support for them and consult on the accreditation rules for Feed-in Tariff (FIT). In early June the government announced the RO to onshore wind farms would end a year earlier than planned. Help to large solar farms was ended in March this year. As supporters of renewable energy such as environment protection group Greenpeace see it these moves are part of a sustained campaign to cripple the whole alternative energy sector. Greenpeace 's Daisy Sands said: 'Cutting subsidies now will see businesses go bust and investment dry up. Jobs will go and emissions will stay higher at a time when policies and funding should be in place to ensure quite the opposite.' As the government sees it the moves are part of an attempt to rein in what they regard as wasteful and excessive handouts. Appearing before MPs on the energy select committee recently Ms Amber Rudd the energy and climate change secretary said the government wanted to rein in a projected £1.5bn overspend on subsidies for wind and solar farms. Ms Rudd confirmed to MPs that the annual bill for green subsidies paid for largely by households on their energy bills was forecast to hit £9.1bn by 2020-21 – breaching the £7.6bn spending cap set by the Treasury. The whole debate was brought sharply into focus two weeks ago when the Competition and Markets Authority (CMA) long awaited report on the UK's big six energy companies (EDF Energy British Gas NWE Npower E.on Scottish Power and SSE) which looked at whether were they were guilty of market abuse was published. The CMA in its interim findings said that customers were paying too much for their energy. The big six trying to explain away inflation busting tariff increases which had caused a political furore said it they were was because of sharp rises in wholesale prices for energy transmission costs and green levies. Few people entirely believed this. The CMA investigation had said nothing about green levies and little about transmission costs. So what exactly are these subsidies and what are they supposed to achieve Policy Exchange (PE) is a leading think tank. Its Environment & Energy Unit's latest publication 'The Customer is Always Right - Putting consumers back at the heart of UK energy policy' while saying government ministries have been 'reckless and wasteful' in spending consumers' money on green energy has also come up with some useful analysis of the issues. The report says the average household energy bill increased by £240 over the period 2009-2014 and half of this is related to increases in policy and network costs. 'Household bills have risen by £120 as a direct result of 'ill thought- through' change and the costs of running energy networks' it urged ministries to slash 'excessive' payments to households who install rooftop solar panels. Now this seems a bit over the top when you consider network costs (the costs of transporting electricity and gas to end users) account for 22% of the household bill. Government energy and climate change policies (such as carbon taxes subsidies for renewable energy and energy efficiency grants) take up just 7% of the average household energy bill. The reference to households who put solar panels in their rooves means the FIT. Under this scheme households who install solar panels at a cost to themselves can in theory recoup the investment over time by receiving payments from the government which are higher than the prevailing market rates even if they use the energy themselves. They receive a separate payment for any surplus they may achieve by selling it to the national grid. Projects must be under 5 megawatts (MW) (1 MW = 1000 kilowatts). Other current mechanisms are the Renewable Obligation (RO) whose objective like the FIT is scheme is decarbonisation. The Energy Company Obligation (ECO) is aimed at aimed at energy efficiency/fuel poverty. So too is the Warm Homes discount. The Renewable Heat Incentive (RHI)'s is funded through departmental spending not consumer bills. All of these currently impact on bills. Mechanisms that will impact on prices in the future are The Final Investment Decision for the future (FIDeR) and the Contract for Difference (CFD). At present the most significant policy costs relate to the RO and the ECO) which each represent 3% per cent of the average bill followed by the small-scale FIT (1%). Since the ECO is more about alleviating fuel poverty than decarbonisation or climate change it is the RO that is really contentious. The way it works is this: All utilities must obtain a certain amount of their power from a renewable energy source. To do this they must buy a renewable obligation certificate (ROC) at auction. This can result in doubling or trebling price the utility pays for energy and is one hell of a subsidy. But the RO system is being phased out and replaced by for CFD where a fixed price is agreed for the life of building a project and beyond. This should work out much cheaper. The thinking behind all these subsidies is that all infant new or emerging industries needs support or they will not emerge. Over time costs come down. The Department of Energy and Climate Change (DECC) believes that what has happened to some renewables. It says: 'Our support has driven down the cost of renewable energy significantly. As costs continue to fall it becomes easier for parts of the renewables industry to survive without subsidies.' But I have my doubts. In a mature industry like onshore wind you might get investment. But is anyone going to build an expensive offshore wind farm or a nuclear plant without assistance I suspect not. I tend to agree with Michael Pollitt professor of business economics at Cambridge Judge Business School who commenting on the moves against onshore wind and solar said: 'This a bad mistake. The two most promising low carbon generation technologies are onshore wind and solar photovoltaics. It would be crazy not to be exploiting them just as their costs are coming towards grid parity.'
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