While the nation’s capacity market auction last year awarded over £250 million ($362 million) to small generators, energy secretary Amber Rudd has said her department is now considering reducing that support in an effort to encourage the substitution of more environmentally-friendly gas-fired power plants for diesel generators.
Trade group the Association for Decentralised Energy (ADE) said the move would damage the competitiveness of all local generation including industrial manufacturers, hospitals and wind farms, which outnumber diesel-fired installations by a factor of 10.
According to a report commissioned by the ADE from consultancy Cornwall Energy, removing subsidies for smaller generators would raise consumer power prices as well as cut up to 2 GW from the nation’s available capacity, as some smaller plants would no longer be cost-effective to run.
Reducing support for small generators could raise the available funds in the Capacity Market auction from £18/kW to £22.70/kW, Cornwall Energy said – but this would not be enough to support new-build gas-fired plants, which would need a price of £45/kW.
In addition, the report found that consumer costs would increase by £214 million due to such a move, while not increasing the likelihood of large gas power stations winning the Capacity Market auction.
Nigel Cornwall, the report’s lead author, was quoted as saying: ‘There are real risks with what the government is thinking of doing. We could potentially be taking out 2 GW of capacity. Doing that in the hope that some of the gas plants will turn up is a very high-risk strategy.’
And Dr Tim Rotheray, the ADE’s Director, said: ‘There is now a risk that the outcome of any review will hurt industrial manufacturers around the country for no real benefit. The independent analysis is clear that the changes being considered are likely to reduce the number of gas power stations being built, and are unlikely to result in any of the large investments the government wants.
‘We have concerns that this review is now being rushed to meet a political timetable,’ he added. ‘A rushed answer is likely to result in local energy investments being punished at a particularly challenging time for energy intensive industries.’
The full report is available here.