The annual capacity auction is a government scheme established to encourage the construction of backup electricity generation. First taking place in 2014, there are hundreds of millions of pounds of government subsidies up for grabs for those firms who can demonstrate their value to the taxpayer.
At first glance this policy is vital, the National Grid predicts that the gap between production and demand could narrow as close to 5 per cent by the end of the decade. We are in desperate need of new forms power generation as older generations of coal and gas plants come offline.
Therefore it will come as a shock that the same government that slashed the green subsidies given to renewable energy contractors, is preparing to potentially invest up to £457 million of subsidies into 1.5 GW of diesel power generation through the 2015/16 capacity auction. Many experts are of the opinion that the majority of diesel contractors who’ve placed a bid are very likely to be successful, with ministers keen to address the problem of a struggling grid.
In a report entitled Mad Maths, the IPPR said a typical 24MW diesel installation could deliver a pre-tax profit of nearly £1m a year, thanks to the subsidies and their low costs of operation. According to the think tank this amounts to a return of investment of 23%, or as high as 38% for firms who have already qualified for tax relief.
This comes from our energy secretary Angela Rudd, who has recently justified the slashing of green subsidies, declaring that wind and solar projects must “stand on their own two feet” – and whose departmental line is that returns of as little as 3% are adequate for private firms supplying renewable energy.
Diesel is not far behind coal in terms of tonnes of CO2 per kWh, alongside other associated green house gases. However its appeal in a time of collapsing oil prices is apparent, but it must be noted that it is one of the most shameless examples of fair weather policy making we have borne witness to for some time. In the long term as the oil price stabilises we will simply be left with a vast, and suddenly unaffordable, diesel infrastructure and we would have come no closer to seriously meeting our energy demands let alone tackling climate change.
In 2010 the David Cameron, leading the coalition government, declared that he would lead the “greenest government ever”. However under his watch more than 1,000 jobs in Britain’s solar industry have gone in recent months; with potential investors spooked by inconsistent government policy its trade association warns that 27,000 of the remaining 35,000 are at risk. In a world in which other gas guzzling nations, from India and China to the USA, are gearing up for the explosion in grid parity renewables, at which point the price of solar and wind are comparable with conventional electricity sources, we appear to be firmly sticking our heads in the ground.