Chancellor George Osborne’s spending plans include a 15% cut to Defra’s day-to-day revenue budget, reform of the Renewable Heat Incentive (RHI) and environmental tariff exemptions for energy-intensive industries.
In his speech outlining the combined comprehensive spending review and Autumn Statement at the House of Commons, Osborne said £700m would be saved through RHI reform.
The Treasury’s full documents detail an increase in RHI funding to £1.15bn by 2020-21. It is not yet clear what reform will entail.
Dr Nina Skorupska, chief executive of the Renewable Energy Association, said: “Our members recognised the need to make savings, and presented to the Treasury and the Department for Energy and Climate Change (DECC) how we could optimise the RHI budget. A £700m cut is large, but we look forward to working with the Government on reforming this crucial area.
“We still have a large challenge in hitting our renewable heat targets, and the RHI alone won’t achieve it. Heat networks, energy efficiency and green gas still have a large part to play.”
Anaerobic Digestion & Bioresources Association chief executive Charlotte Morton warned of uncertainty around the level of funding available for new projects in 2016 because Osborne had restricted initial growth of the fund.
During his speech Osborne said: “We are going to permanently exempt our energy-intensive industries like steel and chemicals from the cost of environmental tariffs, so we keep their bills down, keep them competitive and keep them here.”
But the Confederation of Paper Industries (CPI) warned this was unlikely to refer to a full exemption.
Steve Freeman, director of energy and environmental affairs, told MRW: “We already have a promise that electro-intensive installations, such as most paper mills, will receive compensation to offset some of the cost of the Renewable Obligations and Feed-in-Tariffs.
“The announcement changes this support from retrospective compensation to an exemption, almost certainly a partial exemption, ‘as soon as possible’ – it will need legislation to deliver so they can’t move at once.
“In principle an exemption is better than compensation because it provides more certainty to companies that it will apply in the long-term.”
Freeman added that the Department for Business, Innovation and Skills was pursuing a state aid application to the EU in order to clear a path for the exemptions.
He said: “However, our frustration is that the Government has not acted sooner on this issue to avoid the crisis of uncompetitive UK electricity costs rather than waiting for the crisis to arrive before acting.”
On the cut to Defra – which appears to be lower than anticipated – Resource Association chief executive Ray Georgeson said: “Clearly the devil will be in the detail. But in what is already a smaller department of Government, a £100m a year, year on year, reduction in revenue spending in Defra is significant and will be painful.
“We can only hope that whatever efficiency savings are required do not come at the expense of the need to maintain regulatory vigilance on waste crime, proper enforcement of recent regulation such as the MRF Regulations or the vital work still needed to develop our resources sector and circular economy through the work of WRAP.”
Osborne also announced a 22% cut to DECC’s revenue budget, and details have been released of 29% “resource savings” to be made by the Department for Communities and Local Government by 2019-20.
The Environmental Services Association urged the chancellor to issue a new RHI budget earlier this week.
Extract from the combined Autumn Statement and comprehensive spending review:
“The Government will provide an exemption for energy-intensive industries, including the steel industry, from the policy costs of the Renewables Obligation and Feed-in Tariffs, to ensure that they have long-term certainty and remain competitive. The Government will increase funding for the Renewable Heat Incentive to £1.15bn by 2020-21, while reforming the scheme to deliver better value for money.”