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Will cuts to renewable energy subsidies save my business money?

The government last week announced plans to cut a number of renewable energy subsidies in an attempt to bring down energy bills in the UK. Climate lobbyists and other campaigners have criticised the move accusing the government of taking the UK “back to the dark ages” of reliance on fossil fuels.

A fresh wave of renewable subsidy cuts

In a series of reports published by the Department for Energy and Climate Change (DECC) last week, the government outlined plans to cut the financial support offered to small-scale solar and wood chip biomass generators. Separately an investigation was launched into the future of feed-in-tariffs for rooftop solar panels. The Government explains that these cuts are an attempt to limit the costs associated with domestic and business energy bills, through which the subsidies are charged under the levy control framework. The announcement comes after official projections forecast a £1.5bn overspend on renewable energy support by 2020-2021. DECC officials said that the target of spending £7.6bn on the levy control framework was unfeasible and instead forecast £9.1bn. This they said would add £18 onto every household’s energy bills by the end of the decade. However, as the Financial Times points out, this overspend is still within the 20 percent ‘headroom’ initially agreed by the treasury for spending on green subsidies. What’s more, some industry experts have criticised the government for cutting their support for small scale solar farms which they say are one of the most efficient ways of meeting renewable energy targets. And which will only save households 50p per year.

Will it bring down the bills?

 Evidence all suggests that this will lead to a direct reduction in domestic and business energy bills. Green taxes like these do make up a sizeable percentage of your monthly bill and slashing the tax will directly reduce your monthly electricity expenditure. This will be welcome news to some energy purchasers who were only indirectly affected by recent falls in the price of wholesale fuels. Taking a longer term view though, encouraging companies to invest in fossil fuels instead of renewable energy could prove costly – especially when gas and oil prices begin to creep up again. On the other hand, this can be seen as an opportunity for the renewable energy market to mature. A reduced funding pot could force the industry to innovate and greater efficiency. One thing which is clear is that this is likely only the beginning. More renewable energy spending cuts are almost certainly coming in the future.              


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