The new chief executive of SSE has said the publication of strike prices for renewable electricity generation did not provide the certainty needed to bring forward investment.
Chief Secretary to the Treasury Danny Alexander yesterday detailed guaranteed payments through to 2019 for electricity produced from wind, tidal, wave, biomass and solar sources.
At an initial £155 per megawatt hour, offshore wind will receive the highest level of support under the scheme while hydro powered generation has the lowest strike price of £95/MWh.
Mr Alexander who also announced a further £800 million in funding for the taxpayer-capitalised UK Green Investment Bank said the publication of strike prices for developing renewable technologies would create investor confidence and help bring forward new green energy schemes.
“Last year we made the unprecedented decision to set out funding plans for low carbon generation all the way out to 2020, providing up to £7.6 billion in real terms,” he said.
“We do this through setting strike prices. If future prices are below this level, we’ll guarantee a price to the generator, giving them the confidence to invest now. But if they rise above this, we’ll claw back money for consumers.”
However, incoming SSE chief executive Alistair Phillips-Davies said investors needed yet more information before decisions could be settled upon.
He said: “Regarding renewables, we will need to see far more than we have today of the detail underpinning the Contracts for Difference before they become bankable.
“Until more details are known, it remains impossible to judge whether the strike prices hit an appropriate balance between risk and reward.”
His concerns were echoed by Jenny Hogan, director of policy at industry body Scottish Renewables.
She said: “This is an important announcement for the industry as we have been waiting for some time to learn of what levels of support we can expect from 2014.
“Knowing your strike price is just part of the picture; we now need to see the details of the contracts to put them into context, which won’t be published until August.
“Only then can we judge if the levels will be sufficient to encourage the investment needed to meet our targets.
“The process of electricity market reform is long and complex but the challenge now is for us to ensure the government’s proposals can deliver the investment in renewables needed to meet our shared goals for 2020.”
The strike price announcement came as energy watchdog Ofgem warned that by 2015/16, the UK will be facing a major energy squeeze.
The organisation said by 2015/16 electricity margins could fall to between 2% and 5% meaning the risk of power supply disruptions was significantly more likely than it is today.
The body said immediate action was needed to decrease risk and lessen the likelihood of the lights going out in the UK.
Chief executive Andrew Wright said: “Ofgem’s latest report on electricity security of supply highlights the need for reform to encourage investment in generation.
“This is why Ofgem welcomes DECC’s commitment to introduce a capacity market that will provide a longer term solution to this problem at a time when Britain’s energy industry is facing an unprecedented challenge to secure supplies.
“Ofgem’s analysis indicates a faster than anticipated tightening of electricity margins toward the middle of this decade.
“Ofgem, together with DECC and National Grid, think it is prudent to consider giving National Grid additional tools now to procure electricity supplies to protect consumers as the margin between available supply and demand tightens in the mid-decade.”