Among the more bizarre statements from last week’s Conservative party conference was from the new DEFRA minister Owen Paterson, in a tirade against that conservative bug-bear, wind power. “If you start having subsidies you end up with a Soviet-style system,” he told his audience, “where politicians make decisions that might actually be better made by the market.”
Hmm, I wouldn’t repeat these comments to your farmers, Mr Paterson. Britain’s farmers receive around £3.5 billion in subsidies every year.
Renewable energy received £1.3 billion last year, of which £396 million went towards onshore wind power, but the government didn’t decide that. Renewable energy subsidies in Britain are a market-based system. The energy companies claim the subsidy payments as they build capacity, and they are free to pick whichever renewable technology they think is most appropriate. (For an example of politicians picking winners, see the £500 million tax break extended to ‘brown field‘ gas earlier this year.)
Unlike agricultural subsidies, which are a giveaway from the EU, renewable energy subsidies aren’t out of the government purse. The subsidies are paid by the energy companies, who have renewable energy targets. If they don’t meet those targets, they have to make up the difference by purchasing Renewables Obligation Certificates from companies with a surplus. They may then pass those costs on to their consumers – see below for how much this affects the average bill. The graph below shows the average, but the less renewable energy your supplier generates, the more they have to pay in to the system.
Which means, somewhat ironically, that if you resent contributing to wind subsidies through your bills, you should switch to a green energy supplier. The best ones meet their quota with plenty to spare and are net recipients of subsidies.
There are good subsidies and bad subsidies. Bad ones create perverse incentives that reward the wrong thing (see fossil fuel subsidies), or the wrong people (the Queen receives agricultural subsidies). Good ones work within the market to channel investment towards best practice. If we want an intelligent debate about energy security and decarbonisation, we’re going to have to do better than Owen Paterson’s scaremongering nonsense about ‘Soviet-style’ systems.
Graphic from Greenpeace, with figures from Ofgem.