Diesel generator subsidies threaten decarbonisation

A new report from the Institute for Public Policy Research (IPPR) claims that the proliferation of diesel generators within the UK energy system and the returns that investors have been able to secure are having a negative impact on decarbonisation and energy security.

Last year the Government introduced a new energy policy which has awarded £109 million in subsidies, paid out of consumers’ energy bills, to new diesel generators, which are the dirtiest form of energy generation available. That subsidy will increase in a second auction to be held in early December, by up to £434 million. At the same time, the Government is slashing subsidies for green energy: solar subsidies, for instance, are set to be reduced by 87%.

Together with revenues from the energy market, this increasing subsidy is allowing the owners of small diesel generators to earn pre-tax returns of up to 23%, according to the IPPR. The think-tank is therefore recommending that diesel gensets should be prevented from entering the capacity market, and that constraints should be placed on those that already exist or have secured capacity contracts.

To achieve this, the Government could introduce an amendment to the Energy Bill – which will return for its second reading in the House of Commons in the New Year – that prevents any generator with an instantaneous carbon intensity over 450gCO2/kWh from accessing 15-year contracts.

The report also recommends that units that have already received 15-year contracts should be subject to the following:

• a requirement to fit best-available technologies to mitigate air pollutants, in line with European standards for medium combustion plants (EC 2015)
• the emissions performance standard, as established in the Energy Act 2013. This should also be tightened over time for units over 450gCO2/kWh to ensure that running hours are restricted.