Efforts to give North East firms a slice of the UK's lucrative wind energy market have come under threat from a EU case alleging "discriminatory trade practices".
The EU has petitioned the World Trading Organisation, saying the UK's subsidy support for green energy projects under the Contracts for Difference scheme violates WTO rules that imports must be able to compete on an equal footing with domestic products.
Many North East firms - including those supplying offshore oil and gas projects as well as renewables - have long called for the Government to do more to ensure UK firms secure contracts, and one prominent supplier in the region says the Government's move has provided UK firms a "fair crack of the whip".
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The EU also argues Contracts for Difference slow down the rollout of green energy projects and raises prices for consumers.
A European Commission statement said: "The criteria used by the UK Government in awarding subsidies for offshore wind energy projects favour UK over imported content.
"This violates the WTO’s core tenet that imports must be able to compete on an equal footing with domestic products and harms EU suppliers, including many SMEs, in the green energy sector.
"Moreover, such practices ultimately increase costs of production and thereby risk slowing down the deployment of green energy."
Contracts for Difference give firms financial support by paying the difference between the "strike price" – a price for electricity reflecting the cost of investing in a particular low carbon technology – and the "reference price" – a measure of the average market price for electricity.
The support is awarded via a bidding process and requires firms to say how much of the contract's value will be produced in the UK. A fourth allocation round is happening now, including offshore wind as well as onshore wind and solar projects.
Bill Scott, chief executive of Teesside-based Wilton Universal Group, which designs and makes structures for the offshore wind market, said the Government was right in its approach.
He said: “What the UK Government has done is actually create a more even playing field than existed previously. For too long British companies missed out on contracts for UK wind farms, which were being awarded to our European neighbours, or further afield.
“The Offshore Wind Sector Deal and the support of the Government has given the UK a fair crack of the whip. UK companies need sizable projects to be able to invest in their operations and the future generation of engineers as we desperately need to secure the long-term viability of British manufacturing."
Analysis from trade body RenewableUK suggests 29% of capital expenditure on offshore wind projects goes to UK suppliers. The UK Government is targeting 40GW offshore wind capacity by 2030 - a move it says will support a target to increase UK content to 60% in the same time period.
Joanne Leng, chief executive of North East energy sector group NOF, said: “The UK energy industry campaigned for many years for the need for increased local content, particularly in renewables, which was accepted by the UK government and included as a key element of the Offshore Wind Sector Deal. This gave the supply chain the impetus to invest in the sector knowing there was a strong pipeline of projects and opportunities. The progress being made is evident as the industry works collectively towards a green recovery and a low carbon future.
“NOF’s UK-wide membership base, including a strong offshore wind cluster in North East England, Energi Coast, which is owned and operated by NOF, has really stepped up, delivering world class technology-led solutions that bring innovation and efficiencies to the development and operation of offshore wind farms.
“As a result, these capabilities have enabled the UK supply chain to not only secure work on projects in UK waters, but also in international territories as the world looks to the UK for its expertise in offshore wind.”
The Government says it is confident the Contracts for Difference scheme aligns with WTO rules, and it is "puzzled" by the challenge as it says other EU member states run similar schemes.
A spokesperson said: “The UK Government has accepted the EU’s request for consultations. However, we remain disappointed by the Commission’s course of action at a time when we are focused on increasing our energy security and supply of home-grown renewable energy.
“It is particularly disappointing that the EU has chosen to initiate the dispute now, considering the level of collaboration between the UK and the EU in the face of Russia’s illegal invasion of Ukraine.
“The UK abides by World Trade Organisation law and will rigorously contest the EU’s challenge.”
The dispute settlement consultations that the EU has requested are the first step in WTO dispute settlement proceedings. If no solution is found within 60 days, the EU can request the WTO to set up a panel to rule on the matter.
