Bloomberg News

U.K. Cuts Support for Onshore, Offshore Wind; Boosts Marine

October 20, 2011

(Updates with minister’s comment from fourth paragraph.)

Oct. 20 (Bloomberg) -- The U.K. government plans to cut subsidies for land-based and offshore wind farms, while boosting aid for wave and tidal plants, under a program that compels electricity suppliers to get power from alternative energy.

Each megawatt-hour of electricity generated from onshore wind will be rewarded with 0.9 tradable certificates, down from 1, the Department for Energy and Climate Change said today on its website. Offshore wind was cut to 1.9 from 2, as wave and tidal stream were raised to 5 from 2.

The new levels of Renewables Obligation Certificates, or ROCs, will apply for projects built from April 2013, or April 2015 for offshore wind, and are aimed at ensuring the U.K. meets its European Union target of getting 15 percent of all energy for heat, power and transportation from renewable energy in 2020. The revised incentives will cut the cost of the program by as much as 1.3 billion pounds ($2 billion), the government said.

“We’re getting more renewables for less amount of money,” Secretary of State for Energy and Climate Change Chris Huhne told reporters in London. “It’s more bang for the bill-payer’s buck.”

Drax Surges

Drax Group Plc, owner of Western Europe’s largest coal- fired power plant, had its biggest ever gain in London trading on a plan to double support for enhanced biomass co-firing.

To achieve the EU target, the government plans to get 30 percent of electricity from alternative sources by 2020, including 31 gigawatts of wind power, up from 5.6 gigawatts now. That would entail a ramp-up in offshore wind farms to 18 gigawatts in 2020 from 1.3 gigawatts now, the most in the world, according to a plan announced in July.

“Where market costs have come down or will come down, we’re reducing the subsidy,” Huhne said. “Where new technologies desperately need help to reach the market, such as wave and tidal, we’re increasing support,”

The RenewableUK industry lobby group had asked the government to maintain the rewards for onshore and offshore wind, warning that some projects wouldn’t be able to go ahead without that level of support.

“We are disappointed in the reduction in support for onshore wind especially as it is the cheapest form of renewable energy,” Adam Bell, a spokesman for the group, said in a telephone interview. “We are predicting up to 2017 that 1.6 gigawatts of onshore wind will not be deployed.”

Current Support

The new ROC banding for offshore wind is a cut from current support levels, though higher than the 1.5 certificates due originally from April 2014. For the tax year 2014-15, offshore wind generators will now get 2 ROCs per megawatt-hour; the following year they’ll receive 1.9, and the year after, 1.8.

The revised support levels are likely to drive Centrica Plc, the U.K.’s largest retail gas and electricity supplier, to speed up its final investment decision for the 620-megawatt Race Bank and 540-megawatt Docking Shoal offshore wind projects, Evolution Securities analyst Lakis Athanasiou said by e-mail. The new banding boosts the value of the farms by as much as 800 million pounds, he said.

Solar power will still receive 2 ROCs per megawatt-hour until April 2015, when it will be cut to 1.9 for a year, and then 1.8. ROCS were scrapped for energy from landfill gas, with the department consulting on the issue.

Bands for different forms of biomass burning were largely unchanged, with two new categories being considered, including one that would double support to 1 ROC from 0.5 for enhanced biomass co-firing.

Higher Subsidies

Drax will benefit from higher subsidies for enhancing co- firing, Athanasiou said. An enhanced co-firing facility burns 20 percent to 90 percent biomass, compared with less than 20 percent for standard co-firing.

Drax surged as much as 16 percent, the steepest intraday gain on record, and was at 535.5 pence as of 3:30 p.m.

In a statement, Drax said plans to maintain support for dedicated biomass at 1.5 certificates to 2016, before cutting them to 1.4 in that year, would make the investment case for its three planned developments “highly challenging.”

RenewableUK had also sought the 5 ROCs for wave and tidal stream projects that the government awarded. The government set a cap on the rewards for tidal stream and wave power at 30 megawatts per project. Anything above that will get 2 ROCs.

Under an energy plan announced in July, the government said Britain could install as many as 300 megawatts of wave and tidal power devices, up from 4 megawatts of prototypes now, with biomass capacity more than doubling to 6 gigawatts.

The program requires EON AG, RWE AG and other power suppliers to hold an increasing amount of the certificates, known as ROCs, or pay a buy-out price that for 2011-2012 is set by the government at 38.69 pounds per megawatt-hour. The proceeds of the buyout fund are then redistributed back to suppliers in proportion to the amount of ROCs they held.

The Solar Trade Association, another industry group, had lobbied for solar projects to be awarded 3 to 4 ROCs per megawatt-hour, to help fill the gap in support created by cuts in August to the government’s plan for microgeneration. So- called feed-in tariffs -- or guaranteed prices paid for electricity -- were cut by as much as 71 percent for all solar programs over 50 kilowatts.

--With assistance from Louise Downing, Kari Lundgren, Marc Roca and Catherine Airlie in London. Editors: Stephen Cunningham, Alex Devine.

To contact the reporters on this story: Alex Morales in London at amorales2@bloomberg.net; Sally Bakewell in London at Sbakewell1@bloomberg.net.

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net.


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