Bloomberg News

U.K. Prepares Plan for Cutting Onshore Wind Subsidies

July 10, 2012

The U.K. government is about to publish plans to cut subsidies for land-based wind turbines, capping months of debate within Prime Minister David Cameron’s government about the scale of incentives the industry needs.

The Department of Energy and Climate Change will make an announcement about the program “shortly,” a spokesman said in an e-mail. Energy Minister Charles Hendry said July 3 the plan will be published before Parliament breaks for summer July 17.

Cameron’s Conservatives and its coalition partners from the Liberal Democrat Party have been feuding over support for the industry, which Chancellor of the Exchequer George Osborne wants to reduce to keep a lid on electricity bills. Cameron took office pledging to lead the “greenest government ever,” and Liberals leading the energy department favor maintaining support for renewables.

The DECC “sees this as a slightly religious thing,” said Chris Heaton-Harris, a Conservative member of Parliament who joined 101 of his party’s lawmakers in seeking a subsidy cut. “I’ve learned in two years of being an MP the Treasury sees everything through pound signs.”

A government proposal last year recommended a reduction of 10 percent. There’s “every indication” there may be a political attempt to make the cut deeper than that, said Gaynor Hartnell, chief executive officer of the Renewable Energy Association, which expects the government to stick with its plan.

‘Dampening Effect’

“It’s incredibly important that industry thinks the government is basing its subsidy decision on evidence and not politics,” Hartnell said. “It would have a real dampening effect not just on wind, but on the whole energy infrastructure.”

Renewable Energy Systems Ltd., a Kings Langley, England- based developer, said two of its wind-farm sites would be at risk if the cuts were more than the 10 percent proposed.

“That would bring things to a grinding stop,” Gordon MacDougall, RES chief operating officer, said by phone. “The 10 percent cut we didn’t like, but we’ve grown to accept it.”

It would be “unheard of” for government to lower proposals it made after an evidence-based consultation, he said.

Energy Secretary Ed Davey told a conference in London last month it was critical investors and industry knew the government “won’t play fast and loose” with figures as it neared decisions.

Nearing Target

Heaton-Harris said the U.K. is already close to its 2020 onshore-wind target of 13 gigawatts, showing the subsidy’s too high. Onshore producers from April 2010 to March 2011 received 394 million pounds ($612 million) of support under the subsidy program, according to U.K. energy regulator Ofgem.

The money should go to other renewables and efficiency, he said. Britain has a target to get 15 percent of its energy from renewable sources by 2020 and plans to reduce support for onshore wind as turbines become cheaper. It got about 3.3 percent of its energy from renewables in 2011, BP Plc (BP/) estimates.

The incentive may be cut from one so-called Renewable Obligation Certificate, or ROC, a megawatt-hour to 0.9 of a certificate from 2013 to 2017, under DECC's proposals published in October. Bloomberg New Energy Finance estimates U.K. onshore wind may be profitable without subsidies by 2020.

The Renewables Obligation is Britain’s main support for large-scale clean energy programs. It obliges electricity suppliers to get a certain portion of the power they sell from clean sources, and they can meet their obligations by buying ROCs.

The new levels are expected to include increased support for some biomass and cuts to offshore wind from the current 2 ROCs to 1.9 ROCs for the 2015-2016 tax year. That’s not as steep a cut as an initial plan that awarded 1.5 ROCs from 2014.

To contact the reporter on this story: Sally Bakewell in London at sbakewell1@bloomberg.net

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


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