Bloomberg News

U.K. Rules Out 25% Cut for Onshore Wind Power Subsidy

July 17, 2012

U.K. Energy Secretary Ed Davey ruled out a 25 percent cut in subsidies for onshore wind projects, saying the coalition government is working on the details of a smaller reduction that he hopes will underpin investment in renewables.

Davey, who said he had planned to announce details of the program today before Parliament adjourns for its summer recess, said a delay was due to a “logjam” in preparing the final details of the package. He brushed aside suggestions the Treasury is seeking a much deeper decrease in the subsidy and noted his administration had proposed a 10 percent decline.

“There’s no one arguing for the sorts of cuts you’ve seen in the newspapers, like 25 percent,” he said at a meeting of the energy and climate committee in Parliament in London. “The Treasury has been working very well with the department. The critical thing is that when we announce it the decisions are evidence based.”

The comments allayed concerns within the industry that Chancellor of the Exchequer George Osborne, a Conservative, would force the Liberal Democrat minister to gut support for renewables as a way of keeping a lid on electricity prices. Davey declined to give specifics, saying an announcement would be made soon.

“We welcome the secretary of state’s comments, but confirmation of this would be appreciated,” said Robert Norris, a spokesman at industry group RenewableUK. “There is a very hard-fought battle going on at the moment between DECC and the Treasury.” The delay “reflects the intensity of that debate at the highest levels,” he said.

Autumn Agreement

The Department of Energy and Climate Change said ministers were still debating details of the measures, which included a proposal to cut onshore wind support by 10 percent.

The government is “discussing and finalizing details” of the proposal and will make an announcement in “due course,” DECC said. Announcements can still be made during the recess, according to DECC, which did not comment on a report in the Daily Telegraph that a compromise deal could follow in the autumn.

The newspaper said Davey agreed in principle with a deeper reduction of 25 percent for onshore wind farms. DECC published proposals including the 10 percent decrease in October, which would apply from April 2013 through 2017.

The delay is entirely due to a battle between the energy department and the Treasury over support for onshore wind, said Labour Party lawmaker Barry Gardiner, a member of Parliament’s Energy and Climate Change Committee.

Gardiner’s View

Osborne is seeking a 25-percent decline in support levels, more than twice the level previously recommended, Gardiner said, adding that he expects an announcement during the summer recess.

“The areas you can maximize onshore wind potential are areas that are predominantly held by Conservative members of Parliament, and where local people dislike having an array,” Gardiner said in a telephone interview.

“They want to release it over the summer when it can’t be scrutinized in Parliament, when the effect of it cannot be called out in the chamber and it can’t become a political cause celebre,” he said. “At the same time, they’ll all be back in their local constituencies, able to go back to their local residents’ associations and say, ‘Hey look, see what a victory I’ve brought for you.’”

Industry View

Gaynor Hartnell, chief executive officer of the Renewable Energy Association, said she also expects an announcement during the recess, which ends Sept. 3.

“It’s beyond DECC’s control,” she said. “The sooner it comes out the better. We need certainty.”

Britain is seeking to get 15 percent of its energy from renewable sources by 2020, up from 3.8 percent now. A decision to change the subsidy proposal now would be a blow to investor confidence and deter industry from investing in the U.K., said Gordon MacDougall, chief operating officer at the developer Renewable Energy Systems Ltd.

“That’ll be the true tragedy of all of this,” MacDougall said. “Were the government to withdraw and do an about-turn on one of the cornerstones of its policy objectives to be the ‘greenest government ever,’” the impacts extend beyond onshore wind to “anybody investing in anything in the U.K.”, he said.

Conservatives have criticized DECC’s subsidy levels. In January, 101 lawmakers wrote to Cameron calling for a bigger cut in onshore wind support, saying it was an “inefficient and intermittent” source of power.

‘Drastic Cut’

Chris Heaton-Harris, the Conservative lawmaker who led the campaign, said DECC and the Treasury should “be very wary” of the huge amount of political support on the government benches for a “drastic cut” in the subsidy.

“With subsidy levels hitting 1 billion pounds ($1.55 billion) for wind energy this year, we are paying land-owners and energy companies a massive premium to produce expensive energy that reduces the U.K.’s competitiveness and puts tens of thousands into fuel poverty each year,” he said by e-mail.

Onshore Wind

Onshore producers from April 2010 to March 2011 received 394 million pounds of support under the subsidy program, according to U.K. energy regulator Ofgem.

Davey has said that arguments against renewables were “dangerous” given the industry is worth 122 billion pounds to the U.K., contributing 5 billion pounds to exports and perhaps enough to cut in half the trade deficit before the deadline for the next election in 2015.

“When we are trying to attract investment to the country, investors can rely on the government not to act capriciously,” Davey said on July 11. “That is what we are going to do.”

To contact the reporters on this story: Sally Bakewell in London at sbakewell1@bloomberg.net; Alex Morales in London at amorales2@bloomberg.net

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


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