UK Cuts Support for Wind and Biomass

Brian Hicks

Written By Brian Hicks

Posted July 26, 2012

Just when we thought the U.K. was positioning itself to assume a leading position in the world’s renewable energy efforts, it seems a change of plans is in order.

Following much howling by U.K. Conservatives, who demanded a 25 percent reduction in wind energy subsidies, the Department of Energy and Climate Change agreed upon a 10 percent cut in funding for onshore wind development and declined support for biomass. At the same time, it offered tax reprieves for natural gas operators.

In what will surely be highly disappointing news to the many supporters of U.K.’s windy ambitions, gas drilling concerns now stand to benefit from more than $776 million in tax credits while wind gets hit and solar development will probably follow.

Bloomberg quotes Gaynor Hartnell, CEO of the Renewable Energy Association:

“There are some disappointments. Wind developers have been prepared for this modest reduction. There is good news for hydro and gasification. However, we are effectively left with no deep geothermal industry…[and a] further review for onshore wind.”

Hard on the heels of this news, Drax Group Plc. (LON: DRX), which owns U.K.’s biggest power station and biomass consumer, saw its stocks drop by nearly 25 percent.

Conversely, Centrica Plc. (LON: CNA), largest residential energy supplier in the U.K., praised the proposed tax credits for gas drilling, stating that it would greatly benefit the Cygnus project situated in the North Sea. That project is rumored to generate nearly 4,000 jobs and involves investments of more than $2 billion.

The decision is seen as a balancing act between competing demands issued by Energy Secretary Ed Davey—who wants to ramp up clean energy supplies so that they meet 15 percent of the U.K.’s needs by 2020—and Chancellor of the Exchequer George Osborne—who wants to focus on developing natural gas rather than embarking on clean energy projects during an economic downturn.

Osborne, in opposing renewables, is angling for Conservative support in order to succeed Prime Minister David Cameron for the nation’s top job.

The U.K. relies on a system that involves a mix of tradable Renewable Obligation Certificates (ROCs) and feed-in tariffs to generate financial support for renewable energy.

While support for offshore wind is being slashed by 5 percent from 2015 onward, with another reduction slated for 2016, the Department of Energy and Climate Change simultaneously doubled its support for wave and tidal stream projects and staked out a maximum target of 30 megawatts. It also introduced four new categories of biomass.

Unfortunately, the government’s stance on solar power continues to remain ambiguous, much to the frustration of solar developers who await final word on government levels of support.

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