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Chopping Has Just Begun: Green Subsidies Slashed

Public subsidies for a range of renewable energy technologies are to be cut under plans unveiled by the government on Thursday, as ministers respond to complaints of “green taxes” driving up energy bills. –The Guardian, 20 October 2011

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

Bloomberg, 20 October 2011

The U.K. government cut support 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 steam were boosted to 5 from 2.

Drax Group Plc, owner of Western Europe’s largest coal- fired power plant, surged after the government proposed doubling support for so-called enhanced co-firing of biomass.

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

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-mandated target of getting 15 percent of all energy for heat, power and transportation from renewable energy in 2020.

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.”

Offshore Wind

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.

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.

“If you connect a reduction in ROC to the fact that the existing arrangement wasn’t considered to be enough by DECC to attract the deep pools of capital into the ambitious targets for offshore, it brings you up short and you say is this going in the right direction,” Fintan Whelan, chief financial officer of Mainstream Renewable Power Ltd., said in phone interview.

Drax Gains

Still, 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. Centrica shares were little changed today at 305.6 pence.

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 topic.

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.

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 jumped as much as 8.8 percent and traded at 511 pence as of 11:30 a.m. in London.

Solar Power

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 annually-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 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 support 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.

Bloomberg, 20 October 2011