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Tesco, Pepsico In Race For $2.4 Billion Green Energy Subsidies

Companies including Tesco Plc (TSCO) and PepsiCo Inc. are racing for about 1.7 billion pounds ($2.4 billion) in power-generation subsidies being offered by the U.K. through March 2015, according to a report by the Carbon Trust. It  forecasts energy prices to rise 37 percent by 2020.

Low-carbon investments could make average returns of about 12 percent, rising potentially above 15 percent because of subsidies including the Renewable Heat Incentive and the Feed in Tariff, the London-based adviser to business said in a report published today.

The two programs provide a 10-to-25-year guaranteed fixed payment for renewable energy consumed or exported to the power grid. Waste-to-energy, hydro power and biomass-for-heat projects all can provide rates of return above 15 percent after the subsidies, according to the report. Returns from most projects analysed would fall below 6 percent without the extra tariff.

Companies need to act quickly to take advantage of the incentives and win branding benefits as they show their customers they are helping to fight climate change, said Hugh Jones, managing director of advisory services at the trust, which is part funded by the U.K. government. Returns are higher than assumed by many executives, he said, citing surveys of financial directors. The Carbon Trust forecasts power prices will rise 37 percent by 2020.

The measures are “subject to periodic review and incentives are likely to be reduced over time,” the report said. “It is vital to implement an overriding organizational culture that enables effective but rapid action.”

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