With the 2015 budget of the UK’s Conservative government unveiled, the green energy sector and campaigners have attacked the changes outlined by chancellor George Osbourne.
With one hand Osbourne offered more investment for the North Sea oilfields while with the other he took away the Climate Change Levy (CCL) exemption for renewable electricity, a move expected to lose the sector £910 million a year.
The announcement severely affected the share price of power generator Drax, which is in the process of converting three of its six stations from burning coal to running on biomass.
Drax’s stock market value plunged 28% on Wednesday, as it said the move would cost it £30m this year and £60m in 2016.
Osborne insisted the Conservative government would still push for low carbon investment in the UK as well as a strong international deal at the UN climate talks in December to limit global warming to 2C.
However, according to a report by the Telegraph, the budget ends an effective subsidy payment to renewables firms of more than £5 for every unit of electricity they generate.
The government will review the business energy efficiency tax landscape and consider approaches to simplify and improve the effectiveness of the regime. A consultation will be launched in autumn 2015.
Furthermore, he promised proposals for a sovereign wealth fund for communities hosting shale gas developments, to expand the North Sea oilfields investment, and cluster area allowances to include additional activities.
Phil Grant of management consultants Baringa Partners, said on Wednesday:
Britain is a world leader in green energy but the abolishment of climate change levies for renewables is another blow for an already fragile sector. Investors were perturbed by recent decisions … to reduce subsidies for new renewable plants and we’ve seen the share prices of companies exposed to renewables take a further hit.
Gordon Edge, RenewableUK’s director of policy, said that until now, Levy Exemption Certificates generated as a result of the CCL had provided vital financial support for renewable energy producers.
The government had already announced an end to future financial support for onshore wind – even though it’s the most cost-effective form of clean energy we have. Now they’re imposing retrospective cuts on projects already up and running across the entire clean energy sector.
Yet again the government is moving the goalposts, pushing some marginal projects from profit into loss. It’s another example of this government’s unfair, illogical and obsessive attacks on renewables.
Caroline Lucas said that removing the CCL exemption for renewable electricity, committing to further funding for road building, and doing nothing to push forward a low-carbon agenda more widely jeopardised progress on climate change:
We’ve seen yet another example of reckless short-term policy making that prioritises the profits of polluters over the public interest in a safe and habitable climate.
Doug Parr, director of policy at Greenpeace, said Osbourne was now taxing clean-power schemes as if they were fossil fuel. He added:
This will make it more expensive for business to buy electricity from renewable power. He is man out of step with the times.
Osbourne’s announcement to review the impact of energy efficiency measures on bill payers was welcomed by the EEF, the industry body for engineering and manufacturing employers.
EEF director of policy Paul Raynes said:
Fifteen years of layering and tinkering with policy has left us with a vast patchwork of expensive, inefficient and incoherent policy drivers for decarbonisation.
We urgently need to revisit the policy landscape to reduce costs, improve the business environment and better deliver on our policy objective of reducing emissions.
Meanwhile Catherine Mitchell, a professor of energy policy at the University of Exeter, said that with the policy changes, the government took the UK further away from its goal to create a sustainable, secure and affordable energy system. She said:
The ending of subsidies for onshore wind farms, our cheapest low-carbon electricity resource, the failure to exploit the potential of energy efficiency, the removal of the Climate Change Levy exemption for renewable energy, and support for unpopular fracking and extortionately expensive nuclear power does not add up to a credible energy policy.
It reduces the chances of us meeting our various legal requirements, and presents serious political risk to investors, which in itself makes energy more expensive.
Sam Fankhauser, a professor and deputy director at the ESRC Centre for Climate Change Economics and Policy at the London School of Economics, criticised that the move on renewable electricity compromised the effectiveness of the Climate Change Levy as a form of carbon pricing.
But he believed a review of green taxes could be constructive:
UK energy taxes can and should be reformed to make them less burdensome for businesses, deliver increased revenues for HM Treasury and reduce carbon emissions more efficiently. For instance, the Carbon Reduction Commitment Energy Efficiency Scheme, Climate Change Levy and Climate Change Agreement can be combined into one single instrument.