Shares in renewable energy companies plunged on Wednesday after the Chancellor unexpectedly slashed their incomes by ending an effective subsidy scheme.
Industry groups accused George Osborne of making a “punitive” and “retrospective” change after he announced that renewable power generators would no longer be exempt from the Climate Change Levy.
The exemption currently results in an effective subsidy payment to renewables firms of more than £5 for every unit of green electricity they generate.
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Shares in Drax, which burns biomass, fell by more than a quarter after analysts estimated the change could almost halve its earnings by 2016-17.
Wind industry body Renewable UK said the move would cut onshore wind farm generators’ revenues by just over 6pc. Shares in Infinis Energy, the wind farm developer, fell 8pc.
Announcing the change, Mr Osborne said the exemption was “out-dated” and had “seen taxpayer money benefitting electricity generation abroad”. The Treasury estimates that ending it will bring in £450m this year, rising to £910m by 2020-21.
John Musk, analyst at RBC Capital Markets, highlighted Ofgem data showing that more than 70pc of the income from the exemption currently went to UK renewable generators.
“We believe the Chancellor has therefore chosen to use a ‘sledgehammer to crack a nut’,” he said.
Dorothy Thompson, Drax chief executive, said: “We are surprised and disappointed at this retrospective change to a support regime which has been in place since 2001 specifically to encourage green energy and support renewable investment decisions.”
Drax power station (pic: Bloomberg News)
Gordon Edge of RenewableUK said the move was “a punitive measure for the clean energy sector” and said cash received as a result of the exemption had “provided vital financial support for renewable energy producers”.
“We’re suddenly looking at a substantial amount of lost income for clean energy companies which was totally unexpected,” he said.
John Constable, director of the Renewable Energy Foundation, a group critical of green subsidies, said the change was “in effect the first retrospective cut to renewables subsidies yet seen in the UK”.
“It will have little or no effect on consumers, but will benefit the Treasury by several hundred million a year, and will reduce subsidies to renewables by a corresponding amount,” he said.
A Treasury briefing on the change acknowleged that “renewable generators in the UK could be impacted by the change in the short-term” but said they would have received “negligible” value from the scheme “by the early 2020s”.
“Any short-term loss will be minimal compared with the support expected to be allocated to renewable generators in 2015-16 alone,” it said.- The Guardian