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Treasury pushes for windpower subsidy cut

The Treasury is pushing the energy department to go further in proposed cuts to subsidies for onshore windpower amid pressure from scores of Tory backbenchers who are hostile to new turbines.

Chris Huhne, the former energy secretary, set out proposals in October to cut the onshore subsidy by 10 per cent, enabling larger subsidies for other renewables including offshore wind.

But George Osborne, the chancellor, has urged the Department of Energy and Climate Change (Decc) – now run by Ed Davey – to go further in the onshore cuts, scheduled for April 2013.

The current subsidy for onshore wind is one ROC (renewable obligation certificate) per megawatt hour of power, which under the original proposals would fall to 0.9. According to industry sources, the government is pushing for a bigger cut to about 0.85 or 0.8/Mwh.

Windpower companies fear the new drive has been inspired by the vociferous hostility to onshore turbines from many Tory MPs, 101 of whom signed a petition against the industry earlier this year. Chris Heaton-Harris, the MP behind the petition, has called for a “dramatic cut” in the subsidy.

Gordon Edge, director of policy at RenewableUK, the wind trade association, said: “It doesn’t make sense to take out the cheapest source of renewable energy in order to placate 100 backbench Tory MPs.”

If the scheme was unchanged the government would spend between £250m and £280m a year by 2016-17 to support onshore wind, according to government documents. A cut of 10 per cent would reduce this to between £170m and £220m while a deeper cut – as proposed by the Treasury – would save even more money.

The falls are designed to reflect the relatively low and dropping cost of onshore wind generation, a more mature technology. “The new level of ROC support will track the latest fall in costs,” said one government figure.

However, subsidies for offshore wind, biomass and wave power are set to rise under Decc proposals.

The department’s own figures suggest that offshore wind typically requires double the subsidy of onshore wind.

A consultancy called Pöyry, which carried out modelling work for Decc recently, suggested that the 10 per cent cut would lead to 346MW less onshore generation. But this would be more than compensated for by an increase in offshore windpower of 844MW, the report said.

A larger cut – as suggested by the Treasury – would, however, have more negative consequences for new capacity.

Yet Pöyry suggested that an ROC of 0.8 would be enough to support a typical new onshore wind farm.

The new figures should have been published this spring but were delayed after 4,000 submissions.

Decc said its new support levels would be published soon but added: “It is vital that our support for renewable electricity both encourages investment and represents value for money for consumers.”

The Treasury refused to comment.