September 23, 2013

Energy minister rejects demands for higher offshore wind farm subsidies

By Emily Gosden | Telegraph | 22 Sep 2013 |

Energy minister Greg Barker has rejected industry pleas for higher subsidies for offshore wind farms – despite warnings from the government’s official adviser that financial support is being cut too severely.

Greg Barker, the energy minister, told the Telegraph he was confident that proposed subsidy levels – which would be see support cut by 13pc over the next five years – were high enough.

“Investors will always want more,” he said. “We believe that what we have set will be sufficient to drive the necessary scale of investment and strikes the right balance between the interests of the consumer and the necessary return for investors to ensure we deliver the capacity.”

Earlier this month the Committee on Climate Change (CCC), the government’s official adviser, wrote to energy secretary Ed Davey to warn that “required investment is at risk under current proposals”.

Offshore wind farms are expensive to build and are reliant on subsidies, which are paid for by levies charged to consumer energy bills.

Despite political infighting over onshore wind farms, ministers have insisted they want to see many more offshore wind farms built. However, they say the costs of the projects must fall dramatically this decade to ease the burden on consumers, and are consulting on proposed reductions in subsidies.

Under the plans, wind farms that start running in 2014-15 would be offered £155 for every megawatt-hour (MWh) of electricity generated over a 15-year contract – about three times the market price.

This would fall to £135/MWh for projects starting up in 2018-19, which the CCC said was a steeper cut “than the evidence suggests is achievable”. It recommended a lesser reduction to a price nearer £145/MWh.

David Kennedy, chief executive of the CCC, said: “I have spoken to every major investor and they are all concerned.”

But Mr Barker dismissed Mr Kennedy’s claim, insisting: “That’s not my experience at all.” He said: “We are not in the business of overpaying.”

The CCC also warned that investors were spooked by government documents appearing to show ministers had significantly scaled back their ambitions for how much offshore wind was wanted in the long-term.

Ministers have previously suggested Britain could have between 11GW and 18GW of offshore wind capacity installed by 2020, up from 3.3GW now. Yet scenarios published recently by the government appear to suggest it now envisages only between 8GW and 10GW by 2020.

The CCC said wind farm developers were nervous about making the investments in research and the supply chain necessary to reduce costs. “Without a commitment to ongoing investment in the 2020s, incentives for supply chain investment and project development are weak, and commercialisation of offshore wind is at risk,” it said.

But Mr Barker also dismissed this argument, insisting: “We have greater visibility in terms of our renewables order-book and policy than any other country in Europe. Of course companies would like absolute certainty rolling into the never-ending future, but to be able to give that through to 2020 is unprecedented anywhere else in Europe.”

Mr Barker will today co-host a clean energy finance roundtable in New York, with Dr Sultan Al Jaber, chief executive of Masdar, Abu Dhabi’s renewable energy investment company.

Masdar, which has a stake in the London Array, Britain’s largest offshore wind farm, has signed a memorandum of understanding to invest up to £1bn in more UK power plants.

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