Wind farm owners across Britain will earn tens of millions of pounds less than expected because of plans by the Government to freeze the carbon tax.
Solar farm, biomass and nuclear plant owners will also see future earnings cut by the change, widely expected to be announced in the Budget later this month.
The carbon tax was announced in the 2011 Budget and came into effect last year, with the aim of encouraging new green power plants. It sets a “floor” for the price of burning carbon each year.
The tax has the effect of pushing up the wholesale market price for electricity – increasing profits for renewable and nuclear generators who do not have to pay it.
Critics say it has not attracted investment, but has handed windfall profits to green plants built before it was introduced. Most damagingly, they say, it makes UK manufacturers uncompetitive and pushes up consumer energy bills.
Amid political pressure to curb rising energy costs, the Chancellor is widely expected to freeze the tax at 2015-16 levels of about £18 per tonne of carbon, up from about £5 now, and potentially rule out further rises for the rest of the decade.
“Anybody who has either developed or bought a wind farm over the past three years, since the carbon floor was introduced, would have been working on the basis power prices would rise alongside the carbon tax,” said John Musk, analyst at RBC Capital Markets. “Now that that is likely to be frozen, the return they would have hoped for will be diminished.”
He estimates 2020 power prices would be £5 to £6 per megawatt hour lower if the tax is frozen – shaving £300,000 off forecast annual revenues of a typical 20MW wind farm.
With more than 7,000MW of onshore wind installed in the UK, tens of millions of pounds may be wiped off expected earnings.
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