LONDON — David Cameron’s planned subsidy cuts for U.K. wind power are unsettling the investors the prime minister needs to fund infrastructure of all kinds, the company developing one of the nation’s biggest wind farms said.
The ruling Conservative Party, seeking to shore up voter backing in rural districts, has pledged to end support for onshore wind farms if it wins the election next year. That’s left utilities such as Vattenfall AB wondering what kind of projects will be in the firing line next.
The concerns aren’t limited to renewable power generation, said Piers Guy, head of U.K. wind development for the Swedish utility. It’s putting at risk how companies assess investment in all infrastructure, he said. The government says Britain has a pipeline of 646 infrastructure projects stretching beyond 2020 and totaling more than 375 billion pounds ($632 billion).
“Companies like Vattenfall that are making investments across the piece in onshore and offshore wind are the same people who make investment decisions across all infrastructure projects,” Guy said in an interview. Investment committees “tend just to lump it all together and call it political and country risk.”
The comments indicate the growing concern of businesses after the government backtracked on support for wind energy. Cameron, who took office in 2010 pledging to lead the greenest ever government, now is curbing support for solar and wind projects to stem their spread in rural constituencies that are the Conservatives’ stronghold and keep a lid on rising consumer electricity bills.
The rollbacks started two years ago, when a third of Conservative members of Parliament signed a letter calling for reductions in onshore wind subsidies. John Hayes, who served as energy minister for seven months from September 2012, said wind farm approvals should make “aesthetics” key to planning decisions. His successor, Michael Fallon, in April made the pledge to end support after the election.
“It’s not just the impact on up-and-coming onshore projects that are affected, but you can’t help the fact that there will be knock-on effects across the piece — renewables and other infrastructure,” said Guy.
Vattenfall’s concerns have been echoed by Ecotricity Group Ltd., another wind promoter, industry lobby groups and consultants who advise power-plant developers.
“It seems to be inconsistent with the government’s policy to deliver cheap and affordable energy, which confuses investors,” said Ben Warren, head of the renewables team at Ernst & Young LLP in London. “It only undermines investment in U.K. energy and even wider in infrastructure.”
Secretary of State for Energy and Climate Change Ed Davey, Fallon’s boss, has said onshore wind has a “huge future” in the U.K. Davey is a member of the Liberal Democrats, the junior partner in a coalition with Cameron’s Conservatives.
Davey said the U.K. has 7.2 gigawatts of operating wind farms and another 6 gigawatts with planning consent. The government projects capacity will reach 11 gigawatts to 13 gigawatts by 2020.
“We’re fully committed to a broad energy mix that includes renewables,” said Jean-Christophe Gray, a spokesman for the prime minister. “Of course, subsidies should not be in place for a moment longer than they’re needed.”
At the same time, planning refusals are increasing. Last year, authorities rejected proposals for 1,687 megawatts of onshore wind turbines, almost half of all applications, Climate Change Minister Greg Barker said May 12 in a written statement. That’s up from the 26 percent refused in 2012.
Vattenfall has about 72 megawatts of operating onshore wind turbines in the U.K. and is building another 270 megawatts, including the 400 million-pound, 228-megawatt Pen y Cymoedd farm that when completed will be the biggest in England and Wales.
The company has plans for 600 megawatts more projects. Of those, as much as 40 percent would ordinarily be scrapped as barriers emerge in the planning stages. The “wastage rate” may now be greater than that because of the uncertainty coming from government comments, said Vattenfall’s Guy.
“Everybody in the industry who’s involved in onshore wind is going to be looking at their portfolios now very carefully to see what’s due to be coming in, what’s going to be sitting in the planning system around the election and thereafter,” he said. “I’d be very surprised if there wasn’t a significant drop in the amount of investment.”
The cuts in Britain are surprising to the industry because the U.K. for years has been among the most active in supporting renewable energy. And onshore wind projects are the cheapest way to accomplish low-carbon goals.
The government last year estimated that the cost of building onshore wind projects to start up in 2014 is as low as 83 pounds per megawatt-hour of electricity produced. That compares with at least 105 pounds for converting coal stations to burn biomass, 129 pounds for the cheapest offshore wind projects and 146 pounds for solar photovoltaic power.
“It’s like the death by a thousand cuts,” Ecotricity Group Ltd. Chief Executive Officer Dale Vince said in an interview. “If we’re going to meet our carbon targets at any kind of affordable price, onshore wind is the one we need to be promoting, not killing off.”
Copyright 2014 Bloomberg
Lead image: Wind turbines via Shutterstock