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UK Government To Slash Renewables Subsidies

The Conservative government of British Prime Minister David Cameron says it plans to reduce the level of subsidies it pays to renewable power companies, saying that the current levels threaten to drive up customer’s utility bills and that these companies can get along fine without taxpayer assistance.

“We can’t have a situation where industry has a blank check and that check is paid for by people’s bills,” Energy and Climate Change Secretary Amber Rudd said. Indeed, customers’ electricity costs have risen by about 60 percent in the past 10 years, and analysts estimate that the use of renewable power ads about 15 percent to these retail costs.

The government would end financial support altogether for small solar-power projects, tightening the criteria under which other renewable projects qualify for government assistance, and changing the rules for subsidies for generators that burn organic matter – biomass – instead of fossil fuels. Only last month the government announced that it would end subsidies for onshore wind farms beginning in April 2016.

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Britain’s Department of Energy and Climate Change (DECC) has released data showing that the government could be spending as much as 9.1 billion pounds (about $14 billion) per year by the end of the current decade, exceeding the proposed budget for the period of 7.6 billion pounds (about $11.8 billion).

Britain has, until recently, been a strong supporter of renewable energy, and its subsidy program has encouraged utilities to increase their reliance on power generated from sources such as solar arrays and wind turbines, doubling it to about 22 percent during the past three years.

But the steep drop in the price of oil over the past year has made renewable energy sources less competitive with conventional power sources, and the subsidies were initiated as a way to wean Britain off fossil fuels, whose costs were once seen as destined to rise unremittingly.

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As a result, London is following the lead of some other European nations that also have reduced their subsidies for renewable energy because solar and wind power in these countries can grow without outside help. Germany, for example, has put a cap on the support it gives for renewables, and Spain reduced its subsidies for solar plants because demand in the country had become so strong.

Cameron’s government also argues that the more renewable electricity is generated, the more the renewable utilities receive in subsidies.

Environmentalists and green energy entrepreneurs met the Cameron plan with dismay.

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“We appear to be entering another dark age where we will return to total fossil fuel reliance,” said one, Richard Kirkman, the UK technical director of the French company Veolia.

Cameron’s plan already has had a brief financial impact on firms that now receive the assistance. For example, DECC’s plan to end subsidy guarantees for biomass is seen as being responsible on July 22 for a 2 percent drop in the value of shares in Drax, a British utility that’s now converting its generators to burn organic matter instead of coal. The loss was brief, however, and the stock soon recovered.

By Andy Tully of Oilprice.com

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