Lloyds Loan Plans for U.K. Renewable Power Depend on Subsidies

Lloyds Banking Group Plc, the U.K.’s second-biggest state-backed lender, may loan as much as 400 million pounds ($621 million) this year to renewable energy projects unless the government cuts incentive programs.

The company has already completed deals for five projects and may offer loans to an additional five to six power plants this year, Richard Simon-Lewis, senior director for the London-based bank’s project-finance renewable-energy team, said in an interview in London.

That would be comparable to last year when Lloyds was the U.K.’s biggest lender to renewable-energy projects. Lloyds may revise its lending plans if the U.K. changes its incentive policies, he said. An announcement is expected within days, according to Prime Minister David Cameron’s office.

Next year “could be a vintage year if the regulation acts like the wind behind the back of developers and investors,” Simon-Lewis said. If it doesn’t work out, the renewables industry in the U.K. may come to a “shuddering halt.”

The government in October proposed boosting subsidies to companies that use biomass fuel to generate power and cutting payments for wind farms, starting in April.

If subsidies for wind are cut, the current clutch of deals in the U.K. may be the “last flush” of onshore wind farms, Simon-Lewis said.

If subsidy levels are “appropriate,” several large biomass projects may need more than 1 billion pounds of financing, he said. One to two deals will probably be closed by year-end, and there will be a project-finance “ripple effect” into 2013.

Biomass Power

The bank is evaluating two onshore wind farms worth more than 100 million pounds and it’s considering biomass proposals in a “significant way,” Simon-Lewis said.

Britain has set a target of getting 15 percent of its energy from clean sources by 2020, up from about 3.3 percent now. As much as 8 percent to 11 percent of the nation’s primary energy may come from bioenergy plants, which use organic material such as wood chips and agricultural waste to produce power, within eight years, the government has estimated.

Lloyds, which focuses mainly on senior debt, is seeing an “enormous” amount of interest from Asian investors in U.K. biomass, Simon-Lewis said. The bank focuses on facilities of more than 50 megawatts across dedicated biomass plants, biomass conversions and co-firing projects that use both organic material and fossil fuels to generate power.

Biomass power companies in the U.K. include Helius Energy Plc, which is developing a 100-megawatt facility in Avonmouth; MGT Power Ltd. and Prenergy Power Ltd., which are both planning 300-megawatt plants; and Drax Group Plc, which already uses biomass.

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