July 24 (Bloomberg) -- The U.K. said renewable-power projects will compete for guaranteed payments worth more than 200 million pounds ($340 million) a year as part of its first auction of contracts to spur low-carbon electricity.
The auction of so-called contracts-for-difference will take place in October, with deals worth an annual 50 million pounds available to a pot of “established” technologies such as solar and onshore wind power, the Department for Energy and Climate Change said today in an e-mailed statement. Another 155 million pounds a year will be granted to newer generation forms, such as offshore wind, wave and tidal power.
“These projects will create green jobs and green growth, reduce our reliance on foreign-controlled volatile energy markets and make sure bill payers get the best possible deal,” Energy Secretary Ed Davey said in the statement. “Average annual investment in renewables has doubled since 2010, with a record-breaking 8 billion pounds worth in 2013.”
Shares of Drax Group Plc fell the most since May after the government signaled no extra budget for a third technology pot that covers plants converted to biomass from coal. Renewables lobby groups said the available cash falls short of what’s needed to drive down renewables costs in the longer run.
“We are disappointed with the overly cautious approach used,” Gordon Edge, director of policy at RenewableUK, said in an e-mailed statement. “Although we appreciate that it’s necessary to hold back budget for future years in order to allow potentially cheaper projects to come forward later, this initial release of the draft budget risks being insufficient to drive industrialization, competition and cost reduction.”
‘Stacking the Deck’
The Solar Trade Association said even if the entire 50 million pounds available to mature technologies went to solar photovoltaic projects, it would only be enough for 1 gigawatt of solar farms, “a considerable reduction” for the market.
“Today’s decision shows the government is stacking the deck against solar, the most popular form of local energy, by starving the industry of resources,” Leonie Greene, head of external affairs at the trade association, said in an e-mailed statement.
“Solar is already cheaper than offshore wind; it will soon be cheaper than onshore wind, and it stands a realistic chance of being cheaper than gas by the end of the decade,” Greene said. “But this is only achievable with stable Government support and a level playing field.”
The budgets announced today are “indicative,” and are in 2011/2012 prices, the government said. Final budgets will be published by Sept. 29, and are on top of funding already received under the Renewables Obligation and Feed-in-Tariff subsidy programs, as well as early contracts announced in April.
The auction for established technologies will be for projects that start up in the 2015-16 tax year, and the sale for less mature technologies is for plans that start in the 2016-17 tax year. At least an extra 50 million pounds a year will be offered to mature technologies in October 2015, for projects that start after April 1, 2016, the government said. It didn’t say how much less mature technologies will get, or what biomass conversions may receive.
“We are not at present intending to release further budget for biomass conversion,” the government said in a document on its website.
Drax already was awarded one of the eight early renewables contracts the government announced in April, for the conversion of one of its coal-fired units to burn biomass. Another biomass conversion by Lynemouth Power Ltd. also won a contract.
Negative for Drax
Drax had initially been shortlisted for contracts to cover two unit conversions, and when it won only one, it took legal action. The company said yesterday that the energy department has indicated it will award it the second contract after being told to reconsider by a High Court judge, though that deal depends on the results of a government legal appeal.
Drax operates another converted unit under a different subsidy regime, the Renewables Obligation. Further unit conversions by Drax would be dependent on the generator receiving subsidies, and the shares today fell as much as 4.6 percent today after no new biomass conversion money was announced. That’s the biggest intraday decline since May 15.
“No further budget for biomass conversion is a negative for Drax in that it is unlikely that the company would then develop a potential fourth biomass conversion,” Andrew Mead, an analyst at Goldman Sachs in London wrote today in a note to investors.
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