U.K. Renewable Funds Drop on Osborne’s Levy Changes

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U.K.-based energy funds have taken a hit following the government’s decision to extend a climate change levy to renewable producers.

The Renewables Infrastructure Group Ltd., or TRIG, was the hardest hit by Chancellor of the Exchequer George Osborne’s measures. Its share price dropped 3.1 percent on Thursday. Earlier in the day, it issued a statement saying the measures would reduce its net asset value by 4 pence per share.

The chancellor said on Wednesday that renewable electricity would no longer be exempt from the Climate Change Levy, paid by retail suppliers. Owners of renewable projects like TRIG had previously been able to sell Levy Exemption Certificates, or LECs, to suppliers but this revenue stream will be taken away.

“It means that the economics change for U.K. wind and solar farms and it’s in the order of about a 4 percent to 5 percent reduction in your revenues,” said Gurpreet Gujral, an analyst at Nplus1 Singer Ltd.

The lowering of its net asset value meant that TRIG has been forced to postpone the issuing of new shares until next week, it in a statement Thursday.

Other firms in the sector also fell. Bluefield Solar Income Fund Ltd. dropped 2.3 percent and Renewable Energy Generation Ltd. fell 2.2 percent.

Lower corporation tax is likely to partially offset the effects of LEC withdrawal.

James Armstrong, managing partner at Bluefield said that the company would have “relatively low exposure” to the removal of the subsidy. He expected the firm’s revenue to fall by 3 percent to 4 percent once other tax changes were taken into account.

The government, looking to reduce the impact of renewable investment on consumers, may cut support further.

“We think it likely that the government will publish further proposals on renewable energy in the U.K. in the weeks ahead,” said Iain Scouller, managing director of advisory firm Stifel, in an e-mailed statement. “Further reforms to lower the overall cost to the taxpayer of renewable energy are likely.”

(Corrects description of LECs in third paragraph.)
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