Budget will make or break renewable energy

The Sunday Times
April 12, 2009
Danny Fortson and Dominic O’Connell

INDUSTRY LEADERS have warned that this year’s budget will “make or break” Britain’s struggling renewable-energy sector.
The Treasury has been flooded with demands for several billion pounds in funds that industry says it needs to stave off the collapse of sectors like wind power and to jump-start fledgling industries such as electric cars and clean coal.
Executives fear, however, that chancellor Alistair Darling will disappoint when he reveals the government’s spending plans on April 22 because the parlous state of the public purse has left him with little money to plough into the sector.
Nobody has been more ambitious than the promoters of wind power. The British Wind Energy Association, the industry’s trade body, has told the government it needs at least £2 billion in tax breaks, increased subsidies or “green bonds” to fund building costs. If they don’t get help, power companies have warned that £12 billion of new wind farms, enough to power more than 1.3m homes, will be scrapped.
The predicament of the wind industry is similar to most of the renewable-energy sector.
Gordon Brown has called for a green-energy revolution, arguing that it will help to pull the economy out of recession through the creation of thousands of new jobs.
The credit crunch, however, has pushed up the cost of financing projects, while the appetite of investors to back new, risky technologies has dropped off sharply.
Industry executives argue that it is up to the government to fill that funding gap or risk seeing the revolution die before it is born.
Greg Barker, shadow energy minister, said: “The government has talked about creating a low-carbon economy. Unfortunately they have done next to nothing to deliver on it. Investment is close to collapsing right across the low-carbon sector and all the government seems to do is call for more consultations and host photo opportunities masquerading as ‘green job’ summits.”
He added: “I see no sign that this ‘green budget’ will be any different. What the UK energy sector needs is less talk and more action.”
The government has big decisions to make. Coal is a big issue. The Association of UK Coal Importers (ACI) has told the government it should bring forward its decision on the winner of its clean-coal competition. The government has pledged to fund the building of a pilot carbon capture and storage project, which promises to strip the carbon from emissions at coal-fired power stations and bury it underground. It is seen as a vital piece of the low-carbon energy mix because of the abundance of coal.
The decision, under which the winner will be awarded several hundred million pounds, has been delayed several times and is not now expected until the end of the year at the earliest. The government is also thought to be looking at paying for it with funds from a European Union economic-recovery package rather than using taxpayers’ money.
Smaller companies represented by the Renewable Energy Association have said they need £625m in subsidies and grants for an array of small-scale projects like those under the low-carbon building programme, which helps cover costs for solar-panel installation and micro-generation projects.
This month the government suspended the scheme and said it would return the remaining funds to the Treasury.
Samir Brikho, chief executive of Amec, the engineering firm, said the government should take this as an opportunity to make a “clear statement of their intent”.
“The chancellor could consider subsidies for wind and tidal power to make them more competitive and provide funding for studies into tidal projects in the Severn estuary and Pentland Firth,” he said. “Financial encouragement for environmentally sound biofuel plants, ones that do not divert produce from the food chain, would also be beneficial.”
There will be a few green shoots. The government is expected to offer £2,000 grants to encourage motor-ists to buy electric cars as part of a fresh initiative to stimulate the green economy. It will also reveal the broad outline of a £7 billion plan to install “smart” gas and electricity meters in all of the UK’s 26m homes. The meters allow homeowners to monitor their real-time energy usage and have been shown to reduce consumption.
Under the plan, each utility will install meters, and a telecoms group will handle the data.
What they want
Wind: £2 billion to build new farms
Low-carbon buildings: £625m for this and other small-scale initiatives
Electric cars: a £2,000 subsidy for buyers of electric cars
Clean coal: several hundred million pounds to build the first plant
Nuclear: new funding to build a long-term nuclear-waste repository
Oil: big tax breaks for North Sea oil drillers