Wind farm subsidies end: What it means for green investors

Wind farm subsidies end: What it means for green investors
Wind farm subsidies end: What it means for green investors

The Government has announced it will end financial subsidies for onshore wind farms a year early than planned.

From 1st April 2016, new UK onshore wind farms will be excluded from a subsidy scheme that helps to make them one of the cheapest ways to generate renewable energy.

One reason for the recent boom in onshore wind farms is that they are part-funded by Government subsidies from the Renewables Obligation. This pot is funded by levies added to household fuel bills, and is used to expand clean-energy generation and reduce Britain's reliance on fossil fuels.

However, large-scale projects have come up against sustained opposition from local residents.

A blow for green investors?

In its election manifesto, the Conservatives pledged to rein in household energy bills, while also increasing renewable-energy generation. With onshore wind the cheapest widespread form of clean energy here in the UK, this cutback has come as something of a shock.

Unsurprisingly, green investors are up in arms, with some worried about losing existing capital and seeing reduced future returns. However, there are at least three reasons for them not to be too concerned:

- The Department of Energy and Climate Change has confirmed that there will be a grace period for projects which already have planning permission.

- This cutback will apply only to large-scale wind farms, those requiring a 'Renewables Obligation certificate'. So smaller and community-focused wind farms will continue to enjoy generous financial subsidies.

- It seems likely that this move will itself attract fierce opposition, particularly from Scottish MPs worried about thousands of job losses and hundreds of millions of pounds of lost investment in Scotland.

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Smaller wind farms will be unaffected

Crowdfunded green-energy projects have really taken off over the past 12-18 months, with attractive returns (typically, around 8% a year) on offer via platforms such as Abundance Generation and Trillion Fund.

Clearly, this step is bad news for power generators and builders of large-scale onshore wind farms, which last year took the lion's share of £800 million of wind-energy subsidies. However, for retail investors looking to generate higher incomes from green ventures, the news is much better.

Onshore wind is currently among the cheapest forms of low-carbon energy, costing around £80-85 per megawatt-hour, making it cheaper than offshore wind (£115-150/MWh), solar photo-voltaics and nuclear power.

The good news for UK retail investors is that almost all money funnelled into windfarm bonds fall within the 0.5MW to 5MW capacity. Renewable projects on this scale are subsidised by feed-in tariffs (FITs), state-backed guaranteed earnings that will not be affected by this latest Government move.

What the experts say

Bruce Davis, director of Abundance Generation, said that the biggest effect of the subsidy change will be pushing up energy bills, as onshore wind is the cheapest renewable energy by some margin. He said: "That is in no one's interest, whether you are a business trying to keep down costs, or a consumer trying to afford to heat your home."

Rebecca O'Connor, content and communications director at Trillion Fund said that the fact there will be fewer opportunities to invest in onshore wind projects from next year was a shame, as not only is it the most economic form of renewable energy we have in the UK, it is also delivering big returns to investors.

She added: "The good news is there will continue to be opportunities to refinance existing assets for the next 20 years, at the same kind of rates of return, as loan terms for existing finance for projects tend to be three to five years. When the term is up, the developer has to seek new finance, which could come through crowd-funders.

"Anyone who is worried about investing in onshore wind should check whether the project is already through planning and whether it has its subsidy level already agreed. Financing existing operational assets is less risky than pre-construction projects, which could miss the deadline for their subsidy."

What do you think? Have you invested in any green energy projects? Is the Government right to bring forward the end of these subsidies? Let us know your thoughts in the comments box below.

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