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LONDON (Alliance News) - Numerous renewable energy companies Thursday responded to the UK government's decision to remove the exemption that generators of renewable electricity have had from the climate change levy.
In the first Conservative-only budget since the break up of the coalition government, UK Chancellor George Osborne said he will scrap the "out-dated" climate change levy, which was introduced in 2001 with the aim of improving energy efficiency and increase demand for renewable energy.
Currently, tax is not paid on renewable electricity supplied to businesses and the public sector under renewable source contracts, regardless of whether it is generated in the UK or abroad.
However, Osborne said one of the main reasons for the changes was to prevent energy generation abroad benefiting from UK taxpayers' money and to ensure low-carbon generation provides better value for money.
UK biomass power generator Drax Group PLC was the first to respond late Wednesday, warning that its earnings will be around GBP30 million less than expected in 2015 and GBP60 million less than expected in 2016 as a result of the changes.
Drax Chief Executive Dorothy Thompson said she was "surprised and disappointed" by the changes, but said after 2016 the effect on earnings will not be so dramatic and after 2020 will be negligible.
On Thursday morning, a flurry of renewable energy companies released statements also setting out the effect of the Chancellor's changes to the climate change levy.
UK onshore wind and landfill gas company Infinis Energy PLC said its Ebitda would be GBP7.0 million lower than expected in the year to end March 31, 2016 and around GBP10 to GBP11 million less in the following year. Chief Executive Eric Machiels said the changes came "without warning".
The Renewable Infrastructure Group Ltd said the changes will result in its net asset value per share falling by around 4.0 pence, and as a result, said it would postpone its proposed share placing by around one week while the company "prepares a supplementary prospectus", it said.
Renewable Infrastructure is planning on issuing up to 142.5 million shares to institutional investors at 105.0 pence per share under the placing, with the proceeds to be used towards its acquisition of six wind farms in the UK under an agreement with Fred Olsen Renewables Ltd, announced on June 24.
Renewable Infrastructure said the changes do not affect the company's plan to pay its first interim dividend in the first-half ended June 30 of 3.08 pence per share.
Alongside the changes to the climate change levy, Osborne also said he would cut the main rate of corporation tax to 18% over the next five years, falling to 19% in 2017 and to 18% by 2020 from the current corporation take rate of 20%.
Greencoat UK Wind PLC said the benefit of the reduction in corporation tax will "largely offset" the "small" reduction in its net asset value caused by the changes to the climate change levy.
John Laing Environmental Assets Group Ltd, part of John Laing Group PLC said some of its assets will be affected by the changes. As a result, the company's net asset value per share will fall by around 0.6 pence per share, but it said any reduction in revenue will be "broadly offset" by the reduction in corporation tax.
John Laing also reiterated that its dividend target remains unchanged, targeting a 6.054 pence dividend in the year due to end March 31, 2016. After that the dividend is due to rise with inflation, but John Laing said the loss of revenue from the changes to the levy "is likely to have a minor impact on dividend cover in the near term," it said in a statement.
Good Energy Group PLC said its initial assessment shows there will be "no significant impact" to its funding portfolio as a result of the changes to the levy exemption, but said it needs to assess the changes in more detail.
Bluefield Solar Income Fund Ltd said around 3% to 4% of its revenue will be affected by the changes, but said this would be "partially offset" by the lower corporation tax. Bluefield plans to undertake a detailed analysis which will be included in its annual report for the year ended June 30.
Later Thursday, debt investment company GCP Infrastructure Investments Ltd said a "minority" of its projects which the company has placed debt against will see a "modest" reduction in net cashflows available to service that debt until 2022, however it stressed those projects would still be able to repay the debt.
"As a result, it is the view of the board, as advised by the investment adviser, that the cashflows expected to arise from the investments held by the company will be wholly unaffected by the removal of the climate change levy exemption," said GCP Infrastructure.
The government will remove the climate change levy exemption for renewable-sourced electricity on August 1, but there will be a transitional period for suppliers from August 1 to claim the exemption on any renewable electricity that was generated before that date.
The UK government's announcements since the general election win in May have caused rising concern for renewable energy companies, as it had already shunned onshore wind subsidy, divested from the Green Investment Bank, and shown support for oil well fracking in the UK, suggesting fossil fuel supply may increase.
In June, the UK government said it will sell a stake in the Green Investment Bank over the next years, three years after the unit was established in order to invest in long-term energy and infrastructure projects in Britain. That sale is expected to see the government cut its stake in the bank by at least half, according to The Telegraph.
Also in June, the government said it would scrap the Renewables Obligation which is the primary of three subsidies for onshore wind farms, claiming the country has enough onshore wind in the pipeline.
The Renewables Obligation was introduced in 2002, and places an obligation on UK electricity suppliers to source an increasing proportion of the electricity they supply from renewable sources.
The government said the Renewables Obligation supports the majority of current and future onshore wind farm, but is also demand led and therefore "poses more risk of pressure on consumer bills from increased demand for the subsidy".
Renewable energy companies are now racing to get projects that are currently under development approved before the subsidy is scrapped in 2016. Inifinis Energy responded at the time to clarify its two onshore wind farms that are under construction, Galawhistle and A'Chruach, will remain eligible under the Renewable Obligation regime.
On Thursday, Good Energy said it was "in discussions with government and other stakeholders regarding any grace period that might be applied" under the Renewable Obligation.
Away from the levy changes, Good Energy reported Thursday strong customer growth in the first half of 2015, with overall customer numbers rising to 176,500 from only 132,000 at the end of June 2014, representing a 34% rise.
"Given current trading, continued growth in customer numbers, continued out-performance across our generation portfolio and subject to successful completion of site sales in the next six months, the company expects the full year results to be in line with expectations, with margin pressure in the Supply business broadly offset by other areas of the business," Good Energy said.
The UK government also said prior to, and after, the general election win in May that it will support the shale gas and fracking industry in the UK, especially in the north of England, despite some public and political opposition.
The Conservatives promised to set up a sovereign wealth fund for the North of England, part of its "Northern Powerhouse" campaign, which would lead to the shale gas resources of the North being used to invest in the future of the North.
However, the government's plan suffered a setback when two fracking applications made by Cuadrilla Resources were rejected by Lancashire County Council last month over concerns about traffic and the "industrialisation of the countryside".
The fracking argument continues though, as the attention turns to Yorkshire where a proposed site is being considered. Third Energy, a company which has already drilled a well on its Kirby Misperton site near Thirsk and Malton in North Yorkshire, is now hoping to become the first company to frack in the UK since Cuadrilla's first well back in 2011.
North York Moors National Park in Yorkshire also gave the green light for Sirius Minerals PLC to build the world's largest potash mine last month.
On Thursday morning, Drax shares were up 6.8% to 271.90 pence per share after recovering from closing down 28% on Wednesday.
Inifinis shares were down 2.5% to 163.53 pence per share, John Laing Environmental Asset shares were down 1.1% to 103.90p, Renewable Infrastructure shares were down 3% to 101.86p, Good Energy shares were down 0.3% to 221.75p, Bluefield Solar shares were down 2.7% to 105.10p and GCP Infrastructure shares were down 0.1% to 115.25p.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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