PwC comment on impact of onshore wind subsidy withdrawal.

Published at 14:00 PM on 18 June 2015

PwC's energy policy and renewables financing specialists comment on the announcement by DECC on the withdrawal of Renewable Obligation (RO) subsidies for onshore wind farms by April 2016. For more information, or comment, contact Rowena Mearley on +44 7841 563 180.

Ronan O'Regan, PwC director specialising in renewables policy, said:

"Today's announcement provides further detail on the governments plans with respect to onshore wind.

"While much has been made of the decision to give local communities the final decision over planning, this becomes slightly irrelevant if there are no subsidies available, as despite being a lower cost renewable technology, onshore is still over 50% higher than the current market price of power and projects will not develop without subsidy.

"However, given the government's focus on keeping costs down for consumers, and the principle that markets should be left to determine efficient outcomes, the decision to end subsidies for the UK onshore wind market while many more expensive technologies remain subsidised seems to be a bigger win for the anti onshore wind lobby.

"While we await further detail on the practicalities of the end of subsidies, it appears that the intention is to allow a significant number of projects (c.5.2GW) at an advanced stage of development to remain eligible for subsidy. This will allow the government to get closer to the 2020 renewable targets within the current budget and will feel like small consolation for the industry."

David Byrne, PwC director specialising in renewables financing, comments on the impact on the industry;

"The wind industry had already raised concerns as several billion pounds of private sector investment has been sunk into wind farm projects which began three-five years ago on the basis of a stable subsidy regime until 2017. Looking ahead, without a support mechanism, the vast majority of new wind farms will be financially unviable and will be unable to proceed.

"The 'grace period' will go some way to heading off potential legal action by a large number of advanced projects totalling 5.2GW that have already received planning consent and grid connection offers. These advanced projects also make a significant contribution towards the UK’s 2020 targets. But the axing of the subsidy rather than a staged reduction in support over time will lead to significant economic repercussions within the wind industry.

"For example, operational and advanced projects which qualify for the RO subsidy will attract a ‘scarcity premium’ and will increase in value. Asset owners are the winners in this change and should assess their strategic options.

"Independent developers are likely to be forced to exit the market due to difficulty financing new, lower returning projects and a lack of cash reserves to put sites ‘on-hold’ for several years. Depending upon the stage of their project pipeline this will range from a 'graceful exit' with good returns for shareholders to potential distressed sales.

"Looking at the supply chain, this will be severely stretched over the coming 12 months by an explosion of activity building-out the protected advanced projects followed by a prolonged market dip which may extend until the end of the decade.

"For consumers, there is the risk of rising energy bills in the medium term, if more expensive forms of renewable energy are subsidised in preference to onshore wind, which has proved itself to be cost effective within the RO regime."

To interview PwC specialists contact Rowena Mearley, PwC Media Relations on  +44 7841 563 180.


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