Carbon price floor freeze ‘would hit renewable deployment’

The deployment of renewables could be slashed by up to a fifth if the government cuts the carbon tax without raising the total amount of subsidy available, industry sources have warned.

Analysts said the wholesale power price in 2020 would be £5 to £6/MWh lower with a freeze, compared with original projections. Under the incoming subsidy regime, this would make each contract for difference more expensive to finance, so the support budget would be used up on fewer projects.

Scrapping the carbon floor price altogether would mean that the amount of renewable capacity supported under the contracts for difference regime would have to be reduced by 20 per cent, according to one developer’s estimate. Freezing it at the 2015/16 level of £18 a tonne to 2020, instead of raising it steeply as planned, would have about half that impact.

The Treasury is understood to be planning to freeze or slow the rise of the carbon floor price in the Budget on 19 March. That will please business lobbyists, who have complained it pushes up energy costs and makes them uncompetitive.

However, a U-turn would damage investor confidence as well as having a direct financial impact, said Gordon Edge, director of policy at Renewable UK. “Having gone down this route, to turn round and freeze [the tax] at the first sign of trouble doesn’t bode well.”

Meanwhile, existing renewable and nuclear generators will get lower returns. A typical 20MW windfarm will take £300,000 hit in 2020, or 5 per cent of annual revenues, according to RBC Capital Markets analyst John Musk.