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Amidst an epidemic of cuts to renewables subsidies by the government, the industry has begun to show its teeth, with Drax last week launching a legal trial against changes to the Climate Change Levy (CCL) exemption.
The generating giant, in consort with renewable group Infinis Energy, is challenging changes to the CCL exemption made by the Treasury in the summer budget, on the basis that the notice period of 24 days is “not appropriate”.
The companies emphasise they aren’t seeking to challenge the removal of the CCL exemption itself, but are asking the court to “consider a reasonable and proportionate notice period for withdrawal of such renewable support”, and for the removal of the two-year notice period granted to combined heat and power plants when subsidies were removed.
The day of the summer budget was a dark day for Drax, whose share price nosedived 30 per cent in three hours. The firm slammed the Treasury’s shock decision, claiming it stands to lose £90 million in earnings over the next two years. The generator was low gas market prices squeeze profitability of its coal generating units.
Chief executive Dorothy Thompson said at the time: “We are surprised and disappointed at this retrospective change to a support regime which has been in place since 2001 specifically to encourage green energy and support renewable investment decisions.”
Utilities analyst at Whitman Howard Angelos Anastasiou says the decision to take the government to court seems a “sensible move”, with “virtually no downside”. But the Treasury will not bow out quietly, saying it will “robustly defend against the challenge” as it is “confident in its reforms”.
It argues the value renewable generators receive from the exemption was expected to be “negligible” by the early 2020s, as the supply of renewable electricity exceeded demand.
What’s more any loss generators face from the decision will be “small” compared with other Government financial support they receive, which will total approximately £4.3 billion in 2015/16 alone.
An extension to the deadline would “eat into the Ebitda reduction and mitigate some of the negative impact”, says Anastasiou. However, “a successful outcome is far from assured”.
For the legal view on the legal challenge, click here.
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