Wind farm subsidies to fall by 10%

The Energy Department has resisted calls for significant cuts to onshore wind subsidies, announcing a reduction of 10% in payments for new farms.

But environmental groups reacted angrily to Government support for future gas power, which was also outlined today in what appears to be a compromise between the Lib Dem-led department and Chancellor George Osborne.

Mr Osborne had offered to drop his demands for deeper cuts in subsidies for onshore wind farms if the Lib Dems compromised on retaining a big role for natural gas rather than commit to the virtual decarbonisation of the power sector by 2030.

Reports had suggested the Chancellor, backed by pressure from 100 Tory backbenchers to reduce support for onshore wind power, was demanding cuts to subsidies for the technology of 25%.

But today the Department of Energy and Climate Change (Decc) confirmed that subsidies, which are paid for from consumer energy bills, would be reduced by 10% as planned from 2013.

Energy Secretary Ed Davey said the changes to subsidies for renewables, which also include reducing offshore wind payments and more than doubling support for tidal stream and wave power, would boost clean electricity while curbing the cost to consumers.

The moves could prompt investment of between £20 billion and £25 billion in the economy between 2013 and 2017, Decc claimed.

Mr Davey said: "Renewable energy will create a multibillion-pound boom for the British economy, driving growth and supporting jobs across the country.

"The support we're setting out today will unlock investment decisions, help ensure that rapid growth in renewable energy continues and show the key role of renewables for our energy security.

"Because value for money is vital, we will bring forward more renewable electricity while reducing the impact on consumer bills between 2013 and 2015, saving £6 off household energy bills next year and £5 the year after."

But today's announcement also set out the Government's backing for gas, including £500 million tax breaks for shallow water gas fields to boost investment in economically-marginal gas fields.

The Government said gas would continue to play an important part in the energy mix beyond 2030, to complement "intermittent" renewables.

But the role of gas will not be restricted to providing back-up to renewables, and in the longer term there would be an important role for gas, with technology to capture and store the carbon from the fossil fuel.

John Sauven, executive director of Greenpeace, said: "The coalition Government has sunk to pretty low depths now it has turned real UK opportunities for green growth and jobs into an unedifying inter-department squabble.

"The Energy Secretary and Chancellor will both claim victory on the size of the rate cut for onshore renewables but the Treasury are calling the tune on all the big shots.

"The Treasury is fighting tooth and nail to oppose a 2030 decarbonisation target or support for future renewables targets.

"Mr Osborne has rebranded himself Mr Polluting Gas. It's up to Nick Clegg to stick what's left of Lib Dem principles back into this process."

Friends of the Earth's head of campaigns Andrew Pendleton said: "Ed Davey has won the battle over wind subsidies - but at what price?

"Treasury arm-twisting has forced him to give his backing to new gas-fired power stations, which is completely at odds with his fuzzy rhetoric on clean British energy.

"The Government's climate advisers warn that UK climate targets won't be met unless our electricity system is almost entirely decarbonised by 2030. Ed Davey must insist that this target is included in the Energy Bill when it enters Parliament later this year.

"George Osborne's plans for more gas-fired power stations would be a costly disaster for households, businesses and the environment. It's time for David Cameron, the self-styled leader of the greenest Government ever, to intervene."

The backing for gas comes just weeks after the Government's advisers on climate change said it should rule out a new "dash for gas", warning it would push up energy prices and make it hard to meet targets to cut emissions.

But Mr Osborne said gas was the biggest single source of energy in the UK.

"Today the Government is signalling its long-term commitment to the role it can play in delivering a stable, secure and lower-carbon energy mix," he said.

"At the Budget, we announced an ambitious package of support to stimulate billions of investment in oil and gas production in the North Sea.

"Today's news is a further sign of the Government's determination to get the most out of a huge national asset."

The support for gas was criticised by renewable energy firm Ecotricity founder Dale Vince, who said the Chancellor was presenting the £5 per household support for onshore wind as a cost to consumers, while ignoring the rising cost of gas in the free market which added £120 to everybody's bill last year.

"It is surely abundantly clear which of these fuel sources is actually a burden to the British public - not to mention contributing to climate change," he said.

The changes to the renewables subsidies regime also altered the approach to payments for biomass, requiring fossil fuel power stations to fully convert units to burning renewable fuels to claim higher payments.

As a result of the change, power station operator Drax shares were 20% lower at one stage today, leaving the FTSE 250 Index-listed stock at its lowest level in more than year.

While the company highlighted "good progress" on its biomass research and development work, it warned investors that its costs this year were likely to be £20 million higher than previously expected.

Drax, which operates the biggest coal-fired power plant in the UK, said it would initially be converting three of its six units to biomass, and could be predominantly powered by renewable fuels within five years.

Support for onshore wind will be subject to change after 2014 if the costs of generating electricity from the technology alter significantly, and a review of onshore wind industry costs will be launched in the autumn.

The review will also look at how local communities can have more of a say over, and receive greater economic benefits from, hosting onshore wind farms.

Renewable industry body RenewableUK's chief executive, Maria McCaffery, said the new subsidy levels for onshore wind power would enable the industry to continue to grow.

"Although it has been a long time in coming, the final decision was based on hard economic evidence, and was not derailed by short term political considerations.

"We recognise that these are difficult economic times and we have been trying to drive costs down."

She said investors needed more long term certainty over renewables but welcomed the fact that cuts in support for offshore wind would not come into effect until April 2015, with a further reduction in 2016.

Maria McCaffery said: "The carefully-phased reduction in financial support for offshore wind over a long timeframe shows that the Government is committed to the development of the UK's world-leading offshore sector as a key part of our energy mix."

Supporters of deep geothermal power, an established technology which backers say could provide up to a fifth of UK electricity, reacted with dismay to news that the subsidies for the technology would remain static.

While raising subsidies to a similar level to that for wave and tidal stream power would cost just £11 million a year, they said, a failure to boost payments to geothermal left little prospect of the industry developing.

Dr Ryan Law, chairman of the Renewable Energy Association's deep geothermal group, said: "We should be at the forefront of this industry, given the strength of British engineering skills.

"If the UK wants to seize a share of the booming global market for geothermal development we must prove our competence at home.

"The message today's announcement sends to the outside world is that the UK is closed for geothermal business."

PA