25th Sep 2015 08:30
LONDON (Alliance News) - Renewable Energy Generation Ltd Friday said the UK government's changes to renewable energy subsidies has inflicted "significant damage" to the industry, resulting in the company having to book impairment charges.
The company said it has implemented a redundancy programme in order to save costs as some of its projects face uncertainty due to the government changes, but its upcoming full year earnings should be "in line with expectations".
Renewable Energy Generation shares were down 12.1% to 39.55 pence per share on Friday morning.
The company, which is due to release its full year results on November 2, said government changes to the Renewables Obligation, Feed-In-Tariff and to the Levy Control Framework are causing uncertainty for the industry, which is making it hard to drum up confidence or financing for new developments.
All three of those are subsidies benefit the renewable energy industry, but the government is attempting to bring subsidy costs down after the Department of Energy and Climate Change realised it had already overspent its budget to support renewable energy projects over the next five years by GBP1.50 billion.
Subsidies for green energy are allocated by the government but paid for through energy bill levies. They are subject to a Treasury-set spending cap, but the Department has exceeded the cap in each of the last three years and is likely to do so again. It is currently thought the DECC has narrowed the GBP1.50 billion funding gap to around GBP800.0 million.
"Recent changes to planning in England together with early closure of the Renewables Obligation and elimination of onshore wind from the ongoing support mechanism for UK renewables has inflicted significant damage to a developing industry employing tens of thousands of people and which has made an increasing contribution to the generation of cheap, clean, indigenous energy," said Renewable Energy Generation Chief Executive Andrew Whalley.
"Moreover, the retrospective changes to the Levy Exemption Scheme have undoubtedly impacted the energy sector's cost of capital, which will unnecessarily increase bills for consumers over the longer term," he added.
In June, the government said it would close the Renewable Obligation for onshore wind one year earlier than planned. The Obligation was introduced in 2002 to encourage UK electricity suppliers to source an increasing proportion of the electricity they supply from renewable sources.
Renewable Energy Generation said although the government has "provided some clarity" about grace periods, uncertainty is prevailing because the new legislation is not binding until it reaches Royal Assent which is not expected until 2016, making it difficult in the meantime for companies to secure long term financing for future projects.
"These changes to the Renewable Obligation, together with the disappointing retroactive removal of Levy Exemption Certificates for renewable energy generators and removal of support for large scale solar schemes, is impacting the industry's cost of capital and is additionally creating some difficulty in securing long term finance for certain projects, at least until the legislation has reached Royal Assent," it said.
UK Chancellor of the Exchequer George Osborne said in his Summer budget that he would remove the exemption that generators of renewable electricity have had from the climate change levy. Currently, tax is not paid on renewable electricity supplied to businesses and the public sector under renewable source contracts.
Renewable Energy Generation is currently progressing the procurement of four new UK onshore wind farms with a combined capacity of 26 megawatts split between the Mynydd Portref, Rodbaston, Brackagh Quarry and French Farm projects. They will not be affected by the early closure of the Renewable Obligation.
Once operational, those four projects will generate around 65,000 megawatt hours per year, pushing the company;s total capacity to around 155,000 megawatt hours.
However, the company's recently approved sites at Mynydd Brombil, Abergorki and Pen Bryn Oer may be affected by the subsidiy changes and the company is "awaiting further clarity from government regarding support for these projects," it said.
In addition to early removal of the Renewables Obligation, the government has announced substantial changes to both the planning system for onshore wind projects and early closure of the small scale solar Feed-In-Tariff.
The Feed-In-Tariffs were designed to promote the uptake of smaller-scale renewable and low-carbon electricity generation technologies and requires electricity suppliers to make set tariff payments for renewable and low-carbon electricity.
Renewable Energy Generation said it will book a minimum of GBP7.0 million in impairments related to those changes in its full year results to June 30.
In July, just after its most recent financial year finished, Renewable Energy Generation said it expected a reduction in Ebitda of approximately GBP400,000 in the year ending June 30, 2016 for its current operational renewable plant and that the closure of the Renewables Obligation would lead to a non-cash impairment charge of more than GBP600,000 in the 2016 financial year.
It also said underlying earnings before interest, tax, depreciation and amortisation is expected to be "in line with expectations" at around GBP1.3 million.
It said the balance of capitalised development costs total around GBP6.5 million relating to projects that the company believes have "development potential".
"Renewable Energy Generation has curtailed investment in new onshore wind and solar development whilst initiating a redundancy programme, expected to result in cost savings of approximately GBP1.3million per annum," said the company.
"Notwithstanding these far reaching changes to the UK renewables industry, the focus of Renewable Energy Generation remains on securing value for shareholders from our portfolio of renewable assets," said Whalley.
By Joshua Warner; [email protected]; @JoshAlliance
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