The Treasury decision will deal a blow to companies hoping to build new windfarms, solar plants and tidal lagoons.
Companies hoping to build new windfarms, solar plants and tidal lagoons, have been dealt a blow after the government said there would be no new subsidies for clean power projects until 2025 at the earliest.
The Treasury said it had taken the decision to “protect” consumers, because households and businesses were facing an annual cost of about £9bn on their energy bills to pay for wind, solar and nuclear subsidies to which it had already committed.
The revelation that there will be no more money for projects before 2025 could dash hopes for pioneering projects such as the proposed £1.3bn tidal lagoon in Swansea, which has a mooted launch date of 2022.
In a Treasury document on carbon levies published on Wednesday, officials said: “On the basis of the current forecast, there will be no new low-carbon electricity levies until 2025.”
Environmental groups criticised the Treasury move. The WWF said it was a huge disappointment, while Greenpeace claimed Wednesday’s budget was one of the least green ever.
Business groups also reacted with dismay. The pro-environment Aldersgate Group, whose members include BT, Ikea and Marks & Spencer, said the lack of clarity on low-carbon power investments was disappointing.
James Court, head of policy at the Renewable Energy Association, said: “The UK government seem to be turning their back on renewables by announcing no new support for projects post-2020 and a freeze on carbon taxes.”
It is understood the policy will only affect projects generating electricity before 2025, so would not stop firms signing contracts for power stations coming online after 2025. That means the backers of new nuclear power stations are unlikely to be affected by the decision, because none was expected to be built by then. But it could be a blow for the companies wanting to build solar farms, onshore windfarms and other clean power plants at an earlier date.
Some industry figures took comfort from Treasury language suggesting that some contracts might be allowed for renewables if the price were so low as to be effectively subsidy-free.
The government confirmed that it would honour an existing pledge to auction £557m of renewable energy subsidies, beginning next year. But most of that pot is expected to be taken by giant offshore windfarms, likely crowding out other technologies such as tidal.
John Sauven, chief executive of Greenpeace, said: “Despite the chancellor’s pride in the UK’s climate leadership, hidden away in the unannounced text of the budget, he quietly revealed this was one of the least green budgets ever because there will be no new money for renewables until at least 2025.”
Gareth Redmond-King, head of energy and climate at WWF, said: “It is a huge disappointment that there will be no new investment in UK renewables.”
The government also announced that until 2025 it was freezing a carbon tax on dirty energy generators. Big energy firms, including SSE, have been calling for the tax, the carbon price floor, to be strengthened to encourage new investment in greener energy.
Recent research by energy analysts suggested that without an increase in the tax, coal power plant owners would enjoy a last hurrah in the early 2020s before they hit a government deadline for the closure of all coal-fired stations by 2025.
One expert said the decision to freeze rather than increase the tax meant the UK’s climate change target for 2030 was being put at risk.
“It is disappointing that the Treasury is continuing its indefinite freeze of the carbon price support rate, a move that could endanger the achievement of the UK’s emissions target for 2030,” said Bob Ward, policy and communications director at the Grantham Research Institute on Climate Change and the Environment.
He added that the current price of around £24.50 a tonne of CO2 was likely to be too weak to drive the energy market to shift from gas power stations to renewables and nuclear.