(Bloomberg) — Drax Group Plc, the utility converting the
biggest U.K. coal station to burning wood pellets, plunged to
its lowest ever after the government said clean power will have
to start paying a climate-change tax.
The stock tumbled 28 percent in London to the lowest since
it started trading in 2005. Chancellor of the Exchequer George Osborne said renewable energy that includes power from biomass
will no longer be exempt from the Climate Change Levy. He made
the comments in his budget statement in Parliament on Wednesday.
Drax draws government support for its plants, whose wood
pellets are considered a renewable fuel. The change may cut
revenue for clean-energy generators by as much as 5 percent,
said John Musk, an analyst at RBC Capital Markets LLC. Goldman
Sachs Group Inc. estimates Drax earnings may drop as much as 50
million pounds ($77 million) before interest and tax.
“When you float that loss of 5 percent revenues down to
the bottom line, it multiplies up, and you’re looking at
something that is a significant hit to valuation,” Musk said.
Shares of Infinis Energy Plc, a Northampton-based developer
of clean power listed in London, also slumped 8 percent to the
lowest since November 2013. Drax said it was upset about the
decision, and a renewable energy group said it would ask the
Treasury to reconsider.
“We’re displeased with this retrospective change to a
support regime that was there to encourage green energy and
which would have underpinned many renewable investment
decisions,” Andrew Brown, a spokesman from Drax, said by phone.
The levy was introduced in 2001 as a tax charged on energy
used in business. The intention was to encourage businesses to
cut greenhouse-gas emissions. Different rates are charged for
different fuels based on their energy contents, and one of the
main elements of the package was total exemption granted to
renewable energy sources.
“Now we have a long-term framework for investment in
renewable energy in place, we will remove the out-dated climate-change levy exemption for renewable electricity that has seen
taxpayer money benefiting electricity generation abroad,”
Osborne said in the House of Commons.
Drax already has converted two of its six units to burn
biomass. It plans to bring a third unit online by 2016. Removal
of the levy, an indirect subsidy for clean power, would result
in renewable energy generators losing as much as 6 pounds per
megawatt-hour they produce.
The move is garnering criticism from the renewable energy
industry that says it will undermine investor confidence and
make investment in fossil fuels more attractive. The government
last month also said it plans to cut-off new onshore wind farms
from a subsidy program a year early.
“We’re suddenly looking at a substantial amount of lost
income for clean energy companies which was totally
unexpected,” Gordon Edge, director of policy for RenewableUK,
an industry lobby group, said. “For example, Levy Exemption
Certificates account for just over 6 percent of onshore wind
generators’ revenues,” he said.
The exemption to the levy will be removed from Aug. 1, and
there will be a transitional period for suppliers to claim funds
on clean electricity generated before that, according to a
statement covering details of the decision on the government’s
website. It plans to consult with companies on an
“appropriate” length for the transition.
The industry was expecting the government to announce a
review of the levy control framework, James Court, a spokesman
from the Renewable Energy Association, said by phone. That may
now happen with the spending review due later this year, he
said. The framework caps the maximum annual spend on assistance
to renewables through to 2021 and it’s expected to rise to 7.6
billion pounds by the turn of the decade.
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To contact the editors responsible for this story:
Reed Landberg at