Government responds to renewable industry demands

The government has secured praise from the renewables industry after new measures designed to address impending crises in the offshore wind and microgeneration sectors were announced as part of today's budget.

Adam Bruce, chairman of the British Wind Energy Association, said that the budget – which included more than £1bn in new green spending, as well as £4bn in financing from the European Investment Bank – effectively restated the government's long-term commitment to renewable energy, providing firms with much-needed reassurance that Whitehall would act to help ensure the UK renewables targets are met.

The wind energy industry has been facing growing fears that the rising cost of turbines resulting from the collapse of the pound against the euro, coupled with banks' reluctance to lend to capital-intensive projects, would destroy the economic case for investment in offshore wind farms, effectively ending the UK's chances of meeting its target to generate 15 per cent of energy from renewable sources.

Meanwhile, providers of onsite renewable energy systems such as micro wind turbines and solar panels had been fearful that a wave of bankruptcies could sweep the sector before the government's proposed feed-in tariff could take effect, following the phasing out of the government's Low Carbon Building Programme (LCBP) grant scheme.

However, Chancellor Alastair Darling today announced that the government would move swiftly to address both concerns, increasing incentives and providing new financing options for offshore wind developers, and providing an extra £45m in funding for small-scale renewable technologies, primarily through an extension to the LCBP.

Philip Wolfe, director general of the Renewables Energy Association, which has campaigned for an extension to the LCBP until the feed-in tarrif can take effect next year, welcomed the announcement. "We are glad the government has sought to respond to areas we identified as critical and these measures should help prevent contraction in the renewables industry," he said.

Bruce similarly welcomed the government's increased support for wind energy firms, arguing that the measures should prove sufficient to address "the short-term economic hurdles we faced due to the fall of the pound against the euro and the post-Lehman collapse in project finance".

Under the government's proposals, a review of the current Renewables Obligation subsidy mechanism will be undertaken, with the intention of increasing the Renewable Obligation Cerificates (ROCs) offshore wind farm operators receive from 1.5 per megawatt hour to two per megawatt hour for the financial year 2009-2010. The subsidy will then fall back to 1.75 ROCs per megawatt hour for 2010-2011, before being restored to the 1.5 ROC level from 2011-2012.

The move should strengthen the economic case for offshore wind farms, providing an extra £525m in financial support over the next two years, while the additional £4bn in loans from the European Investment Bank should help projects access financing.