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Britain moves to slash renewable subsidy costs

LONDON (Reuters) - Britain’s government on Wednesday moved to rein in the spiralling costs of renewable power subsidies which it said threatened to push up household bills.

A couple walk their dog on Redcar beach past an offshore wind farm in Redcar, northeast England January 11, 2015. REUTERS/Andrew Yates

The plans include closing support for small-scale solar projects, changing the way renewable projects qualify for payments and modifying subsidies for biomass plants.

The proposals come just a month after the government said it would scrap new subsidies for onshore wind farms from April next year.

“We can’t have a situation where industry has a blank cheque and that cheque is paid for by people’s bills,” Energy and Climate Change Secretary Amber Rudd said on BBC radio.

Figures published by the Department of Energy and Climate Change (DECC) show the cost of renewables subsidies could reach 9.1 billion pounds a year by the 2020/21 tax year compared with a proposed budget of 7.6 billion.

Investors said the government’s u-turn had undermined the industry’s case for investing in renewable electricity production.

“The government has stripped away without warning incentives for projects on which many companies have made major investment decisions in renewable technologies,” said Richard Kirkman, technical director at Veolia UK, a subsidiary of French environmental services group Veolia VIE.PA.

Other European governments have also curbed generous renewable subsidies.

Last year Germany changed its renewable energy law, seeking to cap support for renewables, while Spain changed its subsidy scheme for solar plants after higher than expected demand.

Britain’s DECC also said on Wednesday it would no longer guarantee subsidies offered for biomass conversion projects.

The decision sent shares in power company Drax DRX.L, which is in the process of converting its coal plants to using biomass, down around 2 percent in early trading but they have since recovered.

As part of extensive reforms of Britain’s electricity market, the government has been changing the way it supports renewable energy by replacing direct subsidies with a contracts-for-difference (CfD) system.

Under the scheme, qualifying projects are guaranteed a minimum price at which they can sell electricity and renewable power generators bid for CfD contracts in a round of auctions.

But Rudd on Tuesday cast doubt on whether there would be another auction of CfD renewable support by telling a parliamentary committee she could not confirm it would take place.

Asked to clarify Rudd’s comments, a DECC spokeswoman said only that decisions on any further CfD auctions would be taken in due course.

Under the first round of auctions held last December, the government awarded contracts to 27 renewable projects worth a total of more than 315 million pounds.

Previously, the government said the budget for the next CfD allocation round would be confirmed later this year and that the second auction could take place in the autumn.

Additional reporting by Karolin Schaps and; Michael Holden in London and Vera Eckert in Frankfurt.; Editing by David Holmes and Susan Thomas