News that German mega utility RWE has pulled the plug on its £4bn Atlantic Array offshore wind farm is the latest sign that political wrangling on power prices is starting to affect the renewables sector. RWE blamed technical challenges such as deep water and adverse seabed conditions for the prohibitive cost of the project. But, reading between the lines, adverse political conditions may be as much to blame.
The government may have got one feel good election factor heading in the right direction - house prices - but energy prices remain a thorn in their side. Labour leader Ed Miliband's power price freeze promise has turned energy bills, and the green levies that go into them, into a political football.
The current government seems keen to rollback green levies on energy bills and instead fund its commitment to renewables through general taxation. RWE alluded to the uncertainty that has been created around green subsidies when it said that the costs of overcoming the technical issues would be "prohibitive in current market conditions".
Big Six energy provider SSE (SSE) was more direct. It recently announced it was cutting the size of its Galloper offshore wind project by a third and that development of the next two phases of its Firth of Forth project will, "not continue without clarity on the long-term investment support framework for offshore wind".
In a further sign that renewables are not immune to wider malaise spreading through the utility sector, the recent float of renewable energy generator Infinis (INFI) was priced at the bottom of its target range and the shares are now changing hands just below the 260p float price.
Nevertheless, it is worth remembering that any cuts in green energy subsidies will only affect future projects, not those already operating. Richard Crawford, Director, Infrared Capital Partners, the investment manager for The Renewables Infrastructure Group (TRIG), which raised money earlier this year to invest in operational wind farms, says the key is that subsidies remain favourable enough for projects to get to market for the fund to buy. At present, he believes that should remain the case for onshore wind, although offshore wind looks more challenging.
