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Gov’t abandons refinancing clause in wind farm subsidies

Plans to drop wind farm subsidies if developers reap excess profits after refinancing have been scrapped

It was announced that the government axed the scheme after the industry aired concerns that foreign investors would spend their money elsewhere.

Getting rid of this clause, therefore, could potentially see more wind farms springing up around Britain, despite recent opposition from countryside campaigners and some MPs.

Clauses not scrapped for new nuclear reactors

Despite the scrapping of the plans, the government said that similar refinancing clauses may still apply to new nuclear reactors.

Ministers are planning to introduce a series of subsidies in a bid to increase investment in new ‘low-carbon’ power plants. As part of this, wind farm and nuclear reactor developers are to receive long-term contracts which will guarantee them a minimum price for the electricity generated by their development.

Levies will be put on consumers’ bills in a bid to meet the cost of this ‘strike price’. However, in November the government toyed with the idea of ‘refinance’ clauses. These would see strike prices slashed if a refinancing project saw especially high returns.

Industry feedback saw government re-think scheme

Yesterday, ministers explained that feedback from investors and developers has brought to light that such refinancing gain-share clauses could act as a barrier to certain types of investment.

In a statement they said: “We are also mindful of the importance of capital recycling to investment in new-build projects, and of the impact of these conditions on investors’ perceptions of the attractiveness of the UK as a place to invest, particularly those less familiar with the UK framework and who have a choice about where they invest their capital.”

As a result, the government concluded that a “refinancing/gain-share clause is not required” in most standard contracts.

The majority of subsidy contracts will be set out in a standard 15-year format, however, some will be negotiated directly, for example those regarding new nuclear reactors.

A refinancing usually sees a company renegotiate its debt-equity structure for a project. Typically, it takes advantage of a fall in interest rates or improvement to its risk profile.

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