Neil Woodford has criticised the Government’s decision to change the Climate Change Levy, saying it is pulling the rug from underneath the industry.
The fund manager, who has Drax among his holdings, says the move by the Government to make renewable firms pay the levy will create mistrust among investors and private industry.
In an open letter to the Government he says: “If Government cannot be trusted to fulfil its long-term commitments then it will have to accept that it cannot rely on support from institutional investors. That would not be a good outcome for the UK economy.”
Previously renewable energy companies were exempt from paying the Climate Change Levy, but they will now have to pay following a change in last week’s Budget.
“The Government has, in abolishing the Climate Change Levy, gone back on its commitment,” says Woodford.
Drax, one of Woodford’s holdings, is transforming from being a coal-powered power station to being a renewable energy project, but will now be hit with the subsidy.
Woodford says: “The Drax transformation has been a large, ambitious and pioneering project. As such, it has involved a great deal of risk. Nevertheless, we were supportive of management’s plans but recognised there would be a need for Government support for the project to ensure that risk capital would be rewarded with an appropriately attractive long-term return.
“Alongside Dorothy Thompson, chief executive of Drax, I met several ministers and civil servants in an intensive lobbying campaign aimed to get the project off the ground with the deserved level of support, both political and financial.
“The Government has been delivered an enormous source of cheap renewable and dispatchable energy.
“Not for the first time (Drax has taken the Government to court in the past for trying to walk away from other forms of biomass subsidy commitment), it has pulled the rug from underneath the feet of Drax and its shareholders.
“I have to conclude that the Government has either failed to understand the implications of this policy change or wilfully ignored the interests of capital providers in this vital industry. Long-term capital projects need consistency that extends way beyond the length of a political cycle.”
The Government says a transition period will begin at the start of August that will see electricity providers exempt for renewable source electricity produced before that date. The length of that transition period has not yet been determined.
The Government argues that “more effective policies have been put in place to support renewable electricity generation”, including those that directly benefit renewable generators. It says the levy exemption would cost £3.9bn over this parliamen, a third of which would go to renewable energy generated outside the UK.
It’s not the first time Woodford has hit back at Government changes to the electricity industry. Last year he claimed the industry has for “too long been the victim of a misguided, short-term and politically inspired policy mess”.