UK's green power industry loses tax exemption, shares dive

LONDON (Reuters) - Britain's renewable energy suppliers and their customers will no longer be exempt from a climate change tax, finance minister George Osborne said on Wednesday, knocking shares in power producer Drax to their lowest ever level. The levy was introduced in 2001 to encourage producers to increase renewable energy generation and to support businesses in reducing harmful carbon emissions. So far, users and suppliers of green energy had been exempt from paying the tax. The exemption will end on Aug. 1. Osborne said in his budget speech the exemption was outdated and was channelling tax relief to green energy producers outside of the UK who export electricity to Britain via subsea interconnectors. The news caused shares in power producer Drax, which is generating a growing amount of energy from biomass pellets, to slide 28 percent or 99.3 pence to end at 254.6 pence. "We are displeased with this retrospective change to a support regime that was there to encourage green energy and which would have underpinned many renewable investment decisions," said a Drax spokesman. As a consequence, the company estimates a 30 million pound reduction in core earnings this year and another 60 million pound impact in 2016. The impact would reduce thereafter, it said. Analysts at Bernstein said the loss of renewable energy revenue will lead to a roughly 80 pence per share valuation drop for Drax. The analysts said they had placed the stock under review. The government said it will raise around 450 million pounds this financial year, rising to 910 million pounds in 2020-21, by removing the tax exemption. It estimated around one third of the 3.9 billion pounds worth of tax exemptions would have gone to foreign suppliers over the coming five years. Osborne also announced the government will open North Sea oil and gas investment allowances to more activities, a policy aimed at reviving oil and gas production in the North Sea basin. The finance minister underlined the government's commitment to eventually establish a sovereign wealth fund made up of revenues from shale gas extraction, which would be for use by communities that host shale sites. Britain's shale gas industry was dealt a major blow last week when two applications for what could have been the country's first shale gas wells were rejected by local authorities. (Reporting by Karolin Schaps and Nina Chestney; Editing by Elaine Hardcastle)