UK’s fourth largest onshore wind project on ice amid spiraling costs and ‘unfair’ tax

Development of the UK’s fourth largest onshore wind project has ground to a halt, with the developer blaming spiralling costs and the government’s “unfair” tax on renewable power.

The developers of Sanquhar II have warned that all merchant wind power in the UK is at risk due to the government's 'unfair' tax

Community Windpower, the developer of the 44-turbine 308MW Sanquhar II wind project (SQII) in Scotland said costs had leapt by around £200 million (€230 million) to more than £500 million.

The developer warned the UK is unlikely to see any new merchant wind built by 2030 due to “the unfair windfall tax” – the electricity generator levy (EGL) imposed by the UK government last autumn – on new renewable power plants amid rising costs.

The SQII project secured planning permission in August and is ‘shovel ready’, with civil construction planned to start next year and first generation due in summer 2025. 

“Infrastructure costs have been hit with a triple whammy of extreme inflation, a fourfold increase in interest costs and a weak pound,” the company said.  While the costs would remain cheaper than gas fired electricity, the firm noted, that “strangely, polluting gas generators are exempt from windfall tax”.

‘Total policy failure’

The windfall tax is a “total policy failure”, according to Rod Wood, Community Windpower’s managing director. 

Running from January 2023 to March 2028, the UK government has imposed a tax of 45% on revenues over £75MW/h. 

Wood said breakeven for projects like SQII is £90MW/h, “making new investment unviable”.

SQII would have supported more than 200 jobs, powered 350,000 homes with green electricity and saved 22 million tonnes of carbon dioxide over its 40 year life, the developer said.

“We cannot get the return on capital we need to cover the bank requirements for financing,” Wood said. 

He added that unless the economics change, the project cannot be made to work and he described it as “a huge missed opportunity”.

30GW wind 'will not happen'

Wood told Windpower Monthly that merchant wind projects in the UK, including the company’s other planned projects such as 315MW Faw Side, could also be in jeopardy. 

He said: “The EGL stops all merchant wind in the UK as the £75 is below cost of production for new projects,” he said.

That means around 20-30GW of new merchant wind expected by 2030 will not happen, he warned. ”That’s equivalent to £30-40 billion of UK investment and thousands of new jobs in green industries.”

Community Windpower, along with others in the industry, want the UK government to exempt new renewables projects from the windfall tax and have also called for a sunset clause of December 2023 for the tax, in line with Ireland and the EU. 

It would also like to see investment allowances introduced for the sector, in line with oil and gas companies.