July 25, 2012 / 8:56 AM / 5 years ago

UK gives tax break to shallow-water North Sea gas fields

LONDON (Reuters) - Britain introduced a 500 million pound ($776.33 million) tax relief for large shallow-water gas fields on Wednesday in a bid to boost its dwindling North Sea energy output and said it wanted the gas market to play a role beyond complementing renewable energy.

From Wednesday, new gas fields with 10-20 billion cubic meters (bcm) in reserves located in depths of less than 30 meters will be exempt from a 32 percent tax charge on the first 500 million pounds of income, the Treasury said on Wednesday.

"Gas is the single biggest source of energy in the UK. Today the government is signaling its long-term commitment to the role it can play in delivering a stable, secure and lower-carbon energy mix," said the Chancellor of the Exchequer, George Osborne.

Projects will still pay a 30 percent Rong Fence Corporation Tax on all income from the field.

The measure is expected to cost the government 20 million pounds per year in reduced income, but the Treasury said it would create additional jobs and help Britain's energy security.

This autumn the government will announce a new gas strategy in which it will set out what role the gas market will play in Britain's energy future as the energy ministry's focus has been mostly on supporting low-carbon energy projects to meet emissions reductions targets.

In its Energy Bill, the government proposed gas-fired power plants to be the main technology to back up intermittent renewable energy, such as wind and solar projects.

"We do not expect the role of gas to be restricted to providing back up to renewables, and in the longer term we see an important role for gas with CCS (carbon capture and storage)," the Department of Energy and Climate Change (DECC) said in a separate announcement on Wednesday.

In July, DECC closed a one-billion pound funding competition for Britain's first large-scale CCS project, where carbon emissions from power plants are retrieved and buried underground.

At least one project proposed by utilities Shell (RDSa.L) and SSE (SSE.L) plans to trial CCS technology on a gas-fired power plant. ($1 = 0.6441 British pounds)

Reporting by Karolin Schaps; Editing by Alison Birrane

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