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A Spring Budget lacking in energy

Nobody was expecting today’s Spring Budget to have a significant focus on energy, particularly given the Industrial Strategy paper out for review, but many were hoping that the Chancellor would provide clarity around the cost of carbon and low carbon subsidies beyond 2020.

So what does the Budget mean for business energy professionals?

Levy Control Framework

Low carbon subsidies account for around 25% of business energy bills, so any update on the future of them beyond 2020 could have a significant impact on future forecasting.

The Government had promised to provide an update on future costs in this budget, but instead confirmed that this would come later in the year. The Levy Control Framework will also be replaced by a new set of controls – something Inenco believe is a welcome decision. The LCF was created to provide support for low carbon technology at the lowest cost to consumers, yet costly deals such as the Hinkley Point C nuclear contract have been agreed outside of the official framework and auctions have repeatedly been delayed or abandoned, proving that the mechanism is not working as it should do.

With any consultation undoubtedly meaning that a final decision won’t be made until 2018, any new framework should be agreed quickly and create a competitive way to provide support for new technologies, bringing forward investment whilst keeping the cost to businesses and households to a minimum.

Carbon Floor Price

The update on this was postponed to the Autumn Budget, meaning generators and businesses remain in the dark about the cost of carbon beyond 2019/20. With T-4 capacity market auctions on the horizon, this creates greater uncertainty in the market. HMT may be waiting on wider decisions around energy and tax revenues before confirming the price: whilst they may look to increase the price as the grid continues to decarbonise to maintain their revenue, they will also be mindful that any large increase could force coal plants into early closure, creating a supply and demand gap.

Electric Vehicles

The Chancellor set out new funding and support for low carbon vehicles in the Autumn Statement last year, so no major announcements were expected here. However, the first £270million tranche of an Industrial Strategy Challenge Fund will include funding towards the development of batteries and EVs, further stressing the Government’s commitment to electric vehicles and hopefully addressing the need for charging infrastructure to support the roll out of more EVs on the UK’s roads.