It has been confirmed that the Control for Low Carbon Levies will replace the Levy Control Framework. The Government says this reaffirms its existing commitments and provides clarity to industry out to 2025 about the future support for low carbon electricity.
We welcome the move; low carbon subsidies account for around 25% of business energy bills, so clarity is essential for future forecasting, and we believe that a new framework is necessary. The Levy Control Framework was created to provide support for low carbon technology at the lowest cost to consumers, yet deals such as the Hinkley Point C nuclear contract have been agreed outside of the official framework, and have proved costly to consumers and businesses.
Indeed, a report from the Public Accounts Committee published on 22 November 2017 estimates that the Hinkley Point C project will add £10-15 to the average household energy bill over the 35-year contract. But, of course, businesses will be hit hard too; Inenco has estimated that the nuclear plant will increase business energy bills by 3-4%.
The Control for Low Carbon Levies will focus on controlling the flow of new low carbon electricity levies. It covers all existing and new levies, including Contracts for Difference (CfD), Feed-in-Tariffs (FiT) and the Renewables Obligation (RO), and will monitor the total cost of these schemes.
The new control sets out that there will be no new low carbon electricity levies until the burden of such costs is falling – suggesting that, on the basis of current forecasts, there will be no new low carbon electricity levies until 2025.
This implies that levies will continue to rise above inflation until the mid-2020s, and we will have started to see a sustained and significant fall in the cost of renewables, in real terms, by 2025. However, this probably doesn’t take into account the commissioning of Hinkley Point C shortly after this date, which will be adding £3-4/MWh onto a bill.
The new control does not seek to cap or set a budget for low carbon electricity levies, and does not rule out future support for any technology. All existing contracts and commitments will be respected, including the commitment of up to £557 million (in 2011-12 prices) for further CfD confirmed in the recent Clean Growth Strategy, existing CfD (including Hinkley Point C), and existing commitments under regulatory schemes such as the RO and FiT.
Anything outside of this scope is classed as a new levy – we would therefore ask whether new nuclear power stations (additional to Hinkley Point C) will involve new levies?
The Government also confirmed that it will continue to target a similar total carbon price until unabated coal is no longer used. It is confident that the Total Carbon Price (currently created by the combination of the EU Emissions Trading System and the Carbon Price Support) is set at the right level, and believes this will deliver a stable carbon price while limiting cost on business.
The carbon price is an emissions reduction tool, and was partly designed to drive the closure of coal power stations, but with this now being achieved through other means, the Government can afford to keep it at the existing level.
In reality, this means the carbon price has become another carbon tax burden that UK generators and businesses have to bear (which doesn’t apply to their European counterparts, potentially affecting competitiveness). However, this announcement at least provides some certainty, which businesses will appreciate.
In the Budget, the Chancellor also announced a £400 million electric car charging infrastructure fund, an extra £100 million for the Plug-in car grant, and £40 million in charging R&D – all good news for the growth of electric vehicles.