As Chancellor Philip Hammond stepped up to the despatch box to deliver his first annual Budget, many in the energy sector hoped for clarification of the long-term approach to low carbon subsidies and carbon taxation.
The speech that followed suggests no immediate impact on energy managers’ budgeting or reporting practices with most significant decisions deferred, pending further consultation. Whilst not strictly budget, there is also still no clear view on the reporting structure that will replace the CRC (formerly known as the ‘Carbon Reduction Commitment’) in 2019.
Levy Control Framework
The Levy Control Framework will be replaced by a new set of controls. We don’t yet know what they are as the details will be set out later in the year, but this demonstrated that Government still has energy affordability and controlling policy costs high on its agenda.
This is not unexpected. In the November 2016 Autumn Statement, we were told the Treasury was “considering the future” of the Levy Control Framework (LCF).
The LCF caps the total liability of taxes that can be placed on energy bills from the Renewables Obligation, Feed-in-Tariffs and Contracts for Difference (CfD) although some funding decisions, such as the CfD payments for Hinkley Point C have been agreed outside this control.
This policy is something to watch as any replacement of this control framework may impact energy managers’ budgets. At this time, there is no indication when consultation on the new control framework will begin.
In the meantime, the Treasury confirmed that “the costs of consumer-funded energy policies will continue to be monitored and scrutinised”, with continued support for low carbon power generation although no new subsidies or funding have been committed beyond the £730m announced last year.
The Carbon Price Floor will remain frozen (but rising with inflation) at £18/tonne of CO2 out to 2020/21 with the Government promising to consider an appropriate mechanism for determining carbon price thereafter. Decisions on the long term future will be made in the Autumn Budget and will also be dependent on the Brexit negotiations, given the issues surrounding the EU ETS.
Funding for ‘disruptive technologies’
Treasury has committed an initial investment of £270 million to “kick-start the development of disruptive technologies”. The first wave of funding from the Industrial Strategy Challenge Fund will support the design and manufacture of batteries for electric vehicles and the development of artificial intelligence and robotics to operate in extreme and hazardous environments, including off-shore and nuclear energy and deep-mining.
Whilst this is unlikely to have a direct impact on business energy end-users, the support for robotics and machine learning in the energy sector is likely to be felt as it filters down to trading and energy management systems.
What is still unclear?
With both the Carbon Price Support and the Levy Control Framework subject to further announcements later in the year, there is uncertainty around long-term budgeting for energy taxation. Further consultation on these mechanisms is expected and we will communicate with our customers regarding the implications of any proposals at the appropriate time.
Following recent stories in the media, the budget has confirmed that the revaluation process for business rates will be reformed so that changes are introduced smoothly and more frequently, avoiding a repeat of the “dramatic increases” which caused distress to a range of businesses, including those that have invested in small scale renewables.
However no relief has been offered in this budget with regards the changes being introduced from April 2017, despite the efforts of the Solar Trade Association. Again, the government will set out its preferred approach for delivering this aim at the Autumn Budget 2017 and will consult ahead of the next revaluation in 2022.
Lastly, as a general note, the Government has committed to publish a Green Paper examining “markets that are not working efficiently or fairly”. The Budget does not clarify whether this will extend to the energy markets, which were subject to a CMA investigation last year, however the Green Paper will seek to make terms and conditions for services more clear and set out proposals to help consumer advocacy bodies to seek civil fines from the courts against companies that break consumer law.
In the meantime, we will continue to work with our customers to help reduce energy expenditure through our three pronged approach to energy management of better buying practises, using resources wisely and generating low carbon energy.
The full suite of budget documents can be downloaded from HM Treasury’s website.