UK Autumn Budget 2017: Key renewable energy scheme announcements
The Chancellor of the Exchequer, Philip Hammond, presented his Autumn Budget to the UK Parliament on 22 November 2017. With housing and health expenditure and Brexit contingencies grabbing the headlines, measures impacting renewables did not receive much attention.
In his speech the only mention of climate change was to state the UK’s leadership on climate change agreements. There was a promise of new money to support a shift to electric vehicles. He also stated that we cannot keep our promise to the next generation to build an economy fit for the future, “Unless we ensure our planet has a future”.
However, in the details of the Budget Report laid before Parliament at the same time, there is one announcement that clearly impacts future investment in renewable energy schemes. In the report the Government has stated that it will continue to support low carbon electricity up to the £557m level earmarked for further Contracts for Difference (CfDs). This was part of the recently published Clean Growth Strategy from the Department of Business, Energy & Industrial Strategy (BEIS). However, whilst the Budget Report makes it clear that the Government will respect all existing commitments, it goes on to state that “in order to protect consumers” it will not introduce new low carbon electricity levies unless the burden of such costs is shown to be falling.
The Treasury released a document entitled Control for Low Carbon Levies to accompany the Budget Report . The Government says that this is an important part of delivering its commitment to keeping energy costs as low as possible. It sets out that there will be no new low carbon electricity levies until the burden of such costs on energy bills is falling. The document includes the current forecast of the cost of such levies, on the basis of which there will be no new low carbon electricity levies until 2025.
The Government says that it remains committed to supporting low carbon electricity. The remaining £557m budget for future CfD auctions, part of the total CfD budget of £730m assigned in November 2015, will be allocated by 2020 with the next CfD auction scheduled for spring 2019.
New levies will only be considered if there is a “sustained and significant” real terms fall in the level of existing levies. The document notes that the “significant cost reductions” achieved in recent CfD auctions indicate the existing support framework may secure more low carbon generation than originally anticipated. The Office for Budget Responsibility (OBR) , which provides independent and authoritative analysis of the UK’s public finances, has revised down its forecasts for the cost of the existing Levy Control Framework (LCF) commitments on the back of such cost reductions.
The Government has included the costs for existing and previous subsidy schemes (such as the Renewables Obligation and Feed-in Tariffs), the £557m already set aside to support low carbon technologies for additional CfDs, and the cost of the subsidy for the Hinkley C new nuclear plant within existing commitments. However, there is no provision for additional nuclear schemes nor the Swansea Bay tidal lagoon. In addition, the figures provided assume no new subsidised onshore wind or solar PV projects beyond CfDs already committed. On the face of it, these and other renewables schemes will only proceed if they can do so without Government support.
The document goes on to say that new levies may still be considered “where they have a net reduction effect on bills and are consistent with the Government’s energy strategy”. Although not explicit, this might be an opening to allow so-called “subsidy-free” CfDs, where the price for low-carbon electricity is less than the wholesale market price.
The Treasury’s Control of Low Carbon Levies forecast of spend on low carbon electricity levies is shown in the chart below. The values are given in 2011-12 prices to provide continuity with previous estimates provided under the LCF. The Government has committed to update the forecast of low carbon electricity levies on an annual basis. It should be noted that the up to £557m budget (in 2011-12 prices) set aside for additional CfDs is not included in the forecast.
As might be expected, the decision not to continue with levies after 2020 has already been widely condemned by renewable industry stakeholders and opposition MPs. Alan Whitehead, shadow energy minister, tweeted that announcements marked a “catastrophic shut down for most of Britain’s renewables industry”. There is justifiable concern that a further break in renewable energy investment could occur, which is contrary to the Government’s own Clean Growth Plan.
Summary
The update provided by HM Treasury follows the announcement in the spring Budget earlier this year that the Government was ending the Levy Control Framework (LCF), which covers all existing low carbon electricity levies including CfDs, the Renewables Obligation, and Feed-in Tariffs.
The introduction of Control of Low Carbon Levies as part of the autumn Budget effectively caps future subsidies for all low-carbon technologies. It is notable that no provision is made for new nuclear projects, tidal lagoon schemes, or additional onshore wind and solar PV.
The Government has made a clear commitment to honouring all current CfD contracts and maintaining the £557m already allocated for CfDs up to 2025. The announcements appear to provide some room in future to provide CfD contracts at or below wholesale prices (so called “subsidy free” CfDs), providing these can demonstrate good value for electricity consumers.
