Levy Control Framework and Contracts for Difference
In the Autumn Budget, the Government announced the replacement mechanism to the Levy Control Framework (LCF) – dubbed ‘The Control’ – which will control low-carbon electricity levies.
However, there will be “no new low-carbon electricity levies until 2025.” The bulk of the LCF costs currently relate to signed contracts and no new levies will be introduced until these costs begin to fall. No cap or budget will be set for low-carbon electricity levies in this time, and all existing contracts and commitments will be honoured. This includes up to £557 million for further Contracts for Difference (CFD) auctions which was included in the recent Clean Growth Strategy.
New low-carbon electricity levies, however, may be considered if costs of existing levies are “forecast to have a sustained and significant fall in real terms”. Those projects able to secure “subsidy free” CFDs may then be able to go ahead with their developments.
The government promises to update the forecast of low-carbon electricity levies on an annual basis.
Carbon Price Floor
Utilitywise wanted clarity on the future of Carbon Price Support (CPS) and the role of the UK in the EU Emissions Trading Scheme (ETS) post-Brexit. However, the Budget provided little detail on future carbon pricing beyond the Government’s belief it is “at the right level”. The Government will seek a similar total carbon price – currently the sum of the EU ETS price and the UK’s Carbon Price Floor – until unabated coal is no longer used. The Government has remained committed to plans to close its entire fleet of coal-fired power plants by 2025, but Utilitywise believes all but one of the UK’s coal plant will likely shut down years earlier.
A decision on the main gas and electricity rates for the Climate Change Levy (CCL) beyond 2020 has been delayed until next year. The CCL rate for Liquefied Petroleum Gas (LPG) is to be frozen at the 2019-20 level until April 2022.
Further support for electric vehicles (EV) and innovation
The intention to build an economy “for the future” was outlined, including funding for a number of green initiatives including air quality control, electric vehicles, and research and innovation.
A new £220m Clean Air Fund was announced to help local authorities implement air quality plans. There will be new support measures for electric vehicles, and increased taxes on diesel cars to raise funds and encourage vehicle switching. From April 2018, the Vehicle Excise Duty for the most polluting diesel cars will increase.
A number of new measures will focus on preparing the UK for expected growth in electric vehicles:
- £400m will be invested in a new Charging Investment Infrastructure Fund – half funded by private investment.
- An additional £100m will go to ensuring the continuation of the plug-in car grant out to 2020, reducing the cost of purchasing new electric vehicles.
- £40m more funding will also go towards charging R&D.
- The Government will also remove the “benefit in kind” charge on employers providing electricity to employees for their electric vehicles.
A further £2.3bn investment in R&D was announced and the research and development tax credit will rise to 12%. The Chancellor described these measures as part of “the biggest increase in science and innovation funding for four decades.” As part of the Government’s plans for innovation, the Budget outlined a target of 2021 for full self-driving cars on UK roads.
Oil and gas support
While there was fresh support for electric vehicles, the Chancellor also detailed assistance to traditional vehicles. Fuel duty on petrol and diesel vehicles will remain frozen. The Heavy Goods Vehicle duty and Road User Levy rates will also be frozen for one year from 1 April 2018.
The Government also announced more tax relief changes to help North Sea oil and gas production. A technical consultation on a potential tax deduction for decommission costs will be launched.
More detail needed for energy plans
Though the Autumn Budget announcements have provided some details on new low-carbon price support, the long-term outlook beyond 2025 is still unclear, with the Government seemingly treading water on several of the major issues surrounding the Carbon Price and Levy Control Framework. The Budget has promised clear progress on plans for electric vehicles, but has no input on the measures required to support such a transformation. There were no fresh plans for developing battery storage, energy efficiency, or the Internet of Things. The forthcoming Industrial Strategy White Paper may offer more detail on these energy related matters which were not covered by today’s Budget.
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