Spring Statement 2018

Spring Statement 2018

The new Spring Statement was expected be light on any major spending announcements. We’d like to have had clarity on carbon taxation, as well as renewed commitment towards Clean Growth and Industrial Strategy objectives. Did the Statement deliver?

Carbon Price Floor and EU ETS rises

BEIS is committed to target a total carbon price in the power sector.

In the Autumn Budget the Government stated it will “continue to target a similar total carbon price (EU ETS + CPF) until unabated coal is no longer used.”

The Helm review also recommended harmonised carbon pricing of ETS, CPS, a CCL implied carbon price and fuel duty.

Expectation:

  • Clarity over the target level and subsequent trajectory of Total Carbon Price.
  • Reaffirmed commitment to be part of the EU ETS after Brexit.
  • Fuel duty to be kept at current level as decision of the existing fuel duty rates for alternatives to petrol and diesel is expected in the Autumn Budget 2018.

What we would like to see:

  • More detail regarding whether or not the current rises of EU ETS to above €10 are in line with the level of Total Carbon Price expected in the last statement.
  • More clarity on what the target total carbon price level is after Brexit.
  • Carbon pricing after Brexit is needed in order to reach wider decarbonisation goals under the UK Carbon Budgets and Paris Agreement pledges.

Future approach to small scale renewables and the Levy Control Framework

Commitment not to introduce new low carbon levies in electricity until 2025.

However, the Clean Growth Strategy promises a new approach to small scale renewables.

Expectation:

  • Announcement of approach to small scale renewables is expected in due course.
  • Any changes or extension of FiT beyond 2019 will increase NCC charges paid by consumers. Currently FiT is set to close to new entrants in 2019, however BEIS previously indicated it could extend or rebalance the support under the scheme among the technologies receiving aid.

What we would like to see:

We would like to see more clarity over the future support to small scale renewables and how this will interact with commitment not to introduce new low carbon levies.

We support consumers being more in control of their energy usage and renewable generation. However, any future subsidy to small scale renewables needs to reflect recent falls in technology cost and not be too burdensome to the rest of the business.

CfD rounds

Government re-confirmed up to £557 million for the next clean power auctions of less established technologies in Autumn 2017.

However, decisions on Tidal Lagoon and Nuclear projects support are still pending.

Expectation:

  • Commitment to current plans to allow remote island wind to compete in the next CfD auctions.
  • Unlikely to have more detail on  Sector Deal for offshore wind (BEIS Clean Growth Strategy) or competitive price for future nuclear projects.

What we would like to see:

  • Continued support for renewable energy development and through competitive auctions after 2022.
  • Support for remote island wind is good news for onshore wind developers which have been previously blocked access to the CfD auctions.

Smart and flexible energy system – Innovation funding

No mention in the Autumn Statement 2017.

Recent announcements have shown greater Government investment into R&D.

Expectation:

  • There might be greater commitment towards investment in R&D – mainly into decarbonising transport, electric vehicle charging infrastructure.
  • Battery storage (EVs) might also be present.

What we would like to see:

  • We would like to see a greater push towards (smart) energy efficiency controls.
  • Policy supporting the adoption of Smart Building Technology and IoT for businesses.

Energy Price Cap

No mention in the Autumn Statement 2017.

Temporary price cap for domestic SVT and default tariffs, initially set until end of 2020 with potential to be extended with 3 more years under the Domestic Gas and Electricity (Tariff Cap) Bill.

What we would like to see:

The level of the cap is yet to be determined, but it would lead to a reduction of suppliers revenues from that customer base.

There are potential costs to non-domestic consumers if suppliers raise tariffs to counteract the impact.

We want to call on Ofgem to minimise this potential risk when setting the level of the cap.

North Sea Oil & Gas

The sector is expected to bring in some £1bn worth of tax this year, attributed mostly to the increase in the Brent crude oil price.

What we would like to see:

We support any development of the North Sea sector as long as it does not come at additional cost to business consumers.

Electric Vehicles

Diesel cars – taxed from April 2018 through increase in Vehicle exercise duty.

Autumn Budget saw £1,550 tax exemption for electric taxis to come into force this April.

EVs Bill is still making progress in Parliament.

Expectation:

Government expected to publish by March a long term strategy for zero emission road vehicles.

Possible further changes to Vehicle exercise duty to encourage low emission and EV take-up.

What we would like to see:

We would like to see an ambitious long term strategy for zero emission road vehicles.

We believe that larger adoption of EVs needs to take into account the future grid requirements and system balancing.

Gas security of supply in light of Brexit

The UK’s only long term gas storage facility (Rough) is going to be officially closed after this winter season.

Expectation:

Security of gas supply needs to be considered after recent events (cold temperatures) and uncertainty over future relations after Brexit.

What we would like to see:

  • Firm plans on the future of storage after the closure of Rough.
  • Call for an official review into the resilience of current UK gas market and also clarity over the development of fraking in the UK. This will need to consider any future support for medium-range storage facilities, the barriers to the development of those facilities which are currently under planning and also if there is a need to bring back the Industrial interruptible contracts.

Energy efficiency and carbon reporting

No mention in the Autumn Statement 2017.

Government expected to set CCL main rates for years 2020/21 and 2021/22 in Autumn Budget 2018.

The recent consultation looked at reducing the administrative burden of compliance in the current landscape.

Expectation:

It could be a chance to provide more clarity around the future Climate Change Agreements target period and also any plans on ESOS reporting after 2020.

What we would like to see:

We would welcome a move towards greater simplification of energy and carbon reporting for businesses including requiring participants to start reporting on their progress made and actions taken on identified energy savings opportunities.

We would welcome the government simply choosing to extend the CCA scheme into another set of target periods.

Did the Spring Statement deliver?

Post Statement update

As initially suggested, the Spring Statement was short of any energy-related announcements. The Chancellor has given a boost to the green sector by announcing a call for evidence to tackle single-use plastic waste and consultation on the Vehicle Excise Duty (VED) for the cleanest of vans. However, a number of energy policy related areas still lack clear set of action on behalf of the Government.

The UK government’s budget watchdog – the Office for Budget Responsibility – has refreshed its expectations on the impact of EU ETS and other environmental levies in line with recent market developments. The forecast for environmental levies for 2021/22 and 2022/23 has been downgraded by £0.5bn to reflect the lower clearing price of the four-year ahead Capacity Market auction. While the EU ETS forecast has been increased by £0.1mn in 2022/23 as a result of the recent price rises in carbon prices.

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Ross Moffat

Posted by on Tuesday, the 13. March at 12.10

Ross Moffat has been a part of the Market Intelligence team at Utilitywise since early 2014. His responsibilities include delivering Market Intelligence reports to clients and managing the Utility Insights Twitter account. Ross has a first class Honours degree in Business and Marketing from the University of Stirling.