Rising Non-commodity Highlight the Importance of Energy Efficiency

           Energy Efficiency

In the Chancellor’s budget this month, it was announced that the CRC Energy Efficiency Scheme (CRC) will be abolished from 2019 and in order to recoup the Treasury’s lost revenue, the Climate Change Levy (CCL) would rise from April 2019. The Treasury sees CCL as a single tax to incentivise energy efficiency in business.

In addition, the difference in CCL rates between electricity and gas is currently at an electricity to gas ratio of 2.9:1 and this will be adjusted to reflect the fuel mix used in electricity generation, adjusting the electricity to gas ratio to 2.5:1.

The table below shows the rates published in the Budget:


While the increase in CCL is designed to replace the revenue from CRC, plans are for it to be applied across the board and will, therefore, be applied to all businesses that currently pay the CCL tax and not only to those who are currently captured by the CRC. In its response to the consultation on business energy efficiency taxes, the government said it “recognises business concerns about time to adapt” and it “will therefore not implement tax changes until 2019, giving all taxpayers a three-year lead in time to make energy efficiency savings before the increase in CCL rates comes into effect.”

As part of its five-year plan published this year, DECC stated its intention to explore how further support can be given to small and medium enterprises (SMEs) and so build on its SME Guide to Energy Efficiency.

For larger companies, the Energy Savings and Opportunities Scheme (ESOS) has resulted in approximately 6,000 businesses recently completing obligatory energy audits. These companies are now starting to implement some of the recommendations such as systems improvements, installation of LED lighting, or solar generation. While there is no obligation to act on recommendations, the audits demonstrate the cost benefit of doing so. ESOS is the result of the EU Energy Efficiency Directive, and similar schemes are in place across Europe. In addition, countries such as France and Austria have placed obligations on energy suppliers to implement energy efficiency measures amounting to a minimum percentage of their supplies, which in turn encourages them to promote energy efficiency amongst their customers. The French Energy Savings Certificate Scheme awards certificates to those that have taken energy efficiency measures. These certificates hold value because if suppliers cannot submit enough certificates at the end of the reporting period, they must pay a fine.

The increase in CCL combined with a wider increase in non-energy costs is taking energy efficiency measures higher up the agenda as forecasts show that over the next five years, non-energy costs are expected to increase to a level where they make up approximately 70% of a half hourly electricity bill. Network charges form part of this and are forecast to increase by around 40% while the remainder will be due to the pass-through of increased policy costs. However, energy costs will still make up the largest element of the bill that can be directly controlled by business without the need for long-term operational change and investment.

The government has made a number of recent policy changes in an attempt to control policy costs and, while there was no update on the Levy Control Framework (LCF) in the budget, further details are expected in the autumn, and there is, therefore, still room for some change in respect to these on-costs. The LCF places a cap on the total payments to low-carbon generation, above the electricity price, that can be passed on to consumers for each year until 2020. Government projections show an overspend against the LCF for a number of reasons, one being the fall in the wholesale price of electricity which has increased the cost of delivering Contracts for Differences under which guarantee the electricity price is guaranteed for generators that are contracted under the scheme. Other factors influencing the LCF are higher than expected levels of renewable capacity being built and more energy being output by offshore wind projects.

The government has put measures in place to protect energy-intensive consumers from the rise in CCL by increasing the discount in place for sectors that hold Climate Change Agreements, which already include energy efficiency targets, although sector associations are still analysing the overall impact of these changes. Other schemes are in place for major users to claim compensation for indirect costs


Nikki Wilson

Nikki joined Alfa Energy in September 2015 as a Carbon Management Consultant where she advises clients on legislation, compliance, and the implementation of carbon management schemes. She is a Practitioner member of IEMA, has a postgraduate diploma in Environmental Decision Making, and has over 15 years’ experience in energy consultancy.