Autumn Budget Controls Low-Carbon Levies

           Budgets and Statements

The Chancellor announced in the Autumn Budget that a new control will ensure there are no new low-carbon electricity levies “until the burden of such costs is falling”. Forecasts indicate that this is not expected to occur until 2025. The Treasury has taken this step to prevent more policy costs being added to consumers’ bills. All existing commitments will be respected, including the commitment of up to £557 million for further Contracts for Differences (CfD). Due to cost reductions seen in the last round of CfD auctions, this could secure more low-carbon generation than originally envisaged. Two offshore wind schemes won contracts at £57.50/MWh in this year’s auction round, compared to a contract price of £120/MWh for offshore wind in 2015. The CfD price for the new nuclear plant at Hinkley Point is set at £92.50/MWh. Commentators have raised concerns that the moratorium on low-carbon support could discourage the development of emerging technologies and put pressure on solar and wind to be developed without any support. Questions have been raised over prospects for the planned Swansea Bay tidal lagoon project, although developers hope to gain some of the existing funding that has been set aside.

The government will update its forecast of low-carbon electricity levies on an annual basis. It has indicated that levies could be available where they are thought to have a “net reduction effect on bills and are consistent with the government’s energy strategy”. This has brought industry discussions back to one idea of a “market stabilisation CfD mechanism” for technologies such as onshore wind that have seen cost reductions but require long-term income certainty. A recent report from Arup indicated that this approach would enable onshore wind to operate at a strike price of £50 to £55/MWh. The budget’s focus on support for electric vehicles reminds us of the requirement for low-carbon electricity to meet the extra demand that will result from the uptake of this new technology. Although, indications are that smart charging is expected to alleviate some of this extra demand. This, combined with new developments that will enable some electric cars to feed power back into the grid, may mean that electric vehicles will not add as much demand as could be expected.

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.