Professional Energy Purchasing

Budget 2016 – Energy Reforms

This year’s budget has announced large energy tax reforms to in order to improve business energy efficiency. The Budget 2016 Policy Paper can be read in full at Budget 2016. The following relevant business energy sections were copied from the budget for your ease of reading:

4.14 Energy taxes

The government is committed to meeting the UK’s ambitious environmental targets in a cost-effective way, ensuring value for money for the taxpayer and retaining protection for the smallest and most energy intensive businesses. This Budget announces the biggest business energy tax reforms since the taxes were introduced, in response to the business energy efficiency tax review. To simplify the landscape and drive business energy efficiency the government will:

• Abolish the CRC energy efficiency scheme (CRC) following the 2018-19 compliance year, ending a complex scheme with bureaucratic and costly administrative requirements. It will significantly streamline the business energy tax landscape by moving to a system where businesses are only charged one energy tax administered by suppliers rather than CRC participants being required to forecast energy use, buy and surrender allowances.

• Increase the Climate Change Levy (CCL) from 2019, to recover the revenue from abolishing the CRC in a fiscally-neutral reform, and incentivise energy efficiency among CCL-paying businesses.

• Rebalance CCL rates for different fuel types to reflect recent data on the fuel mix used in electricity generation, moving to a ratio of 2.5:1 (electricity:gas) from April 2019. In the longer term, the government intends to rebalance the rates further, reaching a ratio of 1:1 (electricity:gas) rates by 2025. This will more strongly incentivise reductions in the use of gas, in support of the UK’s climate change targets.

• Keep existing Climate Change Agreement (CCA) scheme eligibility criteria in place until at least 2023, ensuring energy intensive industries remain protected. From April 2019, the CCL discount available to CCA participants will increase so that they pay no more than an RPI increase. The government will ensure that these agreements deliver on their energy efficiency goals through a DECC-led target review starting in 2016.

At Budget 2014 the government capped Carbon Price Support (CPS) rates at £18 t/CO2 from 2016-17 to 2019-20 to limit competitive disadvantage to British businesses. Due to the continued low price of the EU Emissions Trading System (EU ETS), the government is maintaining the cap on CPS rates at £18 t/CO2, uprating this with inflation in 2020 21, in order to continue protecting businesses. The government will set out the long-term direction for CPS rates and the Carbon Price Floor at Autumn Statement, taking into account the full range of factors affecting the energy market.

5.8 Smart and low carbon energy

The government welcomes the National Infrastructure Commission’s energy study ‘Smart Power’ as an opportunity to transform the future of the UK’s electricity sector, saving consumers up to £8 billion a year.153 The government will implement the commission’s recommendations, and will work with Ofgem to remove regulatory and policy barriers, positioning the UK to become a world leader in flexibility and smart technologies, including electricity storage.

The government will allocate at least £50 million for innovation in energy storage, demand-side response and other smart technologies over the next five years to help new technologies and business models access the market. Ofgem will consult later this year on the future of the £100 million Network Innovation Competition to maximise the delivery of genuinely innovative projects and technologies.

The government recognises the important contribution interconnection can make to the future energy mix. There is a strong pipeline of projects in development, and the government supports the market delivery of at least 9 GW of additional interconnection capacity – an 80% increase on previous estimates.

The government is committed to driving down the costs of decarbonisation. Budget 2016 announces that the government will auction Contracts for Difference of up to £730 million this Parliament for up to 4 GigaWatts of offshore wind and other less established renewables, with a first auction of £290 million. Support for offshore wind will be capped initially at £105/MWh (in 2011-12 prices), falling to £85/MWh for projects commissioning by 2026. The government will continue to control costs on consumer bills – further details will be announced in the autumn.

The government also welcomes the publication of the Competition and Market Authority’s (CMA’s) provisional decision on their Energy Market Investigation. The government will act quickly on the CMA’s final recommendations and ensure that bill payers get a fair deal from our energy markets.

At Autumn Statement 2015, the government announced a competition to identify the best value small modular nuclear reactor (SMR) in the UK. This will pave the way to build one of the world’s first SMRs. Budget 2016 announces the launch of the first stage of this competition, which will generate a list of SMR developers that could deliver on the government’s objectives. The government will also publish an SMR delivery roadmap later this year and will allocate at least £30 million for an SMR-enabling advanced manufacturing R&D programme to develop nuclear skills capacity.

The government will be consulting later this year on the priorities and delivery models for the Shale Wealth Fund, and how it can be deployed in local communities and the North as a whole. The Shale Wealth Fund could be worth up to £1 billion over 25 years155 and will provide additional funds over and above industry schemes and other sources of government funding.

This post contains public sector information licensed under the Open Government License v3.0.

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