The budget for Contract for Difference auctions over the course of this parliament will be “up to” £730 million, chancellor George Osborne announced in today’s budget. That would support up to 4GW of offshore wind and other less established renewables, he said.
The first auction will have a budget of £290 million, according to Treasury documents. Support for offshore wind will be capped initially at £105/MWh (in 2011-12 prices), falling to £85/MWh for projects commissioning by 2026.
But the Treasury also said, “The government will continue to control costs on consumer bills – further details will be announced in the autumn.”
Saying that he accepted the recommendations of the National Infrastructure Commission on energy, Osborne promised to implement them in full. Treasury promised: “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.” He promised £15 million to Cornwall’s wave energy hub, and £30 million for small modular reactor R&D.
Renewable energy generators hit by removal of Levy Exemption Certificates (Lecs) last year had further bad news when Osborne announced a rise in the Climate Change Levy, to come into force by 2018. He promised that Climate Change Agreements, which allow industry sectors to avoid paying CCL, would be re-examined in a review beginning this year, but said the framework would remain in place at least until 2023.
The CCL increase will replace revenue from the Carbon Reduction Commitment, which the chancellor said he would abolish after the 2018/19 compliance year, saying it was too complicated. He said “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,”
The CRC, which started as a levy to be recycled to companies that reduced carbon emissions, quickly lost its ‘revenue neutral’ aspect and became an effective carbon tax.
A freeze in road fuel duty disappointed electric vehicle developers. Plans to raise the threshold for business rates could reduce a burden on some community energy schemes, but Community Energy’s Philip Wolfe said, “The change has the potential to improve the financial viability of a proportion of those community energy projects, which are separately rated. While this is helpful, and will allow some projects to increase the community benefit which they deliver; it is of a lesser order than the recent adverse changes to incentives and tax reliefs, which are now reducing how many new community projects come forward.”
Changes at Ofgem
Treasury documents also revealed plans to ‘streamline’ regulators. E-Serve will be split off from Ofgem. The future of it and other ‘consumer-facing functions’ at the Department of Energy and Climate Change will be announced in the Autumn Statement. The economic regulators are also currently examining the case for sharing back-office functions and relocating.
New legislation will “give Ofgem more power to make sure the system of industry codes supports competition”.