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The Energy Goalposts Are Shifting Again

Whilst some of the proposals in last week’s Summer Budget will be welcome news to business – a consultation on simplifying business energy efficiency taxes will be music to many ears – others were more concerning. The imminent removal of the Climate Change Levy exemption for renewable electricity has taken both generators and businesses by surprise, leaving questions about the immediate impact but also the long term effects of meddling with long term legislation.

As I wrote in May, the Conservatives entered this parliament with plans to cut subsidies for new onshore wind and balance low carbon energy and affordability. All eyes were on the Chancellor to see what proposals would be announced following figures from the OBR released ahead of the Budget: the pot of money set aside for low carbon subsidies is now predicted to far exceed its £7.6 billion budget by 2020/21, potentially increasing to £9.1 billion as the fall in wholesale costs and increase in renewable projects eats into the Levy Control Framework’s budgets.

Changing the levy exemption for renewable electricity with just three weeks’ notice and a vague transition period is bad news for generators who have factored the revenue stream of £5.54/MWh in the current financial year if not the lifetime of the project. It’s bad news for industrial and commercial businesses and suppliers who may now find themselves in unexpected contract negotiations to determine who picks up the CCL bill. The change is expected to bring in an extra £450m revenue to government in the next financial year, rising to £910m in 2020-21, to give some idea of the scale of impact.

But shifting the goalposts of legislation intended to encourage investment in infrastructure could have the opposite effect. Investors like certainty and a predictable, stable legislative framework. The ease with which Osborne and co have changed the rules is likely to frighten many potential investors away at a time when the UK needs them most.

Let’s not forget that the UK still needs significant investment in new infrastructure to maintain security of supply in the medium to long term, something which still hangs in the balance across all technologies:

In the past month we’ve also seen local councils block planning applications for fracking on the North West coast, putting the spanner in the works for the so-called shale gas revolution.

New nuclear forms an essential part of the government’s future energy strategy, yet there is a big question mark hanging over its timescales. Earlier this month Austria formally lodge an appeal at the European Court of Justice to challenge the Contracts for Difference for the new nuclear build at Hinkley Point, an issue which both EDF and the Government believe will be resolved but it could take years to do so.

Whilst renewables need to be cost effective for all consumers that foot the bill, we do need to strike a balance to make the UK an attractive place to invest. Furthermore, if shale can’t overcome the planning barrier, nuclear is delayed even further, and green investment is put off by changing policies, then what is Plan B for UK energy policy?

Dave Cockshott, Director at Inenco Group