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Autumn Budget: Inenco response

23rd November 2017

Replacing the Levy Control Framework was a necessary move, as demonstrated by the costly Hinkley Point C project, which will increase business energy bills by 3 to 4 per cent, says Inenco.

Responding to the Autumn Budget, David Oliver, a consultant at energy consultancy Inenco, said:

“In the Autumn Budget, it was announced that the Control for Low Carbon Levies will replace the existing Levy Control Framework. The new control will cover existing and new levies, including Contracts for Difference (CfD), Feed-in-Tariffs (FiT) and the Renewables Obligation (RO). The Government says this reaffirms its existing commitments and provides clarity to industry out to 2025 about future support for low carbon electricity.

“We welcome the move; low carbon subsidies account for around 25 per cent of business energy bills, so clarity is essential for future forecasting – and we believe that tighter controls are necessary.

“The Levy Control Framework was created to provide support for low carbon technology at the lowest cost to consumers, yet deals such as the Hinkley Point C nuclear contract have been agreed outside of the official framework, and will prove costly to consumers and businesses.

“Indeed, a report from the Public Accounts Committee published on November 22 2017 estimates that the Hinkley Point C project will add £10 to £15 to the average household energy bill over the 35-year contract. But, of course, businesses will be hit hard too; Inenco has estimated that the nuclear plant will increase business energy bills by 3 to 4 per cent.

“The new control sets out that there will be no new low carbon electricity levies until the burden of existing costs is falling – suggesting that, on the basis of current forecasts, there will be no new low carbon electricity levies until 2025.

“This implies that levies will continue to rise above inflation until the mid-2020s, and we won’t see a sustained and significant fall in the cost of renewables, in real terms until 2025. However, this probably doesn’t take into account the commissioning of Hinkley Point C shortly after this date, which will be adding £3-4/MWh to electricity costs for the majority of consumers.

“The Government says the new control does not seek to cap or set a budget for low carbon electricity levies, and does not rule out future support for any technology. Existing contracts and commitments will be respected, including the £557 million (in 2011-12 prices) for further CfD that was confirmed in the recent Clean Growth Strategy, existing CfD (including Hinkley Point C), and existing commitments under regulatory schemes such as the RO and FiT.

“As anything outside of this scope will be classed as a new levy, we would ask for confirmation on whether new nuclear power stations (in addition to Hinkley Point C) will be put on hold until 2025 or whether they may be added to the CfD scheme regardless because their commissioning dates would be after 2025?

“We also welcome the Government’s confirmation that it does not plan to raise the total cost of carbon through the Carbon Price Support levy and we are pleased to see growing support for electric vehicles and the network of charging points that must be in place to sustain the new transport revolution.”