Notice

Excise Notice CCL1/4: electricity from renewable sources

Updated 16 March 2018

This notice was withdrawn on 3 June 2019

This page has been withdrawn because it’s out of date. You can find more information about Climate Change Levy.

Foreword

This notice cancels and replaces Notice CCL1/4 (October 2015). Details of any changes to the previous version can be found in paragraph 1.2 of this notice.

Other notices and forms on this or related subjects

Notices

CCL1 general guide to climate change levy

CCL1/3 Climate change levy: reliefs and special treatments for taxable commodities

Forms

PP11 CCL Supplier Certificate

PP10 CCL Supporting Analysis

1.Introduction

1.1 What is this notice about

This notice explains when supplies of electricity generated from qualifying renewable sources are exempt from the Climate Change Levy (CCL), and the procedures involved in applying the exemption.

1.2 What has changed

This notice, dated April 2016, replaces the edition of October 2015.

Renewable sourced electricity generated on or after 1 August 2015 will no longer be exempt from Climate Change Levy. The exemption still applies for renewable source electricity generated before 1 August 2015 where the relevant conditions are met.

The main changes to the content are in the following parts of the notice:

Paragraph/Section	Content
Paragraph 3.1	How does the exemption work?
Paragraph 3.2	When is a supply of renewable source electricity exempt from CCL?
Paragraph 3.6	I hold renewable LECs. Does this enable me to make exempt supplies?
Paragraph 4.5	How does the ending of the renewables exemption affect balancing and averaging?

Unless otherwise specified, references in this notice to “sections” or “paragraphs” are to the named section or paragraph in this notice.

1.3 Who should read this notice

This notice is for generators of electricity from renewable sources of energy and electricity utilities.

Unless indicated to the contrary where we say ‘you’ or ‘your’ in this notice we mean the electricity generator or electricity utility as appropriate and where we say ‘we’ ‘our’ or ‘us’ we mean HM Revenue and Customs (HMRC).

1.4 What legislation covers the issues in this notice

A full list of extant CCL legislation is set out in Excise Notice CCL1: a general guide to Climate Change Levy.

2.Renewable source electricity

2.1 What is renewable source electricity

Electricity is ‘renewable source electricity’ if it’s generated from sources of energy other than peat, fossil fuel and nuclear fuel. Waste is regarded as a renewable source for the purposes of the exemption provided fossil fuel does not make up 90% or more of its energy content.

Fossil fuel means coal, substances produced directly or indirectly from coal, lignite, natural gas, crude liquid petroleum or petroleum products.

2.2 Sources of energy

For the purposes of the exemption renewable source technologies eligible for exemption include:

• wind energy
• hydro power up to 10 Megawatts
• tidal power
• wave energy
• photovoltaics
• photoconversion
• geothermal hot dry rock
• geothermal aquifers
• municipal and industrial wastes
• landfill gas
• gas produced from the treatment of sewage
• agriculture and forestry wastes
• energy crops

2.3 I have installed renewable generation capacity to produce electricity on-site. Do I need to register to pay CCL?

There is no requirement to account for CCL on self-supplies of renewable source electricity and the removal of the renewable source exemption does not alter that.

2.4 I am an exempt unlicensed electricity supplier making supplies of renewable source electricity to an end customer. Do I need to register to pay CCL on these supplies?

Supplies of renewable source electricity by an exempt unlicensed electricity supplier other than a combined heat and power station are outside the scope of CCL. For direct supplies of electricity from combined heat and power stations see Excise Notice CCL1/3: Climate Change Levy - reliefs and special treatments for taxable commodities.

3.Exemption

3.1 How does the exemption work?

Electricity utilities buy quantities of renewable source electricity from generators over agreed periods of time, and enter into separate agreements with customers to supply them with electricity designated as coming from a renewable source.

The exemption works on the basis that renewable source electricity is acquired by an electricity utility and offered for sale to a business or public sector consumer under the terms of a renewable source contract.

New renewable source contracts can still be entered into after 1 August 2015 for the supply of CCL exempt electricity as long as you’ve sufficient renewable Levy Exemption Certificates for renewable source electricity generated before 1 August to be able to make a renewable source declaration. You may continue to exempt supplies of eligible electricity where generated before 1 August 2015 and supplied before or on 31 March 2018 (transitional period).

The Office of Gas and Electricity Markets (Ofgem) and the Utility Regulator for Northern Ireland (UregNI) certify that renewable source electricity has been produced by an accredited generator. Certification is in the form of renewable Levy Exemption Certificates (renewable LECs) that are issued for each complete megawatt hour (MWh) of renewable electricity produced. UregNI does this for renewable source electricity generated in Northern Ireland and the Republic of Ireland and Ofgem for renewable source electricity generated elsewhere (in Great Britain and Europe).

When renewable source electricity is supplied to a consumer under the terms of a renewable source contract, the supplier should notify Ofgem of the relevant renewable LEC identifier.

Details of the aspects of the exemption overseen by Ofgem and the UregNI, including how renewable electricity generators obtain renewable LECs and how electricity utilities use them, can be found on the Ofgem website and the URegNI website.

3.2 When is a supply of renewable electricity exempt from CCL?

A supply of renewable electricity is exempt from CCL where:

• it was generated on or after 1 April 2001 but before 1 August 2015
• it’s supplied before or on 31 March 2018
• it’s made under a contract that contains a renewable source declaration given by the supplier
• prescribed conditions are fulfilled
• the supplier and generator of any renewable source electricity have notified us in writing that those prescribed conditions can be met (see paragraph 3.5)

3.3 What is a renewable source declaration

A ‘renewable source declaration’ means a statement that in each averaging period (see section 4), the amount of electricity supplied as exempt renewable supplies will not exceed the amount of renewable source electricity acquired or generated.

3.4 What are the prescribed conditions

The prescribed conditions include:

• providing contracts that contain renewable source declarations
• supplying information on a climate change levy accounting document (or an invoice) in respect of renewable source supplies
• producing legible records relating to:
  • the renewable generation process
  • supplies of renewable electricity and the recipients, and
  • any relevant Renewable LEC
• allowing entry into premises for audit purposes, and
• facilitating the monitoring of the use of LECs by Ofgem or NIAUR

Ofgem and NIAUR work with HMRC and play a major role in administrating the CCL exemption on supplies of electricity from renewable sources.

3.5 How and to whom should notification be made

An example of the notification that a supplier and a generator of any renewable source electricity must make, declaring that the prescribed conditions can be met, is as follows:

Supplier notification

Dear Sir

Climate Change Levy (CCL) - Notification Under Finance Act 2000, Schedule 6 paragraph 19(1)(d) - Exemption: electricity from renewable sources

I am writing to notify you that [company name] wishes to supply ‘renewable electricity’ exempt of CCL. I confirm that [company name] agrees to fulfil the conditions in relation to such supplies insofar as they apply.

If you have any queries please contact me at the above address.

Yours faithfully

Generator notification

Dear Sir,

Climate Change Levy (CCL) - Notification under Finance Act 2000, Schedule 6 paragraph 19(1)(d) - Exemption: electricity from renewable sources

I am writing to notify you that I am a generator of renewable source electricity. I confirm that [company name] agrees to fulfil the conditions of the CCL exemption insofar as they apply.

If you have any queries please contact me at the above address.

Yours faithfully

Notification should be made to:

Environmental Taxes Information Centre
HM Revenue & Customs
Warkworth House
BP3201
Benton Park View
Long Benton
Newcastle Upon Tyne
NE98 1ZZ

3.6 I hold Renewable LECs. Does this enable me to make exempt supplies?

Where you acquire electricity from a qualifying source, the renewable LEC should accompany the electricity and be transferred to you. However, the possession of a renewable LEC by itself does not demonstrate that you’ve met the requirements of the legislation.

We generally accept that, where it’s impossible to trace the source of a particular parcel of electricity, the possession of renewable LECs sufficient to cover the quantity of electricity acquired determines that the electricity is from a renewable source. However, where supplies of electricity to the holder of a renewable LEC can be exclusively and demonstratively traced to a non-qualifying source, possession of the renewable LEC will not alter this fact and the electricity can’t be treated as renewable source electricity for the purpose of the balancing and averaging calculation (see section 4).

LECs attached to renewable source electricity generated prior to 1 August 2015 can be redeemed after that date during a period of transition. The transitional period will end on 31 March 2018.

4.Balancing and averaging periods

4.1 What are balancing and averaging periods

Generation of some sources of renewable electricity can be unpredictable, and the amount of renewable electricity acquired does not always exactly match the quantity of electricity supplied as exempt renewable supplies. Because of this, the electricity supplier is permitted to strike a balance by averaging out over an extended period the amount of renewable source electricity acquired or generated against the amount of electricity supplied exempt from CCL under renewable source contracts. Balancing and averaging operates in the following way.

A balancing period lasts 3 months. When a balancing period ends, a new one begins.

Your first balancing and averaging periods both start when you make your first exempt renewable supply.

The maximum length of an averaging period is 2 years, but it’ll end sooner if:

• at the end of a balancing period you’ve a credit to carry forward
• your purchases and sales of electricity from a renewable source are equal

In either case a new averaging period begins.

If you stop making exempt supplies from a renewable source, the end of the balancing period in which your last exempt supply occurred is also the end of the averaging period.

4.2 How does the balancing and averaging calculation work

At the end of each balancing period:

Step	Necessary action
1	Add up the quantity of renewable source electricity you’ve acquired or generated in the period for the purposes of making a CCL exempt supply together with any balancing credit you’ve carried forward.
2	Add up the quantity of electricity supplied as exempt renewable supplies in the period together with any balancing debit carried forward to that period.
3	If the total of (1) exceeds that of (2) then the averaging period within which the balancing period falls, ends. A balancing credit equal to the difference of the 2 totals is carried forward to the next balancing period.
4	If the totals of (1) and (2) are the same then the averaging period within which the balancing period falls ends, and no credit or debit is carried forward.
5	If the total of (2) exceeds that of (1) then a balancing debit is carried forward into the next balancing period.

A debit can be carried forward to the next and subsequent balancing periods until either:

• the averaging period containing those balancing periods reaches its 2-year limit
• you make your last exempt renewable supply

whichever happens first.

You’re then liable to account for an amount equal to the amount that would be payable as CCL on a taxable supply that:

(a) is made at the end of the balancing period, and

(b) is a supply of a quantity of electricity equal to the difference between the 2 totals.

4.3 Sell and buy back arrangements

Where sell and buy back arrangements exist, the utility will be regarded as acquiring renewable source electricity only where all of the following conditions are met:

• an electricity transmission/distribution system exists making the transfer of electricity to and from the renewable generating station physically possible
• a clear audit trail exists, predominately based on metering, invoices and contracts (although where the quantities of electricity supplied in both directions are equal HMRC recognise that, in practice, nothing may move through the meter)
• the arrangement does not have retrospective effect (in this instance it does not seek to change what has already happened in reality)
• the quantities of renewable source electricity supplied don’t exceed the generating station’s export capacity

HMRC does not accept that a renewable generating station exports its electricity to the grid where it has no physical ability to export its electricity at all. Where a renewable station has some export capacity, HMRC accepts it can supply renewable source electricity together with the associated LECs up to the limit of that physical capacity.

However, where supplies of electricity to the holder of a Renewable LEC can be exclusively and demonstratively traced to a non-qualifying source, possession of the Renewable LEC will not alter this fact and the electricity can’t be treated as renewable source electricity for the purpose of the balancing and averaging calculation (see section 4).

4.4 How do I pay to HMRC the CCL I owe

You can find information on CCL returns and payment of tax in Notice CCL1: a general guide to climate change levy.

4.5 How does the ending of the renewables exemption affect balancing and averaging?

The balancing and averaging rules will continue to apply until the end of the transitional period referred to in paragraph 3.6.

During this transitional period you’ll continue to be able to exempt supplies of renewable source electricity made under a renewable source contract as long as you’ve sufficient renewable LECs for renewable source electricity generated before 1 August 2015. LECs will continue to be issued for renewable source electricity generated before this date.

However, LECs will cease to be issued for electricity generated on or after 1 August and no electricity generated on or after this date will count as renewable source electricity for the purposes of balancing and averaging. Therefore, where you’re continuing to exempt supplies under renewable source contracts you entered into prior to the ending of the exemption, this may result in a debit balance in your balancing and averaging account.

If you’ve a debit balance at the end of a balancing period, you’ll be able to carry that balance forward as normal, but if you’ve a debit balance at the end of your averaging period you’ll have to pay CCL on the shortfall (see paragraph 4.1).

5.Customer accounts

5.1 How is the renewable source electricity exemption applied to customer accounts

Some CCL reliefs are dependent on the use to which the customer intends to put the taxable commodity supplied. To facilitate the application of those reliefs the customer should give you a certificate to claim their entitlement to the relief. In certain circumstances a customer will use a VAT certificate to claim the domestic use exclusion (see Notice CCL1/3 Climate change levy: reliefs and special treatments for taxable commodities).

However, in the case of renewable resource electricity it’s the terms of the contract and not the customer’s self-certification that determine entitlement to the relief.

5.2 Should supplier certificates be used

As energy may count only once for any relief from CCL, the customer must exclude electricity from renewable sources from any calculation for relief on form PP11 Supplier Certificate, and from the supporting analysis on form PP10 Supporting Analysis, which are the forms used to claim most CCL reliefs.

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If you have any comments or suggestions to make about this notice, please write to:

HM Revenue and Customs
Environmental Taxes Team
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Ralli Quays
3 Stanley Street
Salford
M60 9LA

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