Written statement to Parliament

Levy Control Framework cost controls

Written Ministerial Statement to the Lords on the Levy Control Framework.

My Right Honourable Friend the Secretary of State for Energy and Climate Change is today announcing a package of reforms to take control of the costs of renewable electricity subsidies under the Levy Control Framework (LCF). This is part of the Government’s commitment to control energy bills for hard-working British families and businesses as we continue to move to a low carbon economy and make progress toward our carbon reduction and renewable energy targets.

The Department of Energy and Climate Change’s latest forecasts under the Levy Control Framework to 2020/21, confirmed in the Office of Budgetary Responsibility’s (OBR) report ‘Economic and Fiscal Outlook – July 2015’* , have shown that forecast spend on renewable energy subsidy schemes is set to be higher than expected when the schemes under the LCF were established. The Government has set a limit of £7.6bn in 2020-2021 (in 2011/12 prices), so the current forecast is £1.5bn above that limit. This is due to accelerated developments in technological efficiency, higher than expected uptake of demand-led schemes and changes in wholesale prices. This means that the forecast of future spend under the LCF is now estimated at around £11.4bn (in nominal prices) or £9.1bn (in 2011/12 prices) in 2020/21. The Government is determined to bring these costs under control to protect consumers and provide a basis for investment in clean electricity in future.

It is important therefore to control spending under the demand-led schemes in order to deliver renewable electricity at competitive prices. As part of this the Government has recently announced its intention to end new subsidies for onshore wind and to close the Renewables Obligation to new onshore wind in Great Britain from 1 April 2016. Today the Government is announcing further measures to control costs under the demand-led schemes managed under the LCF.

These measures indicate our move away from demand-led schemes while providing appropriate protection for existing investments.

Changes to grandfathering provisions for biomass co-firing and conversion plant under the Renewables Obligation (RO)

Following consultation and a careful review of the evidence and opinions, the Government’s assessment is that unless grandfathering is withdrawn as proposed in the consultation there is strong likelihood that additional biomass conversion units not previously accounted for in RO budgets would convert under the RO. This could result in a potential additional cost of around £500m per annum in 2020/21 (2011/12 prices).

The Government is therefore taking action to ensure that the support rate under the RO for future biomass co-firing and conversion projects in England and Wales will no longer be covered by grandfathering**. Exceptions will be provided to protect those who have already made significant financial commitments.

Further detail can be found at https://www.gov.uk/government/consultations/changes-to-grandfathering-policy-with-respect-to-future-biomass-co-firing-and-conversion-projects-in-the-renewables-obligation

Consulting on controlling spending on support for solar PV electricity generating stations of 5MW and below within the RO

DECC’s latest analysis indicates that solar PV deployment under the RO is likely to be significantly greater than previously anticipated. Evidence has also grown that the costs to developers associated with the deployment of solar PV have dropped significantly in the last few years. This suggests that some solar projects are receiving more support under the RO than is necessary for them to deploy. As part of wider action to control costs, the Government is therefore proposing to take action to further constrain the costs of solar PV under the RO.

The RO scheme will be closing to all technologies at the end of March 2017. However, in view of the evidence above the Government proposes to close the RO early to new solar projects of 5MW and below from 1 April 2016, providing grace periods to protect developers that have preliminary accreditation, those who have made a significant financial investment*** as of the date of the publication of the consultation and those affected by grid delays outside of their control.

In addition, to avoid potential overcompensation of further solar deployment before the early closure, the Government proposes to remove grandfathering for solar PV projects that are not accredited under the RO as of the date of this consultation, with an exception for developers that have made a significant financial investment as of the date of the publication of the consultation. Subject to the proposed consultation, the Government also intends to publish proposed bandings for new solar PV projects of 5MW and below for consultation. Further detail can be found at https://www.gov.uk/government/consultations/Changes-to-financial-support-for-solar-PV.

Consulting on changes to the preliminary accreditation rules under the Feed-in Tariff (FIT) scheme, followed by a wider review of the scheme to drive significant further savings

The FIT scheme was introduced in April 2010 to support sub-5MW solar, onshore wind, anaerobic digestion and hydro projects. Pre-accreditation was introduced in order to allow installations above 50kw to lock in their tariff level. Now that the sector has demonstrated its ability to deploy at scale, the Government believes that it is appropriate to look to transfer that risk back to industry. This could reduce future LCF spending pressure and reduce, but not eliminate, the risk of increases in deployment triggered by any future tariff degressions.

Further detail can be found at https://www.gov.uk/government/consultations/Changes-to-Feed-in-Tariff-accreditation.

The Government will also consult on further cost control measures as part of the wider FITs Review later in the summer.

LCF budget post-2020

The Government remains committed to renewal of our ageing energy infrastructure, maintaining a secure energy supply, and meeting our environmental commitments as cost-effectively as possible. The announcements that the Government is making today provide the basis for a more sustainable approach to future low-carbon electricity investment.

The Government will therefore set out totals for the Levy Control Framework beyond 2020, providing a basis for electricity investment into the next decade, and in the autumn the Government will set out its plans in respect of the next CFD allocation round.

Reference notes

*Table 4.5 Current Receipts on page 98 sets out the cost of Environmental Levies and can be found at http://cdn.budgetresponsibility.independent.gov.uk/July-2015-EFO-234224.pdf. Table 2.7 Environmental Levies providing the breakdown of spend on the RO, FIT and CFD can be found at http://budgetresponsibility.org.uk/economic-fiscal-outlook-supplementary-fiscal-tables-july-2015/ Figures are nominal.

**Grandfathering is a policy that once a generating station is accredited and receiving RO support at a certain level, the level would not change for the lifetime of its support under that scheme.

***To demonstrate a significant financial investment it is proposed that developers will have to provide evidence of a planning application, a grid connection agreement and land rights.