Government cuts back green incentives

The coalition government is scaling back the advantageous regime for those investing in renewable electricity-generating and heating technologies. 

Businesses that installed or planned to install photovoltaic (electricity-generating) solar panels and technology and able to claim back payments for energy fed into the national grid under the feed-in-tariff (FIT) scheme will see a 50% cut in reimbursed payments from today. Businesses must now make do with a lower rate as of 21p kWh, compared to the previous rate of 43p per kWh. The rate applies from 12 December, but systems installed between 12 December and 31 March will get the old tariff level until 1 April 2012. Strangely, the consultation deadline for this measure does not fall until 23 December.

In addition, Finance Bill clauses will remove FIT solar panels from the enhanced capital allowances regime from 1 April. The same restriction will also apply to assets benefiting from relief under the renewable heat initiative (RHI), but both classes of plant will be able to benefit from the Annual Investment Allowance up to its ceiling of £25,000

The latest climate-related announcements appear to be a far cry from the Conservatives "Vote blue, go green" slogan of 2006 and David Cameron’s pledge in 2010 to lead the “greenest government ever”.

In his Autumn Statement Cancellor George Osborne changed the tune. “Our Green Deal will help people insulate their homes and cut their heating bills. But I am worried about the combined impact of the green policies adopted not just in Britain, but also by the European Union, on some of our heavy, energy-intensive industries,” he said.

“We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers. All we will be doing is exporting valuable jobs out of Britain.”

Other draft clauses included:

  • A carbon price floor and an increase in the climate change levy. The government will offer lower carbon price support (CPS) rates for UK-based businesses that supply fossil fuels to electricity-generated stations fitted with carbon capture and storage technology. The government hopes this will encourage additional investment in low-carbon power generation and provide a fair price on carbon for businesses contributing to the reduction of CO2 emissions. New legislation will also require large-scale electricity generators to self-account for these CPS rates, and introduce changes to the basis of taxation for fuels such as coal from weight (per kilogram) to heat (per kilojoule). The government first introduced carbon price support rates at Budget 2011 and will reveal the levy at Budget 2012.
  • Reduced climate change levy electricity rate - Gas and electricity utilities and other energy-intensive businesses with climate change agreements (CCAs) will benefit from a reduced reduced climate change levy (CCL) on electricity of 10%, down from 35% from 1 April 2013, rather than the 20% announced in the March Budget 2011. The government believe this will help reduce the impact of electricity costs when its electricity market reform proposals come into effect. The legislation will also correct an omission in the Finance Act 2010, which amended the reduced rate of CCL from 20 to 35% for all taxable commodities.
  • End to CCL electricity exemption for CHP: As announced in the Budget, the government will bring forward legislation remove the climate change levy given to partly-exempt combined heat and power (CHP) operators and electric utility companies, and to business energy consumers who use power from CHP sources.
  • Climate Change Agreement: The government plans to extend the Climate Change Agreement scheme to 2023 that provides special considerations for energy-intensive industries. The scheme will also be streamlined from 1 April 2013.