Is the Treasury trying to sabotage UK green energy?


Shortly after winning the election, the new Conservative government moved swiftly to begin implementation of some of their most controversial policies. Alongside all the social and economic announcements – regarding welfare benefits for example, a whole host of policy decisions have been announced that are arguably hostile to the sector.

The industry has seen this coming for a while, but that still didn’t reduce the level of shock when Energy Secretary Amber Rudd opened the government’s broadside by announcing the closure of the Renewable Obligation (RO) – the main subsidy vehicle for onshore wind – a year early.

Then it was the turn of the Chancellor, George Osborne. His opening volley was delivered in the form of a proposal to partly privatise the Green Investment Bank by selling off 70 percent of its shares. There followed a brief period of quiet before the Chancellor’s main assault, delivered in the form of the Chancellor’s Summer Budget announcement, including two major attacks on the industry in the space of just one week. These consisted of the proposal to remove the Climate Change Levy (CCL) exemption for renewable electricity, and secondly, delivered swiftly after, the plan to scrap the UK’s zero carbon homes target.

The CCL was established in 2001 with the aim of boosting investment for renewables in the UK and encouraging the installation of green energy. Thus far, it has provided a subsidy payment of over £5 for every unit of renewable energy generated. The removal of the exemption for renewable energy businesses will take effect from August 1st, allowing a transitional period. The finer details are yet to be decided in consultation with the industry but a likely figure will be a levy of 0.559 pence per kilowatt hour on electricity from April 2016.

In removing the exemption, Osborne essentially turned a policy designed to incentivise the take-up of renewable energy into a ‘tax’ on renewable energy. In the eyes of many in the industry and among the green-thinking members of the British public, this is a stupendously ludicrous move. Indeed, a campaigner employed by Friends of the Earth described it as being akin to “making apple juice pay an alcohol tax”.

Within the industry itself, there was a swift and obvious financial effect. The value of shares in Drax, the coal-burning plant in Yorkshire which has recently begun to convert its operations to biomass, fell by more than 25 percent. Shares in the landfill gas and onshore wind company Infinis fell by 8 percent.

Drax is still assessing the full potential impact of the decision but its initial estimate is a reduction in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of around £30 million (US $47 million) in 2015 and £60 million (US $94 million) in 2016, lessening thereafter.

The industry has moved swiftly to condemn what has been described as a ‘punitive attack’ on renewable energy. Drax CEO Dorothy Thompson said that the company is “surprised and disappointed” at the “retrospective change to a support regime which has been in place since 2001 specifically to encourage green energy and support renewable investment”. Trade association RenewableUK said that the removal of the exemption would cut the revenues of onshore wind farms by 6 percent.

“The Chancellor’s announcement that renewable electricity will no longer be exempt from the Climate Change Levy is a punitive measure for the clean energy sector” said RenewableUK Director of Policy, Dr Gordon Edge. “Until now, Levy Exemption Certificates (LECs) generated as a result of the CCL have provided vital financial support for renewable energy producers. We’re suddenly looking at a substantial amount of lost income for clean energy companies which was totally unexpected. For example, Levy Exemption Certificates account for just over 6 percent on onshore wind generators’ revenues.”

Dr Edge added that the government has already announced an end to future financial support for onshore wind – even though it’s the most cost-effective form of clean energy the UK has. Now it is imposing retrospective cuts on projects already up and running across the entire clean energy sector.

Who’s really running the government? And what’s their agenda?

The second of Osborne’s major bombshells was inserted into a wider set of measures called the Productivity Plan, the aim of which, supposedly, was to lower the cost of house building and therefore stimulate construction of new houses.

“The government does not intend to proceed with the zero carbon Allowable Solutions carbon offsetting scheme, or the proposed 2016 increase in on-site energy efficiency standards, but will keep energy efficiency standards under review, recognising that existing measures to increase energy efficiency of new buildings should be allowed time to become established” the policy document states.

In effect, this scraps the government’s commitment to ensuring that all new houses in 2016 are zero carbon. The announcement drew criticism not only from the renewable energy sector but also from the building industry which reacted with uproar, including organisations such as the UK Green Building Council (GBC), the Town & Country Planning Assocation (TCPA) and the British Property Federation.

The chief executive of the UK Green Building Council, Julie Hirigoyen, was quick to condemn the decision, stating that the move was “short-sighted, unnecessary, retrograde and damaging to the housebuilding industry, which has invested heavily in delivering energy-efficient homes”. She added that there can be no justification for “building homes with a permanent legacy of high energy bills” and that the announcement sounded the “death knell for zero-carbon homes”.

The former UK Energy and Climate Change Secretary, Ed Davey, slammed the cancellation of the target by stating that the Prime Minister, David Cameron, “may well as hug a coal power station”.

There are some within the industry who believe the exemption may actually be a good thing in the long term. David Casale, director of the merchant bank Turquoise, said that although the removal of a subsidy is never going to be “met with open arms”, the clean energy industry does need to be weaned off the subsidy fix so that it can earn the approval of consumers as it moves forward. In order to secure their support, Mr Casale argued, the industry must be prepared to meet the necessary costs by itself. This in turn means getting rid of a number of hidden subsidy schemes, of which the CCL is one.

Mr Casale isn’t the only industry figure who believes the withdrawal of the CCL exemption may have some hidden benefits. Renewable Energy Foundation Director John Constable said that the net impact on consumers will be zero, in the sense that they won’t see a change either way. Mr Constable also thinks renewable energy subsidies are too high.

However, despite Mr Casale’s optimism, the bigger picture is distinctly worrying, including as it does, the spectre of the Chancellor taking money away from renewable energy with one hand and dishing it out to oil and gas with the other, primarily in the form of increased support for North Sea oil and a sovereign wealth fund for communities hosting shale gas operations as well as support for two road building schemes in the North of England. Fortunately, the Chancellor has left the Levy Control Framework (LCF) alone, with no sign of any proposal to review it as yet, despite recent reports of an LCF overspend.

Nevertheless, the early closure of the RO in 2016, along with Osborne’s CCL exemption, has already claimed its first casualty. One of the UK’s premier wind turbine manufacturers, Mabey Bridge Renewables, announced last week that it’s going to sell up when it finds a buyer for the business. The company chairman, Juliette Stacey, blamed the decision on the increased level of uncertainty caused by the government’s latest policy announcements.

Other policy measures relating to the green economy have drawn a mixed reaction. Electric vehicles will remain tax-free. Presumably this is in response to the UK’s woeful record so far on carbon emissions from the transport sector, in which Britain is falling behind its European neighbours with regard to meeting its targets. However, the government also maintains that it is still keen to support EVs and develop Britain’s technological expertise in EV development.

Furthermore, the Chancellor has hit premium vehicles registered after April 2017 with an additional £310 per year in Vehicle Excise Duty (VED), although after the first year this will be based on the vehicle’s price rather than on its emissions. In part, this money will be directed into a new road maintenance fund which includes money for filling in potholes, an increasingly serious problem in the UK. Some, such as Friends of the Earth, argue that this money will merely be used to promote the government’s new road-building ambitions.

However, Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders, said that while it is pleasing to see zero-emission cars remaining exempt from VED, the new regime will still act to disincentivise the take-up of low emission vehicles. Mr Hawes explained that new technologies, such as plug-in hybrids, “will not benefit from long-term VED incentive threatening the ability of the UK and the UK automotive sector to meet ever stricter CO2 targets.”

Osborne has also followed through with his more predictable policies, such as increased support for North Oil and Gas and a new ‘sovereign wealth fund’ for communities living near locations earmarked for shale gas extraction (‘fracking’).

There is ample justification for believing that the government has retreated significantly from the position it took in 2009-10, presenting itself as Britain’s “greenest government ever”, to its more traditional role as an enemy of those pushing for realistic environmental protection measures, including action on climate change and renewable energy. Indeed, in March 2014 energy expert Dan Lewis of thinktank Future Energy Strategies went so far as to state that many investors are now starting to consider the UK energy sector as ‘uninvestable’. Two years earlier, the Chancellor described ‘the green lobby’ as “the environmental Taliban”.

Greenpeace responded to this slur by listing ten ways in which, even then, Osborne had tried to damage the green economy. This included his famous support for a ‘dash for gas’, watering down old climate change targets and opposing new ones, cuts to wind energy budgets, stripping the UK Green Investment Bank of its powers to borrow and lend, a turn on airport expansion, top jobs for Conservative MPs opposed to wind farms, cosy relationships with fossil fuel lobbyists, tax breaks for polluting industries and a massive expansion of road building programmes.

Osborne says that the government still intends to promote investment for low carbon technologies, presumably he means nuclear with a bit of clever wording, and that it would be pushing for a deal at the Paris Summit in December.

There are some within the government, including Amber Rudd, despite her policy on the RO, who retain a convincing commitment to green energy and action on climate change. However, they are in the minority, and the Treasury, increasingly, has most of the power. Even more worrying is the talk going on suggesting that at some point Osborne may succeed Cameron as PM.

If that happens, we can expect to see much more of this sort of thing over forthcoming years.

About Robin Whitlock
I am an experienced freelance journalist with a wide and varied portfolio to my credit including web content, magazine articles, reporting, features, interviews, reviews and blogs. My special interests include environmental issues, particularly climate change, renewable energy, transport, green building and sustainable infrastructure. I have numerous secondary interests ranging from politics and current affairs to social justice, science, technology and innovation, historical topics and lifestyle subjects such as literature, psychology, contemporary spirituality and culture.

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