Budget 2017: No new low carbon electricity levies until at least 2025, says UK government

Out-Law News | 27 Nov 2017 | 10:05 am | 1 min. read

No new levies on electricity bills will be introduced to fund low carbon electricity subsidies until at least 2025, the UK government has announced.

Its new control for low carbon levies policy, published alongside the Budget, will restrict the introduction of new subsidies "until the total burden of these costs is forecast to fall in real terms over a sustained period".

New levies may, however, be considered "where they have a net reduction effect on bills and are consistent with the government's energy strategy", according to the document. The wording implies that so-called 'subsidy free' CfDs, under which the guaranteed price for generated low carbon electricity is below the wholesale market price, could still go ahead.

The new policy replaces the previous Levy Control Framework (LCF), which was brought to an end in the 2017 Spring Budget. It will control the extent to which the cost of subsidies such as contracts for difference (CfDs), feed-in tariffs (FiTs) and the Renewables Obligation can be passed on to consumer energy bills.

All previously-announced subsidies will continue to be honoured, including an anticipated £557 million investment in further CfDs by 2020. The next CfD auction is due to take place in spring 2019.

In its Budget document, the government said that it would "continue to support low carbon electricity as it becomes more cost competitive", but that it was also "committed to keeping energy costs as low as possible".

"Therefore, in order to protect consumers, the government will not introduce new low carbon electricity levies until the burden of such costs are falling," it said.

The government intends to maintain the current level of carbon pricing until the use of unabated coal for power generation is phased out in 2025, according to the Budget document. The UK total carbon price is currently around £24 per tonne of CO2, which incorporates the UK carbon price floor of £18 per tonne plus the EU emissions trading system (ETS) cost of around £6 per tonne.