A BBC report on the energy policies since the May 2015 UK election explains the effect on carbon savings and financial implications of the backward steps since the election.
On 8th May 2016 the Campaign Against Climate Change arranged a London Going Backward on Climate Change march.
Clicking the changes below lead to explanations of the main changes that are contrary to UK Carbon savings. This is despite advice from the the Committee on Climate Change (p10) that: “where there are low cost opportunities to reduce emissions, these should be taken, even in early years”. However, the Carbon Brief Feb 2016 report on UK progress shows that the UK “is among the countries currently missing its 2020 target by the widest margin”.
Changes since the Election
- New Homes ‘Zero Carbon’ removed
- Retrofit Homes ‘Green Deal’ closed
- Investment in Solar PV will lose money?
- Investors in renewables will get uncertain returns
- Onshore wind farm returns reduced
- Offshore wind under government control
- Removal of Tax Relief for Community Energy Investors
- Restriction of returns to Community Investors
- Additional support for Fracked Gas
- Additional Support for Nuclear
- High emission vehicles to pay the same tax as low emission vehicles
- Insufficient support for Carbon Capture
- Funding for Innovation Reduced
- VAT on Solar increased from 5% to 20% with no resistance from UK to EU rule
See also ‘The nine green policies killed off by the Tory government‘ published 24th July, but grown since then.
The Government stated in Nov 2015 that “Our most important task is providing a compelling example to the rest of the world of how to cut carbon while controlling costs….Long-term time-tables, regular budgets, independent review. We are committed to meeting the UK’s 2050 target. We are on track for our next two carbon budgets.”
The aim of controlling costs is contradicted by the Good Energy report in Oct 2015 showing “that wind and solar brought down the wholesale cost of electricity by £1.55 billion in 2014…..the net effect on bills of supporting new rooftop solar – under the STA’s £1 plan – is zero. The £100m we need added to consumer bills over three years will be completely offset by the savings from solar lowering the wholesale price.”
The reversal of progress on emission reduction detailed below will slow progress considerably – making it more difficult to meet UK targets that were already considered by the CCC to be at risk.
1. New Homes 'Zero Carbon' removed
New Homes Zero Carbon
Building Regulations are published by the Department of Communities and Local Government as ‘Part L Conservation of Fuel and Power‘, covering new and existing Dwellings and Other Buildings. These state that, from 2019 all new buildings must be ‘zero carbon‘ though developers will be able to pay an ‘allowable solution’ to compensate for not achieving this. This concurs with the requirement of the EU and the EU report on progress to Zero Carbon (p4) In England, it is intended that all new-build homes from 2016 will have net carbon emissions of zero tonnes per year“
The Committee on Climate Change June 2015 report stated at Recommendation 8:
Implement commitments on Zero Carbon Homes for 2016: implement zero carbon standards without further weakening and ensure incentives are in place to encourage low-carbon heat sources (p21)
The CCC 2014 Progress Report to Parliament (p35) described the ‘Zero Carbon Homes’ policies and stated: “No rationale has been provided for the exemption for small developments. It is not clear why the economics of efficiency measures or low-carbon heating should significantly differ from larger developments. Therefore, this proposal should be dropped unless the Government can show clear evidence of its value. More generally, the scope of the Zero Carbon Homes policy has been changed a number of times in recent years. While policy changes can be justified in some circumstances, too frequent change creates uncertainty and can result in badly designed policies, and should therefore be avoided in future.”
However, the July 2015 budget (9.17) included: “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. In April 2016 the House of Lords overthrew this decision and the House of Commons will have to either agree, disagree or propose alternative changes..
2. Retrofit Homes 'Green Deal' closed
Quoting from Carbon Brief “The Green Deal was officially launched in 2013, as a means to cut carbon emissions and save money on energy bills. ….. During its short lifespan, it attracted criticisms of being overly complex, maintaining too high an interest rate and attracting rogue companies posing as authorised providers….. current policies are insufficient [to deliver savings on energy bills]. Therefore, there is a need to strengthen incentives under current policies and introduce new ones in the future.”
Again, according to Carbon Brief“The government now has the task of designing a replacement scheme that will promote energy efficiency that fits with the Conservative ideals on how to tackle climate change ……What has upset the industry is that the Green Deal currently has no replacement, with Parliament now due to go into recess until 7 September.“
However the Green Deal is being closed from July 2015. According to DECC “In light of low take-up and concerns about industry standards there will be no further funding to the Green Deal Finance Company, in a move to protect taxpayers. “
3. Investments in Solar PV will lose money?
(note that electricity from solar emits 54g/CO2 kWh – about one seventh of emissions from Gas generation).
The Government consulted on reducing the ‘Feed-in-Tariffs (FITs) by around 90% (see p16 to compare rates), and will reopen the scheme on 8th Feb 2016 at much lower rates.
An investment on Solar PV panels between Oct 2015 and Jan 2016 of £6,500 would payback after 11 years, and recoup a return of £5,500 over the next 9 years (IRR of 6%). The Government says that the intention is to provide an IRR of 4% under the new rates (over 20 years) but an investment after 8th Feb 2016 at the new FIT rates would only give such returns IF panel prices significantly reduced. Where the user of the generated electricity is different to the investor – particularly for Community Energy schemes it will be very difficult for new schemes to provide a return to investors for their Capital and also reduce electricity costs to encourage people to allow their premises to host panels.
Rationale from the Government is that “As costs continue to fall it becomes easier for parts of the renewables industry to survive without subsidies.”
4. Investors in renewables will get uncertain returns.
Investment Case certainty
Prior to 1st Oct 2015 investors could ‘pre-accredit’ at the current FIT rate whilst planning the purchase of a renewable energy system (whether individual or commercial) to enable financial analysis of the scheme. This will cease from 1st Oct, so investors would take a big risk on their returns.
The Government decision following the consultation “We have decided to remove pre-accreditation (and the tariff guarantee aspect of pre-registration) for all FIT applicants, effective from the date the legislation enters into force”.
The Government is aware of the uncertainty this will cause in the renewable energy industry: “We recognise that this decision will introduce considerable uncertainty in the short term, but consider that it is necessary to safeguard spend under the scheme while we carry out the FIT Review.”
5. Onshore wind farm returns reduced
On-shore wind out of favour
(note electricity from onshore wind emits 8.5g/CO2 kWh – about a fortythird of emissions from Gas generation).
Onshore wind farm returns reduced by closure of the Renewables Obligation scheme across Great Britain from 1 April 2016. In the announcement Secretary of State, Amber Rudd said that “We want to help technologies stand on their own two feet, not encourage a reliance on public subsidies. So we are driving forward our commitment to end new onshore wind subsidies and give local communities the final say over any new windfarms. Onshore wind is an important part of our energy mix and we now have enough subsidised projects in the pipeline to meet our renewable energy commitments”.
- the site is in an area identified as suitable for wind energy as part of a Local or Neighbourhood Plan; and
- following consultation, the planning impacts identified by affected local communities have been fully addressed and therefore has their backing
This second test will ensure the planning concerns of local communities are addressed – even if they give their backing for wind farms in their area through the Local or Neighbourhood Plan.
In effect local people can only support Community onshore wind if they have been through a laborious Local or Neighbourhood Plan process, and this could then be overturned by the DCLG.
6. Offshore wind can be refused by the government
Off-shore wind decisions made by Government
(note electricity from offshore wind emits 5.6g/CO2 kWh – about a sixtysixth of emissions from Gas generation)
The Government has refused permission for Navitus Bay Off Shore wind. “the scale and location of the project would affect important special qualities of the AONB [Areas of Outstanding Natural Beauty] over a widespread area of coastline and that this carried significant weight….”
7. Removal of Tax Relief for Community Energy Investors.
Tax breaks for Community Energy
Previously investors in Community Energy schemes were eligible for Social Enterprise Investment Scheme (SEIS) that effectively boosted the Investment Rate of Return (IRR). This is now being replaced by Social Investment Tax Relief (SITR), but it was unclear whether this was available for any scheme relying on Feed-in-Tariffs.
On 26th Oct 2015 however, as reported by Renews “the UK government has announced that community energy projects will be excluded from the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) from next month.” This was announced by the Financial Secretary to the Treasury (Mr David Gauke) as part of the reading of the Finance Bill.
Allowing tax concessions for investors in renewable energy projects in the same way as for other investments allowed the returns to be sufficiently attractive to make Community Energy projects viable – leading to their success prior to the May 2015 election. Although future projects could not be viable at Jan 2016 FIT rates many projects had pre-accredited at higher rates, allowing them to have viable projects during 2016.
Clarifying that there will be no tax concessions for projects receiving FITs means that no Communities will be able to offer a return until prices of renewables drop considerably in a few years time.
8. Restriction of returns to Community Investors.
Community Investors must be altruistic, not profit seeking
As well as the uncertainty on Tax Relief the Government Financial Conduct Authority (FCA) intends to ensure that returns to Community Energy schemes “must not be more than is necessary to obtain and retain enough capital to run the business” on the grounds that the eligible organisations are not permitted to provide undue returns to members.
The Community Shares organisation is concerned that these are changes to the Community Shares Handbook they had agreed. In particular categorisation of returns to investors, treatment of lack of FCA protection and treatment of non-availability of capital will no longer be considered in assessing undue returns.
9. Additional support for Fracked Gas.
Fracked Gas Favoured
(note electricity from traditional Gas emits 369g/CO2 kWh – about seven times more than emissions from Solar generation)
Under the new planning guidance issued , councils will be strongly encouraged to meet the existing deadline of 16 weeks to approve or reject fracking applications. The Communities’ Secretary (Greg Clark) would “actively consider calling in on a case by case basis shale planning applications”.
Amber Rudd, the Secretary of State for DECC, told MPs in January: that the government would not allow fracking in national parks [and] sites of special scientific interest”. But this position was changed in August 2015 with draft regulations that confirmed that exploration for shale gas will no longer be prevented in SSSIs.
This approach seems to contrast with the decision to reject permission for the Navitus Bay Off Shore wind where the ‘Area of Outstanding Natural Beauty’ ensured that offshore wind capacity would be refused.
10. Additional Support for Nuclear
(note electricity from Nuclear emits 5g/CO2 kWh – about the same as for offshore wind and a sixtysixth of emissions from Gas generation)
The UK has agreed a guarantee of £2bn to the EDF/Chinese Government £24.5bn project, due to open in 2023 at Hinkley Point , “will cost as much as the combined bill for Crossrail, the London 2012 Olympics and the revamped Terminal 2 at Heathrow, calculated Peter Atherton, energy analyst at investment bank Jefferies. If the developers went bust the UK taxpayer would step in and repay investors.“
HSBC’s analysts “pointed out that wholesale power prices have fallen by 16% since November 2011 when the government agreed a Strike Price for Hinkley Point’s output – effectively a guaranteed price of £92.50 per megawatt hour, inflation-linked for 35 years and funded through household bills.”
“If built, Hinkley could generate enough power to provide seven per cent of the UK’s electricity, powering about six million homes.”
“Problems in the construction of the European Pressurised Reactor (EPR) technology at sites in France and Finland – which have seen costs spiral – have made would-be investors wary of Hinkley, Jean-Bernard Levy, the French energy giant’s chief executive said.”
Peter Wynn Kirby- a nuclear and environmental specialist at the University of Oxford lists problems with other sites using the “reactor design chosen for Hinkley C, the French-designed European Pressurised Reactor (EPR), there is not yet a finished power plant to judge by.”
Despite the reservations on technical and cost fronts the UK Government has still decided to guarantee returns to EDF and Chinese Government investors.
11. High emission vehicles to pay the same tax as low emission vehicles
Car Tax the same for high emitters
The June 2015 advice from the Committee on Climate Change included:
(p21) “Recommendation 16. Ensure the tax regime keeps pace with technological change: align existing fiscal levers (e.g. Vehicle Excise Duty) to ongoing improvements in new vehicle CO2 , including a greater differentiation between rates for high and low emission vehicles.”
However, cars registered from April 2017 will now pay £140 Vehicle Excise Duty (road tax) instead of pre April cars that range from up to 100CO2 emissions band paying £0 to the over 255CO2 emissions band paying £505. The £145 starts a year after registration, with first year car tax will range from £10 to £2,000 depending on the emissions (note fully electric cars will still pay no car tax). See full table at Money Expert.
The polluter pays principle, defined by Wikipedia “underpins environmental policy such as an ecotax, which, if enacted by government, deters and essentially reduces greenhouse gas emissions. ” In effect, charging high emitters from vehicles the same as low emitters allows the owners to pollute more but not pay for the damage caused.
12. Insufficient Support for Carbon Capture
Carbon Capture & Storage (CCS) Abandoned
Globally, Carbon Brief reported in Oct 2014 that there were 22 CCS projects worldwide, . At that time the UK had 3 at the planning stage including the White Rose plant in Selby Yorkshire owned by the Capture Power consortium consisting of Alstom, BOC and, until Sept 2015, Drax. The UK support for these was withdrawn in Nov 2016.
There are conflicting views as to whether CCS could have a significant role in avoiding carbon emissions, and whether they could be in place soon enough.
The June 2015 advice from the Committee on Climate Change included: (p21) “Recommendation 3. Set out approach to commercialise CCS through the planned clusters including a strategic approach to transport and storage infrastructure, completing the two proposed projects and contracting for at least two further ‘capture’ projects this Parliament.” And their Fifth budget report includes: “It is important that the low-carbon portfolio includes roll-out in the 2020s of offshore wind and CCS given their long-term importance and the role of UK deployment in driving down costs...”
The Carbon Capture and Storage Association said in Sept 2015 “CCS is also the only technology that can enable many energy intensive industries to decarbonise and so provide them with a long term future in the UK. Currently these industries support around 160,000 jobs directly with many more jobs in the supply chain.” Their letter to the Prime Minister of 25th Jan 2016 included “The Paris Agreement underlined the importance of rapid decarbonisation of energy sources and recognised that greenhouse gas emissions must be balanced by ‘sinks’. CCS will be an essential technology to deliver on this aim and the UK’s CO2 storage potential should provide a clear national advantage and attractor for inward investment.”
As at Feb 2016 one project on-stream is the Boundary dam project in Canada, illustrating the variety of ways that Carbon can be captured and what happens to it subsequently (of the 22 mentioned above 16 that will pump the captured carbon dioxide underground to force more oil out of oil wells). Another potential technology is at Grangemouth that would use Coal ‘Gasification‘ with Carbon Capture.
The White Rose project relied on the Biofuel being exempt from the Climate Change Levy made on fossil fuel sources. But, prior to the complete removal of support for CCS, “the government removed the climate change levy excemption to apply to renewable energy projects, such as the White Rose CCS.” Financial Director reports that “The levy was originally brought in from 2001 in order to encourage producers to increase renewable energy generation and support businesses in shrinking their carbon footprint. Drax estimates the end of the exemption will cost it £30m this year and £60m next year as its originally coal-powered North Yorkshire power station increasingly shifts to biomass.” Drax is taking legal action against the Government regarding the short (24 day) notice of the tax exemption for renewables being removed and blames the UK Government for their decision to abandon the White Rose carbon capture and storage (CCS) scheme, triggering a claim that the government energy strategy is “unravelling”. In particular the extension of the climate change levy to renewables meant that the biofuel used at White Rose (replacing coal) would be subject to the CCL tax.
13. Funding for Innovation Reduced
Green Investment Bank no longer favoured
The UK Green Investment Bank “was created by the UK Government, our sole Shareholder, who have committed to provide us with an initial £3.8bn of capital to invest. We use this to back green projects, on commercial terms, across the UK and mobilise other private sector capital into the UK’s green economy.” Their list of investments is mainly made up of Offshore Wind and notably £990m to Drax for converting to Biofuel.
In June 2015 the Government confirmed that the government will sell a majority stake in the GIB. Business Secretary Sajid Javid said: “The Green Investment Bank has shown that investment in green technologies can be a profitable business. The challenge now is to build on this success.
The bank will still be green, still be profitable, still be a market-leader in financing environmentally sound infrastructure. But free from limitations on where it can borrow money and EU regulations on state aid, the bank will be able to access a much greater volume of capital.”
The Guardian reported on 25th June “..…government’s commitment to low-carbon technology has been called into question as it prepares to raise more than £1bn by selling a majority stake in the Green Investment Bank, the project that was a central promise in the Conservatives’ 2010 manifesto. …… E3G, the thinktank that developed the idea for the bank, said selling a majority stake would cast doubt on the government’s focus on green energy, deterring private investment in low-carbon schemes. It warned that the bank’s green remit could be diluted by greater demands for profits.”
One of the major private lenders to renewable projects Trillion has withdrawn from the Renewable Loan market. “recent changes in government policy have rocked investor confidence and made the landscape for future renewable energy projects very uncertain. As a result we are not going to be offering any new renewable energy loans until we have a clearer view of what projects may be available and general investor appetite.“
Essentially Renewable scheme investments can no longer be viable using State support (even where energy customers pay) – unlike Nuclear and Fracked Gas investments where the State underwrites profitability.
VAT on Solar increased from 5% to 20% with no resistance from UK to EU rule
The EU ruled in June 2012 that VAT on solar (and all other Energy Saving Materials) in the UK should be at standard VAT (20%) instead of 5%. And in Feb 2013 the European Commissioner took the UK to the European Court of Justice for a ruling.
In Nov 2015 the The Spending Review and Autumn statement said (under Indirect Taxes) that “The government will consult on legislation for Finance Bill 2016 to ensure the reduced rate of VAT on energy saving materials is maintained in line with EU law” (that is ceasing the 5% rate for solar PV). HM Revenue & Customs (HMRC) had launched a consultation that ended on 3rd February 2016 and the proposed rules were a complicated selection of criteria to decide which rate was applicable.
According to Energy Live News 17 Conservative MPs have joined Labour in March 2016 to appeal for the removal of this reduced rate to be stopped.
but Greenpeace reported in March 2016 that the Chancellor had announced that “installation of all energy saving materials including solar panels, wind turbines and water turbines will also continue to benefit from the current, reduced rates of VAT.”
The backdrop for the EU position is that the EU commission is consulting on changes to the VAT rules, whereby countries may be able to have more discretion as to which items can be zero rated.