UK government to end climate change levy exemption

Less than 3 weeks since the Department of Energy & Climate Change (DECC) confirmed the Renewables Obligation (RO) will close a year earlier than previously planned and the Department for Communities and Local Government (DCLG) announced the intention to ‘give local people the final say’ over onshore wind farm planning applications – significant blows to the UK wind industry – the Chancellor of the Exchequer George Osborne has in his Summer Budget on 8 July advised the Climate Change Levy (CCL) exemption will be removed later this year.

The CCL was introduced in 2001 as a tax on energy delivered to non-domestic users, although renewable generators benefit from an exemption; however this is to be scrapped from 1 August 2015.

The Chancellor announced in the budget review: “Now we have a long term framework for investment in renewable energy in place, we will remove the out-dated Climate Change Levy exemption for renewable electricity that has seen taxpayer money benefitting electricity generation abroad.”

Cited as a move to correct an imbalance in the tax system by helping ensure support for low carbon generation provides better value for money for UK taxpayers, HM Revenue and Customs claim no action against the exemption could cost the UK £3.9 billion over the current parliamentary period.

Darren Edwards, a Partner at leading renewable energy consultants Fisher German, said “George Osborne’s announcement in today’s Summer Budget that the CCL will end from 1 August 2015 is another nail in the coffin for the UK renewable energy industry and will come at a cost to both planned and existing projects. For generators claiming Levy Exemption Certificates (LECs), they are benefiting to the value of approximately 0.5 pence per unit (kilowatt hour) of electricity exported which may seem inconsequential, but it can amount to a significant amount of income that is critical for some schemes. To put this into context, it could cost a farmer with a single 500kW in the region of £8,000 - £10,000 per year going forward, which for a Feed-in Tariff scheme could be £160,000 - £200,000 over its generating lifetime.”

Mark Newton, Head of Fisher German’s renewable energy sector adds “The retrospective removal of LECs represents just over 6% of an onshore wind projects revenue and this is another example of the Government moving the goalposts for the UKs renewable energy sector. This could make existing marginal projects produce losses, and this is an unfair attack on the UKs renewable sector, it does not give current and future investors’ confidence. This market desperately needs stability and a financially viable future”.

There will be a transitional period for suppliers from 1 August to claim the CCL exemption on any renewable electricity that is generated before that date. Final details for this transitional period remain unclear and will be discussed with industry stakeholders over the summer and autumn to determine an appropriate length for it.