REA sets out Hopes for 2013 Budget

Renewables policies only account for 3% of energy bill increases since 2011

The Government has announced that it will accept the great majority of Lord Heseltine’s ‘No Stone Unturned’ recommendations [1], strengthening the welcome theme of growth ahead of this year’s Budget. The REA is keen to see recognition by the Chancellor that renewable energy projects are ‘shovel ready’ and have a lead role to play in driving jobs and growth. Lord Heseltine recommended that Government needs “to set out a definitive and unambiguous energy policy, including the supporting financial regime, to give the sector the certainty to invest.”

REA Chief Executive Gaynor Hartnell said:

“Lord Heseltine understands strong energy investments will underpin successful economic growth – and he sensibly recommended that Government seeks to boost long-term certainty for investors. After conflict with DECC on energy policy, the Chancellor has an important role to play to establish confidence in a more consistent and supportive political landscape. We very much hope to hear positive rhetoric from him on renewables and, even better, some hard measures to boost renewables investment. This would build on his recognition in last year’s Budget speech that renewable energy has a ‘crucial’ role to play.”

A survey of members published yesterday by the REA [2] shows high levels of concern about policy efficacy and about the mixed messages coming from Government. Last year the Chancellor described gas as “cheap” in his Budget and promised to keep an eye on the costs of renewables. However, data from Ofgem shows that renewable energy support has been responsible for only 3% of the overall £250 increase to household energy bill over the past two years. The great majority of the price rises are down to international fossil fuel price volatility [3].

Gaynor Hartnell said:

“The European Energy Commissioner is clear that a low-carbon pathway is more cost-effective than business as usual. In addition, renewables deliver energy security, growth and potentially 400,000 UK jobs by 2020. With more emphasis on growth we expect to see the Chancellor unlocking the prosperity renewable energy investment can foster. Renewables work very well with the Government’s emphasis on regional and local growth. Local, smaller-scale renewables are every bit as critical to modern energy infrastructure as major centralised infrastructure projects.”

The REA is looking out for announcements on the following:

Infrastructure investment
The REA would like to see renewable energy playing a bigger role in the Government’s infrastructure narrative and being prioritised for strategic support, for example as part of the BIS Infrastructure Strategy programme. Policy clarity is vital to delivering renewables infrastructure investment.

Levy Control Framework (LCF)
This sets the amount of potential budget draw for renewable power, carbon capture and storage (CCS) and nuclear. The figure was agreed as part of the Energy Bill settlement, the main share of which will cover support for renewable power through to 2020. It is important that this sum is not diluted by the addition of other support measure to draw from this pot.

Renewable Heat Incentive (RHI) budget to 2020
The REA has been concerned that the budget for renewable heat is only set to 2015, unlike the LCF which extends until 2020. The REA is keen to see a budget consistent with meeting the objective of 12% renewable heat by 2020, to support major expansion in this area.

Carbon Reduction Commitment (CRC)
The controversial CRC, which incentivises commercial sector investment in energy efficiency, has been under consultation. The CRC had dis-incentivised the commercial sector from investing in on-site renewable power and DECC’s response to the consultation on this concluded that this must be rectified. We await Treasury’s decision. The commercial sector has a vital role to play in renewables investment, so this scheme is potentially important.

Business rates freeze and adjustment of renewable energy project business rates
From April, business rates for renewables will be retained by Local Government, potentially creating an incentive for wider acceptance of proposed projects. New renewable energy projects will be valued as at April 2008 assessments with rates increasing with RPI until April 2017. However the REA would warmly welcome a freeze on the RPI price increase.

Furthermore, renewables projects pay higher business rates than fossil fuel plant because valuations of renewable energy projects reflect income from Renewable Obligation Certificates (ROCs). The REA would like to see this policy anomaly addressed, reducing the burden of business rates for renewable energy projects and accelerating the much needed deployment of renewables.

Potential imposition of 20% VAT rate on domestic energy products
HMT is opposing the European Commission’s efforts to increase VAT from 5% to 20% on domestic energy efficiency and microgeneration products such as solar panels. This will impact negatively on the Green Deal and the domestic renewables industry. We would welcome a robust stance from Treasury and hope its intervention is successful.

Marine renewables tax breaks
The REA is keen to see investment in marine energy projects accelerated, particularly as grid issues are creating an investment hurdle. The REA proposes investment in renewables projects in Marine Energy Parks should be treated as an R&D tax credit for five years. We would also welcome tax credits for companies setting up in Marine Energy Parks to encourage the formation of ‘clusters’ of supply chain companies and retain the UK lead in this area.

It has been reported that the Chancellor may give tax relief for oil and gas decommissioning. The marine renewables sector currently has to meet 100% of its decommissioning costs. We will be watching out for decommissioning tax relief to ensure it is fair and properly reflects environmental risks.

Renewable transport incentives
The REA urges the Chancellor to introduce tax incentives to support the development of advanced biofuels, as will be introduced in Germany in 2015.

Zero Carbon Buildings policy
Government has suggested that for buildings to achieve full ‘zero carbon’ status they will have to make use of ‘Allowable Solutions’ (off-site carbon offsetting mechanisms) but it has yet to commit to how this might work and, importantly, Treasury and DCLG need to specify the target carbon price for the abated emissions. The 2016 target date is looming and time is now getting very short to map out and implement the policy, so we urge Treasury to do all it can to expedite this process.

Enhanced capital allowances (ECAs)
The Treasury recently made changes to the rules for ECAs such that they can no longer be claimed if the user receives support through FITs or the RHI. In addition it designated expenditure on solar panels at a higher rate for capital allowances purposes. The REA opposes these measures. There is a case for providing ECAs to electricity storage technologies that can complement the use of on-site renewable electricity. This would bring forward what is likely to become an increasing important way of maximising use of on-site generation, thereby reducing the need for major investment in distribution networks.

Landfill Tax Escalator
The Landfill Tax Escalator is due to end in 2015. The Escalator has been very successful at diverting waste away from landfill. To secure longer term confidence for the treatment of organic wastes the REA would like to see the Escalator extended until 2020.

The Renewable Energy Association represents renewable energy producers and promotes the use of all forms of renewable energy in the UK across power, heat, transport and renewable gas. It is the largest renewable trade association in the UK, with over 1,000 members, ranging from major multinationals to sole traders. For more information, see: www.r-e-a.net

Source: REA

For more information on: REA