1.1 The government is committed to keeping energy costs as low as possible. The Control for Low Carbon Levies (“the Control”) is an important part of delivering on this commitment. Following extensive stakeholder engagement earlier this year, we concluded that the Levy Control Framework (LCF), the existing framework, needed updating. While the LCF has worked well in the past to curb costs on bills and provide certainty to investors, it is no longer the right vehicle to do this given the bulk of costs now relates to signed contracts.
1.2 Since our Spring Budget announcement to end the LCF, we have been developing our new Control. Along with reaffirming our existing commitments, it provides clarity to industry out to 2025 about future support for low carbon electricity.
1.3 In order to protect consumers, it focuses on controlling the flow of new low carbon electricity levies. The Control sets out that there will be no new low carbon electricity levies until the burden of such costs is falling. On the basis of the current forecast, there will be no new low carbon electricity levies until 2025. It does not seek to cap or set a budget for low carbon electricity levies.
1.4 The Control does not rule out future support for any technology. In addition, all existing contracts and commitments will be respected, including the commitment of up to £557 million (in 2011-12 prices) for further Contracts for Difference (CfD) confirmed in the recent Clean Growth Strategy. The significant cost reductions that were achieved in the last CfD auction indicate that this support could secure far more low carbon electricity than originally anticipated.
1.5 The Control covers all existing and new low carbon electricity levies, including: Contracts for Difference, Feed-in-Tariffs and the Renewables Obligation. The Control will monitor the total cost of these schemes. Until the total burden of these costs is forecast to fall in real terms over a sustained period, the Control will not allow for new low carbon electricity levies to be introduced. Based on the current forecast, set out below, this will rule out new levy spend until 2025.
1.6 The government is continuing to make progress towards our carbon budgets. Commitments made in the government’s Clean Growth Strategy will not be impacted by the new Control. These include:
• existing Contracts for Difference (including Hinkley Point C), and existing commitments under regulatory schemes such as the Renewables Obligation and Feed-in Tariffs
• up to £557 million (in 2011-12 prices) for additional Contracts for Difference
1.7 Anything outside of this scope is classed as a new levy.
1.8 New low carbon electricity levies may be considered if the aggregate of existing levies is forecast to have a sustained and significant fall in real terms. Given the volatility of the forecasts and their sensitivity to changes in wholesale prices, the government would look closely at the drivers and sustainability of any decline before considering possible additional levies.
1.9 Even if this condition is not satisfied, in order to ensure the lowest costs for consumers, new levies may still be considered where they have a net reduction effect on bills and are consistent with the government’s energy strategy.
1.10 Any new levies will be subject to the usual policy scrutiny, consistent with relevant legislation, regulations, and – in line with Treasury guidance – full assessment of value for money, affordability and risks.