Budget fails to budget for renewable future
The Budget confirmed the the Levy Control Framework is to be scrapped. But settling on a replacement will be tricky in a tense energy market environment, says David Blackman
For the energy sector’s Whitehall watchers, that theory has gained legs following last week’s Budget.
The first disappointment for Labour’s shadow energy minister Alan Whitehead was that chancellor of the exchequer Philip Hammond’s Budget speech didn’t even mention energy.
His disgruntlement was compounded when he downloaded the Red Book, which sets out the details of the Budget statement.
Last November’s autumn statement had contained a pledge the 2017 Budget would set out the government’s plans on the future of the Levy Control Framework (LCF).
However, the LCF, which lays out caps on the subsidies via customers’ utility bills for low-carbon energy technologies, still looks very much like a work in progress. Instead of a new-look framework for subsiding the economy’s decarbonisation, the Budget merely contains a commitment to produce a new set of controls “later this year”. Further details on carbon prices for the 2020s will be set out in the autumn.
Technically speaking, as Whitehead acknowledges, there will be a second Budget in the autumn.
While this technicality may get the government off the hook in terms of honouring its November commitment, it still leaves investors high and dry.
The existing LCF runs out in 2020, which already leaves the promoters and developers of low-carbon generation with little certainty about how schemes will be supported after then.
“We are now two-and-a-half years from a cliff edge as far as the LCF is concerned,” said Whitehead, who points out that renewable projects generally need at least four years’ lead-in time before they can be deployed.
Responding to the Budget, Renewable UK executive director Emma Pinchbeck said: “Projects being thought about today will come on line in the 2020s, after the period covered by the LCF expires. We need to ensure that developers and investors in wind, wave and tidal energy projects have certainty so that projects can be built, economic returns can flow and consumers can benefit from the low cost of renewables.”
Sir Ed Davey, the former energy secretary at the defunct Department of Energy and Climate Change (Decc), says investors are “already spooked and nervous” by the government’s repeated failure to come up with a new framework.
The former Liberal Democrat MP believes the delays are a knock-on consequence of the way that Brexit is consuming ministerial attention, compounded by last summer’s Whitehall reorganisation that led to Decc’s absorption into the new-look Department of Business, Energy and Industrial Strategy (BEIS).
“I suspect that it’s because they [BEIS] haven’t worked out what to do and haven’t squared it with No 10 and No 11 [Downing Street].”
With the government under continuing pressure over power bills, as they would have been reminded about during this week’s emergency House of Commons debate on the topic, ministers face tricky issues about the shape of the new subsidy framework.
These include how to delineate between relatively mature and cheaper technologies, such as solar and onshore wind, and the less tried and trusted alternatives that will require more subsidy.
Davey stresses he is not wedded to every aspect of the existing LCF. But he argues it would be a “big strategic mistake” not to offer support that will enable relatively immature technologies, such as tidal power, to become cost-competitive over what he says are “relatively short” periods in the history of energy policy.
Richard Black, director of the Energy and Climate Intelligence Unit, says much of the Budget for whatever replaces the LCF may have already been allocated by 2020.
“After 2020, we may have bespoke projects for which Contracts for Difference (CfDs) have been agreed, even before there was any cap on spending,” he says, pointing out it is feasible that as well as Hinkley C nuclear power station, deals for at least one tidal lagoon and a further nuclear plant may have been approved.
But it’s not just in relation to low-carbon generation that sclerosis appears to have gripped Whitehall energy policy.
This spring is meant to see the publication of a consumer green paper. Apart from a few lines about curbing shady subscription practices, there was little detail about what the flagship paper will contain.
Whether energy customers should be offered loyalty bonuses is understood to be one of the points of controversy surrounding the green paper. Business and energy secretary Greg Clark is on the record voicing support for the idea, on which stance he is understood to enjoy the backing of prime minister Theresa May. However, the more temperamentally free market Hammond is understood to be less keen, preferring to rely on the development of a competitive market.
He had his run-ins with No 11 when in government, but on this issue Davey reckons the Treasury is right. “No 10 have got themselves in a total mess about retail price regulation of energy by refusing to recognise that we have a pretty competitive retail energy market.”
But with Hammond battered by the row over national insurance contributions, his department will be in a weaker position to argue its case.