In a Budget “for the makers, the doers and the savers”, Osborne promised to let manufacturers off paying for the renewable obligation and feed-in tariffs. Existing compensation for energy intensive industries will be extended four years to 2019/20.
Osborne also confirmed a heavily-trailed freeze to the carbon floor price. From 2016, the difference between the UK and European carbon prices will not be allowed to exceed £18 a tonne.
By the Treasury’s assessment, capping the carbon tax will lead to a 3 to 4 per cent increase in electricity generation and change “the optimal mix of fuels”. In other words, it is expected to boost coal power generation.
Taking into account those behavioural impacts, the policy change is set to cost the Exchequer £1.8 billion in lost revenues in the three years from 2016 to 2019.
According to the chancellor, the freeze will save a mid-sized manufacturer almost £50,000 on the annual energy bill and cut the household bill by £15.
There was also an exemption from the carbon price floor for combined heat and power plants of the kind used on industrial sites.
The measures were strongly welcomed by business and manufacturing representatives. However, renewables industry bodies warned the carbon floor price freeze could undermine low carbon investment.
For full reaction, see Utility Week’s live blog.