Latest News: green levies not to be in green levy review!

More I-made-it-up-on-the-way-in energy policy from David Cameron: this time, the commitment in last week’s PMQs to review green levies. This policy seems to have been made following a pincer movement from Tory backbenchers, who blame green levies for all those annoying windmills in their constituencies; the opposition, who are demanding action on energy prices; and some of the energy companies themselves, who claim that an exaggerated share of price rises are due to Renewable Obligation (RO), Contracts for Difference (CfDs) and all the other schemes that can be put under the green levies banner.

Of course what comes under that green-levies heading – the contents of the £112 on bills specified by the PM – is an assortment of different levies with differing effects. CfDs, RO and Feed in Tariffs (FiTs) are true green levies; they levy a payment obligation on energy companies to underwrite support for low carbon technologies. The Energy Company Obligation, meanwhile, covers several schemes supporting greater energy efficiency in homes: retrofitting of insulation in hard-to-treat properties and the reduction of bills for those in fuel poverty through insulation and efficiency measures. Warm Home discount knocks some money off fuel bills for elderly people. And the smart meter levy is slowly starting to put the roll out costs of smart meters onto customers’ bills. The Carbon Floor Price looks like a green levy but doesn’t actually save any carbon in its own right and all the revenue from it goes straight to the Treasury anyway. The EU-ETS does save carbon but is a variable amount based on trading allowances across Europe.

So the above melange is what makes up the £112 and logically therefore, now that a review has been declared, it’s what will be reviewed. And it’s fair to say that there’s not much point in having a review, unless there is a result. To swear solemnly to review all this and then declare that there is nothing to see after all so please move along now, won’t wash.  So something will presumably be reviewed out.

But what, exactly?  The process of running up a short list started, as far as I can see, almost as soon as the PM had left the chamber.  Lib Dems started rumbling about saving green levies (presumably the actual green levies) and Nick Clegg weighed in with a push in the direction these levies should be placed into general taxation (a policy suggested by some of the Big 6).

So within a week, the review has begun to look a little different.  I think DECC, recovering its composure after the surprise announcement, put out some ‘press guidance’ (not a press release, mind) to the effect that Renewable Obligation, CfDs and Feed in Tariffs would not be in the review.  I say I think, because Energy Ministers in the Commons and the Lords said opposite things on the same day, and Ed Davey refused to confirm whether the green levies would be in the review when I directly challenged him about it during the Annual Energy Statement on Thursday.

But I suppose they would be out, not least because it is difficult to see how they can easily be reviewed. Renewable Obligation and FITs are pretty much fully allocated and there might be a number of protracted legal actions if this support was suddenly taken away. In any event, RO will end in 2017 anyway and FiTs are due to be reviewed further and have already just been reviewed.  CfDs don’t exist yet, but some are in the process of being allocated for the future, most notably to that energy company building our new nuclear power station.  That might be difficult to untangle.

So that leaves non-green levies in the green levy review.  The big one, of course is the Carbon Floor Price. Not really a levy, it’s actually more a tax and as such one that goes straight from the power plants to the Treasury. Treasury in fact gets about half a billion pounds a year from it, with the trajectory of the income rising rapidly as the floor price increases. Oh and don’t forget that the Treasury has set out and planned to receive this revenue in the ‘Red Book’.  So I doubt that George would be desperately happy about the loss of several billion pounds of actual and imminent Treasury revenue if the Carbon Floor Price was reviewed out. I also doubt that he’d impressed by the prospect of the further loss of spending power that would occur if green levies were transferred into general taxation.  Of course there is also the marginal issue that EDF (yes the same company that has graciously agreed to scoop up the subsidies to build a new power station) is getting almost a billion pounds a year by selling the output from the existing, ageing nuclear fleet (which is CFP exempt) at the same price as (non CFP exempt) gas. And the loss of this money could further tip the still delicate nuclear ‘deal’ over the edge.

And then there’s the business of underwriting the smart meter roll out, which will, in the fullness of time, be levied through energy companies and charged to the bill payer. This will be about £12 billion. I’m not sure the Chancellor would willingly transfer that liability into general taxation either.

So we’re left with poor, old, non-performing, benighted ECO. It was the scheme that was going to replace warm front and other energy efficiency measures at no cost to the taxpayer and is still, we hope, going to insulate and retrofit all those energy inefficient and draughty homes across the country. And this urgently needs doing if we are to get to any sort of grips with energy efficiency and produce lower carbon emission homes in the future.

That’ll be the one then. Review sorted.  Look out for the demise or downgrading of ECO shortly, as the only prisoner that it’s actually possible to round up and make walk the plank.  And meanwhile the individual responsible for this utter shambles lives to make up another policy on the hoof as soon as he’s cornered again.

The death agony of capitalism and the tasks of the boiler revolution

 

Last week I secured an adjournment debate in the House about ‘the potential for micro-CHP’. Not exactly the hottest of topics I know, and I’m not sure my soaring rhetoric calling for a ‘second boiler revolution’ exactly heated it up.

But, as I pointed out, the last ‘boiler revolution’ was pretty comprehensive as it turned out, and has probably been the single most effective change in domestic energy and emission saving over the last decade. The Government’s Carbon Plan has this to say about the process of changing the building regulations with effect in 2005 so that , by and large replacement boilers (of which there are about 1.5 million per year) should be more efficient condensing boilers. ‘Installation rates’  they say, ‘have increased to over 1.5 million a year [i.e. pretty much all new boilers]….which in turn has saved 4.1 mt of C02 alone. This has led to savings for many householders (approximately £95 off their energy bills for this year) and at least £800 million for the UK as a whole’.

‘The second boiler revolution’ could be just as spectacular, if we moved to a similar regulation mandating the installation of micro CHP boilers, which are now on the market, are reliable, heat your homes, provide hot water and generate about as much electricity per day in the winter as a 2.5 kw Solar PV installation does on a sunny day in the summer. Pretty compatible weather-wise, you might well think, as well. They still have a bit of a cost premium attached to them, but that will mostly be taken up by mass production. So a little support is needed, I suggested, and a little more than the 10.5 p currently allowed for under FITs, up to a pilot limit of 30,000 installations.

I received quite an positive reply from the minister.  He made some encouraging noises on FIT support, but understandably demurred on tackling Eric Pickles to persuade him to draft the changes next time the building regs come up for review.  That would be what we need next, and then you wouldn’t need any FIT  support at all. And Eric could prove us all wrong about his relative green-ness (see very old post on Eric and Sontaran-looky-likey here.)

Solar PV: the blue chinned men with baseball bats have it…

The bizarre behaviour of DECC in presiding over not one but two damaging and unnecessary policy lurches on solar within three months has left many in the industry confused, hurt, let down, out of pocket, sacked in some instances, regretting they ever believed what they heard about solar PV and feed-in tariffs among many others reactions. I think it is the damage to any future investment in renewables based on feed-in tariff type programmes that is the worst long-term casualty of these strange events, over and above the shorter-term meltdown in the solar PV industry, just as the presence of solar in the arsenal of domestic and small scale renewables was really becoming felt.

I’ve been doing my best to support those affected by all this in Parliament over the last week: the speaker agreed to an Urgent Question last Monday on the day of the announcement, which I took part in, I managed to quiz Energy Secretary Chris Huhne about the infamous ‘capping agreement’ that includes FITs on Tuesday last, and I used a rare spot at Prime Minister’s questions to ask that the PM intervenes personally to sort the mess out. I suppose I would have been very surprised if he had agreed to do so, which he did not, of course.

As events unfolded, my conviction that much of this was predicated on Treasury strong-arm tactics on DECC following became stronger. I set out what looked to be the most likely scenario for this extraordinary behaviour in a piece for Building Magazine later in the week (here). In that piece, I asked whether any rational department would really have conducted themselves in this way, and concluded that, once DECC had signed up for the ‘cap’ apparently almost sight unseen as Chris Huhne confirmed to me, then a ‘car crash’ on FITs looked to be almost inevitable. It certainly does look like DECC have had its feet held to the fire on the agreement to cut immediately any expenditure above what has been agreed as the ‘budget’ for FITs this year.

But it didn’t have to be like this, even with the agreement signed – because it appears to say that DECC is responsible for balancing its budget overall in the spending round, and has instead been tipped into pulling the rug from underneath this year’s expenditure, even though a review and alteration of tariff arrangements in April of next year was always on the cards, and had been anticipated and factored in by the PV industry.

And that alternative possibility has been underlined now that the impact assessment for the FITS changes has been released by DECC (pdf).  What it shows, among other things, is that cutting tariffs now rather than degressing them in an orderly fashion saves just 60p per year per household in each year of the spending review, but more importantly, if this had been done, then the additional spend would have brought the overall FIT outlay up to £920 million by 2015, less than 20% above the agreement budget over the period of £867 million: – 20% being the point at which ‘the acceptable headroom’ in the ‘total cap’ would be breached. In other words, as the agreement states, DECC could have adjusted its totals over the period within the overall cap and kept to within the cap ‘budget’ for the period.

But that looks like it wasn’t enough: and we know the rest. It looks like the metaphorical large blue chinned guys with baseball bats have threatened DECC into doing the dirty on Solar PV on their behalf.