Osborne’s Budget to cut green levies as LCF spirals: reports

UK energy companies could see key environmental taxes rolled back under the Budget this week as reports suggest the Treasury is seeking to cut the financial burden shouldered by energy consumers due to spiralling low carbon support costs.

Utility Week understands that the Conservatives’ u-turn on green tax targets set by the Liberal Democrats in the previous coalition parliament – including the Carbon Price Floor and the Climate Change Levy – has been decided in consultation with energy companies on condition that the suppliers cut their retail tariffs.

Calls for price cuts have mounted in recent months following historic lows on global energy markets and reduced political risk following Labour’s general election defeat. But energy companies in the past have argued that the rising cost of the government’s decarbonisation policies also need to be taken into account.

In further moves to address concern over rising energy tariffs the Sunday Telegraph reports that Treasury will condemn the  ‘overspend’ of low carbon support paid out through consumer bills. Osborne is expected to launch a review into spending levels through the Levy Control Framework (LCF) following growing concerns that they are set to exceed expectations by £1.5 billion by 2020.

Under current targets the LCF will manage funds to be paid out to developers through the contracts for difference regime and is set at £4.3 billion in 2014/15, rising to £7.6 billion in 2020/21 which will be taken from energy consumer bills.

Any cuts to the LCF for the next decade would hit developers of onshore wind projects particularly hard following the subsidy cuts through the older Renewables Obligation scheme announced last month.

Concern that the government may have already overspent its LCF was first raised by Policy Exchange after the May general election. In its report the right-leaning think tank warned that the new government would inherit an empty funding pot because the previous government “significantly underestimated” the cost of its existing policies.

The overspend is due to a combination of lower than expected wholesale energy prices and higher than expected deployment of rooftop solar capacity and onshore wind output, the Telegraph claims.

The newspaper adds that the overblown budget could add an additional £170 to the average annual energy bill by 2020 if no action is taken.