Summer Budget: LCF review and more North Sea support expected

The first Conservative-only budget since 1996 is expected to see chancellor George Osborne attempt to tackle the Levy Control Framework (LCF) overspend and provide more support for offshore oil and gas.

In his speech later today, Osborne is expected to announce a review of the LCF as he finds a solution to the £1.5 billion overspend and as Jefferies analyst Peter Atherton told Utility Week, “define the LCF beyond 2020”, providing some longer term clarity for developers.

The government is believed to have blown the budget in supporting renewable energy projects via the LCF by more than £1.5 billion, bringing its committed spend by 2020 to £9 billion, which would add an estimated £170 to consumer bills.

This 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.

Osborne is set to condemn the overspend by the Liberal Democrat led Department of Energy and Climate Change in the last parliament, and look for ways to prevent any further costs from green levies being added to consumer bills.

Any potential of scaling back of the LCF over 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.

Renewable UK deputy chief executive Maf Smith told Utility Week that the chancellor is likely to admit to the LCF overspend, but warned him against making cuts to the scheme or condemning it as a failure. “This is a problem caused by success and the industry doesn’t need to be blamed for doing well,” he said.

Rather than making cuts to the scheme, Smith said Osborne should “acknowledge the overspend and start a debate on how the renewable sector can continue to deliver capacity”.

“Making changes to the LCF would be deeply damaging,” he added.

Cuts to green taxes and levies also could come in the form of rolling back the Climate Change Levy and by confirming the freeze of the Carbon Price Floor, which could in turn allow suppliers to cut their energy bills.

Atherton also stated that Osborne could offer more support to the offshore oil and gas industry, which benefitted from £1.3 billion in tax breaks in the March budget.

He said that the support measures in the summer budget would go beyond tax breaks and offer “more direct support” to an industry which has seen profits tumble over the last year on the back of record low oil prices of less than $50 per barrel in January.