Green taxes and levies

The UK Government has made a commitment to de-carbonise generation and identified three key criteria which had to meet: reduce emissions, affordability and security of supply. Over the past few years they have created several mechanisms to help fund the process. Here is a summary of each one:

Renewable obligation (RO)

The main framework for supporting large scale renewable generation – windfarms for example. Whilst the scheme closed to new entrants on 31st March 2017, the financial impact to end users will not reduce for many years due to the number of projects that were signed off before this date.

Capacity market (CM)

Designed to ensure power is available at peak times. In return for capacity payments revenue, participants must either deliver energy or reduce usage at peak times. The aim is to cover investment in new and existing electricity generation.

Contracts for difference (CfD)

Geared to incentivise low carbon generation technology, a strike price is agreed between the Low Carbon Contracts Company (LCCC) and generator. A subsidy is paid to the generator if the price is lower, but the generator pays the LCCC if the strike price is breached. This is the replacement mechanism for RO.

Energy intensive industry (EII)

The government recognised UK industry was at a disadvantage with the increased tax burden of green levies so offered a partial exemption from RO and CfD. Effectively EII exemption is aid paid to large industrial users, so they can remain competitive, with the cost being met by all other non-qualifying users.

Climate change levy (CCL)

A tax on all business users at a rate set by the government in each fiscal year. It is charged on every unit consumed to encourages private and public-sector entities to use energy in a more environmentally friendly and efficient manner.