Yesterday, the Chancellor delivered the first purely Conservative budget in almost 20 years. Amongst the measures affecting the energy and renewables sector was the announcement that the Climate Change Levy (CCL) exemption for renewable electricity is to be removed.
The removal of the exemption is to take effect from 1 August 2015. The government has stated that there will be a transitional period for suppliers, from 1 August 2015, to claim the CCL exemption on any renewable electricity that was generated before that date. The government plans to discuss the details of the proposed transitional period with stakeholders over the summer and autumn, to determine the appropriate length of the period.
The changes will be implemented in the Finance No.2 Bill 2015 and the Finance Bill 2016.
The reason cited by government for the change is to ensure that support for low carbon generation provides better value for money for UK taxpayers. Its intention is to prevent UK taxpayers subsidising overseas renewable energy generators whose generation does not assist in the UK meeting its climate change and renewable energy targets, and who may receive subsidies in their own country. Renewable electricity has been exempt from the CCL since its introduction in 2001, seeking to stimulate demand for renewable electricity from business consumers and hence support the renewable generation sector.
In the wake of the government's recent announcement of the early closure of the Renewables Obligation for onshore wind, the removal of the exemption will be a further blow to renewable electricity generators for whom the exemption provides significant financial support. There has been much criticism of the announcement in the renewable sector. There are particular concerns around the lack of consultation and the fact that this will affect the bottom line of existing projects, leading to accusations that the government is guilty of moving the goalposts.
The CCL exemption regime operates by UK energy suppliers acquiring renewable source generated electricity and supplying it to their business customers under contracts that contain a renewable source declaration. The evidence of acquiring renewable source energy and its CCL exempt supply to businesses is Levy Exemption Certificates (LECs), which energy generators are able to claim and sell for value to electricity suppliers.
Renewable electricity generators and suppliers should review their existing power purchase agreements to assess how their obligations in relation to the sale and purchase of LECs are affected.
Should you require any assistance on this, or any other issues affecting the renewable sector, please do not hesitate to contact Stuart Urquhart at stuart.urquhart@TLTsolicitors.com or on +44 (0)333 006 0230.
Contributor: Claire Welch
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com