Guest Blog: Dave Cockshott – Budget comes with long lasting price tag

From scrapping the CRC and rebalancing the ratio between power and gas, to investment in energy storage, Osborne’s eighth Budget contained plenty of news for business energy professionals. We now […]

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By Sumit Bose

From scrapping the CRC and rebalancing the ratio between power and gas, to investment in energy storage, Osborne’s eighth Budget contained plenty of news for business energy professionals.

We now know that businesses’ pleas for simplicity have been answered, from April 2019 we will have a single energy tax and a simplified reporting framework.

You can read a full summary of what the Budget contained here – but what will be the impact of Osborne’s announcement on the utility bill?

The decision to scrap the Carbon Reduction Commitment (CRC) was proposed back in the autumn. Its lack of popularity amongst many businesses means Osborne’s decision to abolish it in 2019 came as little surprise.

Yet as a scheme that brings in around £900 million to Treasury each year, its removal in a fiscally-neutral review does mean its cost will be borne elsewhere.

Smearing that £900 million across the Climate Change Levy (CCL) won’t go unnoticed: the CCL pot is roughly £800 million but spread across all businesses, including those not currently in the CRC.

Those industries with Climate Change Agreements (CCAs) will be relieved to see that not only will all CCAs be kept in place until 2023 but they will be protected from the rising CCL cost by an increase in their exemptions, from 90% to 93% on electricity and from 65% to 78% for gas.

The move to increase CCL – a direct tax – means that non-commodity charges are yet again on the rise.

Whilst those currently paying for both the CCL and CRC will benefit from a reduction of £2/MWh in April 2019, those businesses consuming fewer than 6000 MWh, who currently pay around £5.60/MWh in CCL, will see that cost more than double once the changes come into force in April 2019.

inenco Graph 1

 

Combined with the rising costs of all other network charges and environmental levies, from April 2019 some businesses will now face non-commodity charges in excess of £90/MWh – a staggering £30/MWh rise for those not currently in the CRC.

inenco Graph 2

Assuming the cost of power returns to £50/MWh by the end of the decade, that’s a total cost of around £140/MWh.

By delaying the changes to the energy tax regime until the end of CRC Phase 2 in April 2019, the Chancellor has given businesses three years to prepare for the impact on the bill.

To mitigate the rise in direct taxes, energy efficiency has got to be a strategic priority for all businesses. Time of use will reduce network charges and future capacity mechanism costs but the only sure fire way to protect your business against growing costs is an absolute reduction in the amount of energy consumed.

The Budget also promised incentives to support CCL-paying businesses to invest in energy efficiency which could be critical to encouraging more focus on reduction but with costs upwards of £130/MWh acting as the ultimate stick, it will pay to make efficiency a strategic priority whatever carrot is dangled over businesses’ heads.

David Cockshott is Chief Commercial Officer at Inenco.

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