There are currently four energy-related taxes that affect your business. The Feed-in Tariff, the Renewables Obligation, the Climate Change Agreement and the Carbon Reduction Commitment. Here we explain each scheme, and outline the implications for your business.
Feed-in Tariff
What is it?
The Feed-in-Tariff scheme (FiTs) is an environmental programme introduced by the government to promote widespread uptake of a range of small-scale renewable and low-carbon electricity generation technologies.
How does it work?
The scheme, administered by Ofgem, requires licensed electricity suppliers to pay a generation tariff to small-scale low-carbon generators.
Why is it necessary?
The Feed-in Tariff has opened up low-carbon electricity generation beyond the traditional energy companies by making it more cost effective for consumers to buy the units.
What are the implications for business?
The scheme requires suppliers to offer guaranteed FiT payments to eligible generators.
The level of FiT payments are much higher than the market cost of power, so these payments are a cost that has been imposed on suppliers by Ofgem. The onus has been put on energy suppliers to recoup costs via customer billing. This means you’ll see a FiT charge on your energy bill.
The Department of Energy and Climate Change (DECC) provides suppliers with information which they base their charges on. The current estimate of FIT charges range from 0.146 pence per kWh to 0.17 pence per kWh which are expected to rise in the long-term.
Suppliers in future will estimate the costs on the monthly invoices and reconcile these on a 3-6 month basis when actual information is available.
Renewables obligation
What is it?
The Renewables Obligation (RO) is currently the main financial mechanism by which the Government incentivises the deployment of large-scale renewable electricity generation.
Why is it necessary?
As part of the drive to reduce carbon emissions, all suppliers are required to source an increasing percentage of their energy from green/renewable sources.
How does the RO scheme work?
For every MWh of energy generated from a green source a generator will acquire a Renewable Obligation Certificate. Generators sell their ROCs to suppliers or traders which allows them to receive a premium in addition to the wholesale electricity price.
Is it mandatory?
Yes. The RO places a mandatory requirement on licensed UK electricity suppliers to source a specified and annually increasing proportion of electricity they supply to customers from eligible renewable sources, or pay a penalty.
What are the penalties for non-compliance?
Where they do not present sufficient ROCs, suppliers have to pay a penalty known as the buy-out price. This is set at £40.71 per ROC for 2012/13 (linked to RPI). The money collected by Ofgem in the buy-out fund is recycled on a pro-rata basis to suppliers who presented ROCs. Suppliers that do not present ROCs pay into the buy-out fund at the buy-out price, but do not receive any portion of the recycled fund .
The Climate Change Agreement scheme
What is it?
The CCA allows eligible businesses to claim a rebate of up to 65% on their climate change levy as long as they meet emissions reduction targets. The CCA is not a mandatory scheme but for eligible businesses the cost savings can be significant.
Why is it necessary?
The government says that if all the sectors meet their targets this will reduce emissions of carbon dioxide by 19 million tonnes; reduce primary energy consumption by approximately 100TWh and deliver an estimated saving to participants on the Climate Change Levy of £300 million each year.
How does it work?
Your business can join the scheme through a relevant trade association, if it meets certain criteria. To attain the rebate you will need to prove you have met carbon emission reduction targets.
What are the penalties?
Failure to meet the targets means you will have to buy carbon credits which have risen recently from £2.50 per tonne to £12 per tonne.
The Carbon Reduction Commitment
What is it?
The CRC scheme is a mandatory emissions trading scheme for larger organisations. The aim of the scheme is to encourage companies to reduce their energy consumption and environmental impact.
Is it mandatory?
If your business consumes over 6,000 MWh per annum on half hourly meters (HHM) during you are required to participate in the scheme. However, all organisations consuming via HHMs are required to register and, in some instances, disclose consumption data.
The impact on your business
Qualifying companies must accurately report their energy data for each ‘footprint’ year and buy CO2 allowances to offset their carbon emissions.
