Osborne has announced the Autumn spending review with some controversial changes to energy policies. The DECC’s budget is set to drop 22% over the next four years meaning hundreds of job losses.
“DECC will deliver £220m of resource savings by 2019-20 through efficiencies from pooling back office and corporate services, and reducing the costs of contracts to manage the country’s historic coal and nuclear liabilities.”
He stated he intends to reduce the projected cost of green policies on the average annual household energy bill by net £30 from April 2017 once the current Energy Companies Obligation (ECO) runs out. This new ‘cheaper’ energy supplier obligation will run for five years in a bid to reduce carbon emissions.
The Warm Home Discount scheme will also be extended to 2020-2021. This currently gives certain low-income households a one-off reduction of £140 on their electricity bill.
There’s even an exemption for Energy Intensive Industries from the policy costs of the RO and FiTs, which will add £5 to every customer’s bill but the early closure of the RO and FiTs are expected to save £2 per customer.
All seemingly good news so far but what’s the catch?
Osborne has pulled £132m from energy efficiency schemes and £700m from a scheme backing green heating systems raising concerns over the UK’s now reduced chances of hitting its climate change targets.
Renewable technologies have mostly been ignored and new rules mean that energy generation will be excluded from a series venture capital tax breaks meaning that wind farm operators and solar firms will no longer qualify for venture capital tax relief.
He also withdrew £1 billion funding from the Carbon Capture and Storage Competition leaving UK storage supply seemingly forgotten.
Plus, the new ‘cheaper’ ECO replacement isn’t all it was cracked up to be with a £640m a year budget, which is a huge reduction on the £800m a year currently spent on efficiency upgrades through ECO.
Energy efficiency can bring £8.7 billion of economic benefit to the UK yet this seems to be at the bottom of the priority list with nuclear development set to be the focus. The government will invest at least £250m over the next five years in research, despite public opposition.
They are trying to gain public support for fracking with promises that 10% of shale gas revenues will go into a Shale Wealth Fund for communities hosting shale gas developments.
In response, Greenpeace policy director Doug Parr said:
“The Chancellor’s promise of a wealth fund for fracking flies in the face of what local people want. Given that support for fracking is at an all time low it’s no surprise that the Chancellor is resorting to little more than bribery to convince the British public to support his pet project.”
So what does this mean for business energy prices?
Budget cuts to the DECC mean over 200 job losses, raising concerns over the way the department will be run. With less focus on energy efficiency, the DECC might overspend on levy-funded low carbon generation, driving up the cost of decarbonisation.
With these costs on the rise, we expect to see a direct impact on business energy prices. Combined with the closure of coal-fired power plants and ever-growing demand versus a diminishing supply, rates will climb.
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