Member Article

Budget 2017: What energy announcements might be expected?

The Chancellor, Philip Hammond, is set to deliver his first budget today. Michael Hill, Lead Analyst for business energy consultancy Inprova Energy, examines what announcements might be in store for business energy consumers and the wider energy industry?

With the UK’s wholesale energy markets directly influenced by the value of sterling, it is almost certain that any significant change to sterling’s value in the wake of the budget will provide wholesale prices with some direction.

However, the budget could also see some specific announcements relating to the energy industry so here are the two most likely announcements that we think Mr Hammond could make:

The Future of the Carbon Price Floor

Introduced back in 2013, the Carbon Price Floor was designed to top-up European carbon emission prices in an effort to encourage investment in low-carbon electricity generation. The price was capped at a level of £18/tonne CO2 in 2016 and extended recently until 2021, however the future of the Carbon Price Floor beyond this period is uncertain.

The Department for Business, Energy and Industrial Strategy (BEIS) has recently published reference wholesale electricity prices in advance of 2021 for use in upcoming Contracts for Difference (CfD) auctions. The level of these reference prices suggests that BEIS is working on the assumption of a Carbon Price Floor at potentially one third of the current level.

Whether we see an announcement on the future of the Carbon Price Floor tomorrow is uncertain, however, it is an announcement that is eagerly awaited by many generators and with time running out before both CfD and Capacity Market auctions, tomorrow would be as good a time as any for the government to communicate their intentions.

The Future of the Levy Control Framework (LCF)

Another area of the energy industry which has a lot of uncertainty surrounding it is the future of the Levy Control Framework beyond 2021. Designed to control the costs of supporting low-carbon electricity, the LCF sets a budget for levy funded schemes including CfD, Renewables Obligation (RO) and Feed-in-Tariffs (FiT).

As with the Carbon Price Floor, many developers are seeking clarity on the future of the LCF and what level this will be set at beyond 2021. An announcement on the LCF is widely expected tomorrow, following an indication in documents released after the Chancellor’s Autumn statement that the future of the LCF would be laid out in the 2017 Budget.

We could potentially see other energy related announcements made by the Chancellor, however much of tomorrow’s Budget is widely expected to be focused on Brexit. The areas we have highlighted above are the ones we feel are most likely, due to the level of investment decisions reliant on clarity in these areas.

Further information: www.inprovaenergy.com

This was posted in Bdaily's Members' News section by Inprova Energy .