Memorandum submitted by E.ON UK
E.ON UK is the UK's second largest retailer
of electricity and gas, selling to residential and small business
customers as Powergen and to larger industrial and commercial
customers as E.ON Energy. We are also one of the U.K's largest
electricity generators by output and operate Central Networks,
the distribution business covering the East and West Midlands.
We are also a leading developer of renewable plant, including
biomass generation. We welcome the opportunity to comment on the
role of the climate change levy and agreements.
The threat of climate change requires equitable
emission reductions to be achieved across the economy. We believe
that a range of mechanisms are required to deliver this action
in both a sustainable and efficient manner. We concur with government
that the EU ETS must be the flagship scheme for the reduction
of CO2, but recognise that additional policy options must be maintained
and developed to ensure sufficient coverage of those sectors outside
of this scheme. To achieve this, mandatory measures are likely
to be required alongside fiscal incentives such as the CCL as
well as market based approaches such as the EU ETS and the proposed
Carbon Reduction Commitment (CRC). To date the CCL has provided
a useful incentive which has undoubtedly contributed to energy
efficiency improvements from energy intensive industries in the
UK. We continue to believe that the CCL has a role to play as
part of the broad range of measures to assist with the challenge
of climate change and would in particular support the development
of a scheme which;
— Encourages energy efficiency in a
simple and cost effective manner
— Is revenue neutral across industry
as a whole
In general, the UK should be moving towards
a simpler, inclusive and flexible approach to incentivising reduced
carbon emissions which permits exemption from the CCL where carbon
reductions can be achieved in a more efficient manner by alternative
mechanisms. Unnecessary policy overlap must be avoided. We are
pleased to see that such an approach has been adopted to avoid
the potential overlap between emissions covered by CCAs and the
recently proposed CRC and would expect future policy developments
to adopt this pragmatic approach.
INCENTIVISING THE
GROWTH OF
RENEWABLE ELECTRICITY
We do not agree with the suggestion that levy
exemption afforded to renewables has resulted in "little
impact". In fact our experience in the business to business
retail market indicates a positive impact on renewable products.
Historically, renewable products in this market have only been
defined by their CCL exemption. The effect of this demand is likely
to have supported the price of Levy Exemption Certificates (LECs)
which in turn rewards renewable investment. Furthermore, our modelling
suggests that CCL exemption is likely to play an increasingly
important role in the future should the recycled element of the
Renewables Obligation (RO) fall. We therefore believe that, in
the absence of other further measures to support renewable investment,
CCL exemption should continue to contribute to the achievement
of the UK's renewable targets and the EU target of delivering
20% of energy consumption from renewable energy sources by 2020.
THE EFFECT
OF THE
CCL ON CHP SCHEMES
E.ON UK CHP owns and operates the combined heat
and power interests of the Company. We have invested over £480
million in larger scale CHP schemes in the UK and continue to
be a leader in this part of the market. We currently provide our
customers with more than 577MW of electricity and 948 MW of heat.
In common with the perceived impact on the renewable
market we believe that the effect of CCL exemption for CHP has
provided a positive incentive, particularly to encourage full
utilisation of existing plants. However, this benefit has not
been sufficient to facilitate the longer term development of new
CHP capacity.
In terms of Enhanced Capital Allowances (ECAs)
we are of the opinion that these have had a limited impact upon
the development of new CHP installations. As vertically integrated
energy companies who own and operate CHP plants do not receive
the value of this financial benefit. ECAs have the potential to
drive significant investment in energy saving measures. We would
favour a review of eligibility criteria.
Finally we would note that exemption from a
tax such as the climate change levy will only act as a driver
for long term capital investment to the extent that there is certainty
over the longevity of both the tax and the exemption.
28 September 2007
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