Investor confidence in the UK energy sector Contents

Annex: Glossary

2020 renewable electricity commitment: the UK is bound by the EU’s 2009 Renewable Energy Directive to deliver 15% of final energy consumption—across electricity, heat and transport—from renewable sources by 2020. The Government proposes to achieve this with a sub-target of 30% for renewable electricity.

Capacity Market: An annual auction designed to achieve security of electricity supply, in which generators bid for a steady stream of ‘capacity payments’ in return for their commitment to remain operational for a set future period (either one or four years in advance).

Carbon Budgets: Legally-binding limits on carbon dioxide emissions over five-year periods, set by the Government under the Climate Change Act 2008 with advice from the Committee on Climate Change (CCC). The fifth carbon budget, covering the period 2028–32, will be set in 2016.

Carbon Capture and Storage (CCS): A way of ‘decarbonising’ fossil-fuel power generation by capturing carbon dioxide emitted from high-producing sources, transporting it and storing it in secure geological formations deep underground.

Carbon Price Floor: The EU Emissions Trading System (ETS) requires businesses to purchase permits for every unit of greenhouse gases they emit, effectively making them pay to pollute. The UK’s Carbon Price Floor sets a minimum price for such permits: where this is higher than the market price of ETS permits, businesses must pay the difference to HM Treasury.

Climate Change Act 2008: An Act of Parliament requiring the UK to reduce its carbon emissions by 80% of their 1990 levels by 2050, with interim targets set in the form of Carbon Budgets.

Climate Change Levy (CCL): A tax on business energy use. Levy Exemption Certificates (LECs) exempted some businesses, such as renewable generators. LECs for renewable energy were removed from 1 August 2015.

Committee on Climate Change (CCC): An independent, statutory body established under the Climate Change Act 2008 to advise the UK Government and Devolved Administrations on emissions targets, and report to Parliament on progress made in reducing emissions and preparing for climate change.

Contracts-for-Difference (CfDs): Contracts designed to support low-carbon electricity generators by effectively fixing the price they receive per unit of electricity. A ‘strike price’ is set for generators who are paid the difference between this and the wholesale price of electricity (where the latter is lower) for every unit generated. If the strike price is lower than the wholesale price, the generator has to repay the difference.

Economic Impact Assessment: An Impact Assessment which focuses on the macroeconomic effects of a policy, such as those on economic growth and employment.

Feed-in Tariffs (FiTs): A subsidy for small-scale renewables, such as household solar photovoltaic (PV) panels and wind turbines. Participants receive a ‘generation tariff’ for each unit of electricity generated, even those used by the household, and an ‘export tariff’ for selling surplus units to suppliers.

Grandfathering: Protection of those affected by a policy from future changes to that policy. Feed-in Tariffs (FiTs) and the Renewables Obligation (RO) guarantee that the generators they support will continue to receive the full amount of that support over its lifetime, regardless of future policy changes.

Impact Assessment: The Government’s quantitative cost-benefit analysis of a policy’s effects.

Infrastructure and Projects Authority: Part of the Cabinet Office and HM Treasury established in January 2016 to provide expertise in infrastructure and the financing, delivery and assurance of major projects.

Lead time: The period between a project’s initiation and completion.

Levy Control Framework: A system to control and cap levy-funded spending currently covering Contracts for Difference (CfDs), Feed-in Tariffs (FiTs) and the Renewables Obligation (RO).

Levy Exemption Certificate (LEC): An exemption from the Climate Change Levy (CCL) for renewable generators. This was removed from 1 August 2015.

Office for Budget Responsibility (OBR): The UK’s official independent fiscal watchdog, created in 2010.

Renewables Obligation (RO): An obligation on electricity suppliers to achieve a set minimum level of generation from renewable sources.

Reset” speech: The Secretary of State, Amber Rudd’s, speech on a new direction for UK energy policy, 18 November 2015.

© Parliamentary copyright 2015

Prepared 1 March 2016