LECs talk about LECs – Part II

Article

Posted by on

Summary: Understandably industry bodies representing renewable generators have had plenty to say about the Government’s decision, in last week’s Budget, to abolish the CCL exemption for renewable sourced electricity. But what about the consumers of electricity. How are they affected?

The consumer perspective

Understandably industry bodies representing renewable generators have had plenty to say about the Government’s decision, in last week’s Budget, to abolish the Climate Change Levy (CCL) exemption for renewable sourced electricity.

But what about the consumers of electricity. How are they affected?

CCL is payable by non-domestic enterprises in the following sectors:

  • industrial
  • commercial
  • agricultural
  • public services

For electricity, the main rate of CCL from April 2015 is 0.554 pence per kilowatt hour consumed. CCL is added by suppliers to the consumer’s electricity bill.

Enterprises engaged in certain energy intensive activities are entitled to apply for a Climate Change Agreement with the Environment Agency. In return for reductions in energy usage and CO2 the CCL payable is reduced by up to 90%. These Agreements are unaffected by the 2015 Budget.

For enterprises without a Climate Change Agreement consumers could seek to exempt themselves from CLL if electricity supplied to them was renewable sourced electricity. Levy Exemption Certificates (LECs) evidenced the electricity as renewable sourced.

Purchased at a discount to the CCL charge otherwise payable renewable sourced electricity provided a valuable mitigation to CCL exposure. Suppliers would compete with each other to provide the best deals they could to attract new business and retain existing customers. Renewable sourced electricity offered at a 25% discount to CLL is not unusual.

Once a transitional period applying to the use of renewable source electricity generated prior to 1st August 2015 expires, consumers previously relying on the CCL exemption will no longer be able to do so and will pay the full rate of CCL.

The transitional period is to be determined but when the exemption from CCL for electricity indirectly supplied to consumers from CHP was abolished in 2013, the transitional period for CHP LECs was five years.

Check your supply contract

Consumers should also check their electricity supply contracts. A well-structured supply agreement will provide for the customer to pay CCL except to the extent renewable sourced electricity is supplied, in which case it will pay a price which is equal to CCL less a discount.

If a supply agreement provides for purchase of LECs as a proxy for purchase of renewable sourced generation then that may be problematic. OFGEM guidance suggests that LECS will still be issued post 1st August 2015 for certain supplier activities so provisions that refer to purchase of LECs will still have meaning. But if LECs no longer perform a CCL exemption function then customers are being obliged to purchase, from their perspective, a worthless instrument and will also have to pay full CCL. In these circumstances it is worth checking whether any change in law provisions would come to the consumer’s aid – by requiring the pre change in law risk and reward profile to be maintained post change in law.

However, post expiry of any transitional period, if LECs are still in existence they may be akin to REGOs – no value – and so a continuing obligation to purchase them may not be fatal.

Stay informed

Sign up to receive email alerts from our award winning Expert Insights team

Sign up now

This site uses cookies to help us improve our services and your browsing experience. For further information about cookies, including about how to change your browser settings to no longer accept cookies, please view our privacy policy.