Autumn Statement 2016: Power & Utilities | KPMG | UK
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Autumn Statement 2016: Power & Utilities

Autumn Statement 2016: Power & Utilities

Carbon tax retained and support for electric vehicles, but questions remain about the shape of industrial policy and what Brexit means for the energy sector.


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Power & utilities

Carbon Price Floor retained

The Chancellor retained the Carbon Price Floor (CPF), with rates frozen at £18/tonne to 2020/21 (to be uprated in line with inflation). This will come as a relief to renewable and gas investors, some of whom may have feared it being scrapped altogether in an effort to bring energy prices down.

No decisions have yet been made about the trajectory of the CPF post 2020 or indeed whether the CPF will be retained at all. The Autumn Statement simply refers to the Government considering further “the appropriate mechanism for delivering carbon prices in the 2020s”. This is a coded reference to the complex interactions between the future of the CPF and the future of the EU Emissions Trading System (ETS). 

Decisions on LCF in 2020s deferred

Similarly, whereas former Chancellor George Osborne had promised, back in March, to clarify the trajectory for the Levy Control Framework (LCF) in the 2020s, this decision has also been deferred to the Spring 2017 Budget. 

The Government has recently confirmed that £730 million of new spending on Contracts for Difference (CFD) will be available in this Parliament, with the first auction for £290 million starting in April 2017.  

This now appears to be all the guidance industry will get on the LCF in the 2020s, for the time being at least.

Tucked away in an annex of the Office for Budget Responsibility (OBR) documentation, are some figures showing the latest estimates of spend under the LCF to 2021/22. They show a marginal reduction in spend compared to the figures published by the OBR in March. (In 2011/12 prices, the latest forecast is for spending under the LCF in 2020/21 to be around £8.6 billion compared to £8.7 billion in the March 2016 Budget).

Retail market being ‘watched closely’

There was a veiled threat of Government intervention in the retail market, with the Chancellor singling it out as a market they are ‘watching closely’ to ensure it is working for all consumers.  

No doubt this is designed to put pressure on the ‘Big 6’ energy firms as they implement the recommendations of the recent review by the Competition and Markets Authority (CMA).

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