Changes to regulations for levy exemption certificates
27 July 2015 | OVO Energy
At OVO we take the hassle out of your energy choices and manage the complexity of the market for you, so what you see is fully transparent and super simple. But not everything we do as an energy company is up to us - some is also up to the Government, and that means sometimes changes come along which we just have to roll with.
One of these arrived in the Summer 2015 Budget, where Chancellor George Osborne announced that businesses would no longer be able to use Levy Exemption Certificates (LECs) to avoid paying a tax called the Climate Change Levy. If you’re wondering what on earth that has to do with you as an energy customer, we’re going to try to explain…
What is the Climate Change Levy and how do Levy Exemption Certificates work?
The Climate Change Levy (or CCL) started out as a tax paid by businesses on the energy they used, unless this energy came from renewables, in which case they were excused (‘exempt’) from paying the tax. The proof that the electricity was renewable came in the form of Levy Exemption Certificates, or LECs. So business customers paid a bit extra for green electricity by buying LECs along with it. This exempted them from paying the tax, and helped encourage the use of renewables by giving green generators an extra ‘top up’ payment. With us so far?
Because buying LECs is a handy way to prove that renewable electricity has been generated, they are also useful for suppliers like us. OVO offers 33% renewable electricity as standard on our three standard tariffs, and 100% renewable power on our Greener tariff. That means we buy the equivalent number of LECs to match the green electricity we need to meet our 33% and 100% commitments. The extra value LECs attached to green electricity meant it was a bit more expensive, and that ‘top up’ went towards encouraging a greener energy mix for the UK.
So what do the changes in the Budget mean?
In the Budget, it was announced that while LECs can still be used to prove you’ve bought green electricity, from 1st August LECs they would no longer exempt businesses from paying the tax. The details of how this will work are still unclear, and the Government is working on ‘transitional arrangements’ (how we get from today’s position to the new one as smoothly as possible) over the next few months. The immediate result of the surprise announcement, though, was that the price of a LEC dropped dramatically overnight. This means not only that LECs will provide much less support to UK renewables going forward, but also that OVO and other suppliers may now be able to buy them more cheaply than we did in the past.
Whilst this won’t change anything for customers already on our Greener tariff, we’ll be totally honest with you - we aren’t sure yet what this means for ‘Greener’ in future.We’re not sure anybody is. What we are sure about is our commitment to offering one of the best value, most impactful green deals on the market. OVO has always been committed to encouraging a cleaner, healthier, more sustainable energy system in the UK at the best possible price for customers. That isn’t going to change.
What happens now?
There are still lots of unanswered questions around the new system which HMRC, Treasury and the energy regulator, Ofgem, will be working on in the next few months. What will a green tariff need to look like if LECs aren’t as important, or as expensive? Is it all about carbon, or are wider environmental measures now going to play a bigger part? We’ll be actively engaging in the consultation process, watching the market, and working out what real impact and best value will look like for our Greener Tariff in future.
We’ll keep you updated on the important stuff, but as always we’ll try to keep things simple. After all, managing the complexity is our job, making the smarter greener choice is yours!