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  • Service: Tax
  • Type: Regulatory update
  • Date: 10/8/2013

United Kingdom 

Taxes and Incentives
United Kingdom Taxes and incentives for renewable energy KPMG Global Energy & Natural Resources.

Support schemes

Investments and other subsidies


Exemptions are in effect from the Climate Change Levy and Emissions Trading Scheme.


Operating subsidies

Renewable obligation scheme


Long-term banded quota mechanism designed to support renewable electricity generation.


Feed-in tariff (small scale generation)


Tariff support payments for small-scale electricity generation from a variety of technologies.


Renewable heat incentive


Long term tariff support payments for renewable heat generation.


Additional information

Electricity market reform: In November 2012, the UK government introduced the Energy Bill, expected to become law in summer 2013, outlining major reforms to the UK market. Key features include the introduction of a two way, feed-in tariff with Contract for Difference (“CfD”) for each low-carbon generation technology. This provision is scheduled to replace the Renewable Obligation Scheme by 2017. The CfD is expected to last for at least 15 years and take effect from 2014/15 onwards.


Renewable Obligation (RO) scheme: This requires electricity suppliers to source a specific percentage of electricity from renewable sources. Renewable generators receive Renewable Obligation Certificates (ROCs) for each MWh of electricity generated, and these ROCs can be traded independently of the electricity generated.


There is a banded ROC mechanism whereby different renewable electricity technologies receive different levels of support according to their technological maturity and levelized costs (see table below). A supplier who does not obtain sufficient ROCs over a year has to make buy out payments at British pound (GBP) 42.02/MWh (2013 to 2014 rate).


The government has confirmed that applications for the RO regime can be made until 2017, thereby extending the scheme until 2037. Renewable generators may not receive a CfD and also participate in the RO regime.


Climate Change Levy (CCL), renewables exemption:


The CCL is a specific energy tax on non-domestic users of electricity in the United Kingdom. Most electricity generated from renewables is exempt from the CCL. Renewable Levy Exemption Certificates (LECs) are issued to renewables generators for each MWh of electricity supplied. LECs transfer along with the electricity and can be used by electricity suppliers to claim the CCL exemption.


The Carbon Price Floor, introduced from 1 April 2013, applies a levy on certain types of fossil fuels used to generate electricity and so provides a disincentive for fossil fuel generators which renewable electricity generators will not be subject to:


  • gas at GBP0.00091/kWh (GBP0.00175 from 1 April 2014)
  • LPG at GBP0.01460/kg (GBP0.02822 from 1 April 2014)
  • Coal at GBP0.44264/GJ (GBP0.85489 from 1 April 2014)

ROC banding regime
Band Technologies Current Banding (2013-2017)
Established 1 Landfill gas 0.25 0.00 - 0.20
Established 2 Sewage gas
Co-firing of regular biomass (std)
Co-firing of regular biomass (enhanced)
0.50 0.50
0.30 (2013-15)/0.50 (2015-16)
Mid-range (50-85%): 0.60
High-range (85-100%): 0.70 (2013-14)/0.90 (2014-17)
Reference Onshore wind
Hydro-electric
Co-firing of energy crops
EfW with CHP
Geopressure
Co-firing of biomass with CHP
Standard gasification and Pyrolysis
1.00 0.90
0.70
1.50 - closed to new accreditation from 1 April 2015
1.00
1.00
1.50 (2013-15) closed to new accreditation from 1 April 2015
2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17)
Post-demonstration Offshore wind (2014-15)
Biomass conversion
Biomass conversion with CHP
Dedicated regular biomass
Co-firing of energy crops (with CHP)
1.50 2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17)
1.00
1.50 (2013-15) closed to new accreditation from 1 April 2015
1.50 (2013-16)/1.40 (2016-17)
2.00 (2013-15) closed to new accreditation from 1 April 2015
Engineering technologies Offshore wind (2013-14)
Wave and tidal stream
Tidal barrage (<1GW) and lagoon (<1GW)
Advanced conversion technologies
Dedicated energy crops
Dedicated biomass with CHP
Solar photovoltaic
Geothermal
Micro-generation
2.00 2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17)
2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17)
2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17)
2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17)
2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17)
2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17)
Subject to further consultation
2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17)
2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17)

Source: Renewables Obligation for the period 2013-17-DECC response to public consultation, July 2012


Feed-in tariffs (small scale generation)


Feed-in tariffs are available for small-scale, low-carbon electricity generated by private/business users (maximum capacity 5 MW) providing payment of up to British pence (p) 21.65/kWh generated (depending on the type and size of the system used to generate renewable energy) plus a guaranteed p4.64/kWh sold to the UK electricity grid. Typically the tariffs last for 20 years.


Renewable Heat Incentive (RHI)


A two phase long-term tariff support for renewable heat generation:


  • Phase 1, which began in December 2011, provides tariff support to help meet the cost of installing renewable heat technologies for organizations in the non domestic sector. Payments of up to p8.9/kWh may be made depending on the technology used. Phase 1 also introduced the RHI Premium payment, which is a GBP15 million fund for households that install renewable heating. In return for the payments, participants will have to provide feedback on how the equipment performs in practice.
  • Phase 2, extending the scheme to tariffs for domestic properties as part of the “Green Deal,” whereby householders may make energy-efficiency improvements to their houses and pay back the cost of these over time through their electricity bill. This incentive is expected to be introduced in spring 2014.

EU Emissions Trading Scheme exemption


Renewable generators are exempted from the requirement to purchase carbon allowances in order to generate electricity, as stipulated by the EU Emissions Trading Scheme.


Other direct tax allowances/incentives potentially relevant to renewables generators


  • From 1 April 2012 capital allowances of 18 percent reducing balance for capital expenditures on plant and machinery (reduced to eight percent if the asset’s useful expected economic life exceeds 25 years).
  • Enhanced capital allowances (a 100 percent First Year Allowance for expenditure incurred on or before 31 March 2013 on specified energy-saving plant and machinery). A 19 percent cash tax credit is available for loss-making companies up to GBP250,000 or the company’s PAYE and NIC liabilities, whichever is less.
  • Contaminated land remediation tax relief on qualifying expenditure, attracting an additional 50 percent tax deduction (or a 16 percent cash tax credit for loss-making businesses).
  • R&D tax relief of an enhanced tax deduction of 130 percent for large companies and 225 percent for SMEs from 1 April 2012 for revenue expenditure on qualifying projects seeking to achieve an advance through the resolution of scientific or technological uncertainty. From 1 April 2013, large companies may instead claim an above-the-line tax credit which gives a taxable payment of 10 percent (7.7 percent after tax) on qualifying revenue expenditure.
  • 100 percent allowance on capital expenditure on R&D in the year of expenditure.
 

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