Spending Review

Dale Potts
The October Spending Review revealed commitment to the Feed-In Tariff Scheme, the Renewable Heat Incentive and the Green Investment Bank. The Department of Energy and Climate Change (DECC) was one of the few departments to see its budget grow, confirmation of the coalition government's commitment to the low-carbon agenda.

Green Investment Bank

The Green Investment Bank (GIB) will go ahead, but funding is delayed until 2013/14. The bank will help tackle investment barriers, reducing the risks to investors, and cutting the cost of transition to low carbon technology. Environment experts had called for £6 billion capitalisation, but DECC has pledged only £1 billion which may not be sufficient to leverage extra private sector investment required. Future asset sales are expected to leverage the private sector investment needed to make up the shortfall.

The chancellor's upfront use of the word ‘bank' and not ‘fund' or ‘trust'  raised confidence that it will have the means to be a powerful and effective  independent institution with lending power.

The Green Deal

The bank could prove to be a major vehicle for injecting private sector finance into the Green Deal for energy efficient homes and buildings. The Green Deal is a proposed mechanism for funding energy efficiency upgrades on both domestic (initially) and commercial property.  Sums in excess of  £90 billion are expected to be spent in this area starting  in late 2012, provided the forthcoming Energy Security and Green Economy Bill, stays on programme. The Bill is intended to create more efficient energy usage in existing stock, without the need for up-front finance from the customer.

Green Deal finance will create a new legal mechanism shifting repayments for the costs of energy efficiency measures onto the property (the electricity meter), rather than to an individual property owner. The cost of the initial upgrade is paid back through the energy savings with the repayments managed by the energy company.  An electricity bill for example will have the usual information containing units used etc but in addition there will be a ‘Green deal' sum payable over long period. If a person or a company sells the property then the Green Deal debt transfers as well. When they move, the Green Deal means the new owner makes the repayments, collected through energy bills. There will also be an option to settle the debt as part of the exchange if the vendor wishes to.

Renewable Heat Incentive

The Renewable Heat Incentive (RHI) will be introduced from 2011-12 and will pay developers a subsidy for providing heating on developments from renewable heat sources. The RHI funding through a levy on fossil fuel will now end. Instead it will be funded by £860 million of public money.

Feed-In Tariff

The Feed-In Tariff (FIT) scheme (a grant for installing micro renewables) will be reviewed in 2012, unless higher than expected deployment requires an early review. Economies of scale, rising costs of electricity and taxation from the Carbon Reduction Commitment might bring about ‘grid parity' earlier than expected.  Support for lower value innovation and technology projects will be reduced, saving £70 million a year on average over the spending review period.

Carbon Capture and Storage Technology (CCS)

£1 billion was committed for one carbon capture and storage (CCS) demonstration plant. This funding will not require a levy on electricity supplies. No detail was given on funding for the further three demonstration projects which the government had committed to earlier. It therefore remains unclear whether these funds will come from general public expenditure or a levy on electricity supplies in spring 2011.

Port manufacturing, offshore wind technology innovation and energy efficiency technology for buildings

£200 million was allocated to the development of low carbon technologies including offshore wind technology and manufacturing at port sites. No details were given and we wait to see how this will be carved up.

CRC Energy Efficiency Scheme

The CRC Energy Efficiency Scheme will be simplified to reduce the burden on business, with the first allowance sales for 2011-12 emissions now taking place in 2012 rather than 2011. Instead of CRC revenues being recycled back into a communal pot for redistribution to scheme participants, they will now go into Government funds; this represents an additional energy levy for business.

Faithful+Gould's sustainability and carbon management service provides a diverse range of multi-disciplinary professionals including low carbon consultants, licensed BREEAM, LEED, Code for Sustainable Homes and accredited Energy and Carbon Assessors.