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What Happened To Feed in Tariffs?

August 30, 2020
tags: ,

By Paul Homewood

 

 image

https://obr.uk/efo/economic-fiscal-outlook-october-2018/

Twice a  year, the Office for Budget Responsibility (OBR) publish an Economic & Fiscal Outlook Report, which is intended to provide independent and authoritative analysis of the UK’s public finances.

One table lists the cost of Environmental Levies, essentially subsidies handed to low carbon generators and other costs associated, which are added to energy bills. The logic is that such costs imposed on consumers as a direct result of government policy is akin to tax and spend.

These costs are in theory limited by Levy Control Framework regulations, as DECC explained in 2013:

image

https://www.gov.uk/government/news/new-energy-infrastructure-investment-to-fuel-recovery

 

Up until March 2019, as the chart at the top shows, Environmental Levies quite properly included Feed in Tariffs (FITs), which are the subsidies handed out to small renewable generators.

It was therefore a surprise to find that FITs had been omitted from this year’s OBR report:

 image

 https://obr.uk/efo/economic-and-fiscal-outlook-march-2020/

 

After several attempts to get an explanation from OBR, one reader got his MP onto the job, and received this gobbledegook in reply:

 

We apologise for the delayed response to his original e-mail. This had been sent to a mailbox that was used for feedback to discussion papers and wasn’t monitored regularly. We have now put processes in place to ensure that e-mails to this mailbox won’t be missed. Any further queries should be directed to the obr.enquiries@obr.uk mailbox.
We explained why we dropped feed-in tariffs from the public finances numbers in our Restated March 2019 forecast (paragraphs 1:20 and 1.21)
https://obr.uk/docs/dlm_uploads/Restated_March_2019_forecast.pdfhttps://obr.uk/docs/dlm_uploads/Restated_March_2019_forecast.pdf
1.20 Our March forecast included several environmental levies that in the real world add to customers’ energy bills. The ONS has decided that some of these schemes, such as the renewables obligation, should be treated as an imputed tax that pays for imputed spending of an equal amount. This treatment derives from the fact that the charges would not exist without the policy that established them, so in statistical terms they are treated as equivalent to a normal tax and spending policy. But the ONS has not reached a classification decision for all the schemes. Two – the warm home discount and feed-in tariffs – were included in the Treasury’s March 2010 forecast and in all our forecasts subsequently. We were content to anticipate the ONS classifying them in this way because they were similar to other environmental levies already included in the ONS data – such as the renewables obligation.
1.21 In its May 2019 Looking ahead article on future classification plans, the ONS indicated that decisions regarding ‘rearranged transactions’ like these will only be taken over the long term – beyond three years from now. It also noted that “Guidance in the area of rearranged transactions continues to evolve and elements that can be applied to energy schemes resembling tax and expenditure are still limited.” Since these schemes are neutral for borrowing, but drive a wedge between our forecast for receipts and spending growth and the ONS outturns that our forecasts are monitored against, we have decided to stop anticipating their future classification in the public finances.
Effectively our forecast for the public finances is based on the methodology and classification decisions from the Office for National Statistics. Despite this change, feed-in tariffs will continue to add to energy bills and provide subsidies for those with solar panels eligible for the scheme.
Apologies again for the delayed response.
Jon
Jon Riley : Team Leader, Receipts and Fiscal Forecast : Office for Budget Responsibility : Level 14T, 102 Petty France, London : Telephone 0203 334 6209

 

In simple terms, the ONS/OBR had decided on a whim that FITs should no longer be included, even though they admit that feed-in tariffs will continue to add to energy bills and provide subsidies for those with solar panels eligible for the scheme.

What is also interesting though is that the pot of £7.6bn (at 2012 prices) has already been exceeded, with costs this year projected at £9.6bn plus FITs of about £1.6bn. Even allowing for inflation, the LCF pot would only be around £9bn.

I am not aware that the LCF has been legally increased, which I understand would need to be approved by Parliament. I am asking BEIS about this. One wonder though whether the exclusion of FITs might allow the government to cheat.

17 Comments
  1. August 30, 2020 1:23 pm

    Gobbledegook is polite. Read that email twice and still have no idea what he’s talking about so thanks for the translation Paul. If that’s the best the OBR can do it explains a lot. Despair.

    • Ben Vorlich permalink
      August 30, 2020 1:45 pm

      Deliberate obfuscation by use of techno b o l l o c k s.

  2. JimW permalink
    August 30, 2020 1:37 pm

    The ONS used to be a body that you could rely on to their best with data. No longer. The numbers around covid-19 have been messaged and strangled to death. Their response to years of wrangling over RPI changes is now to ignore everyone else and reduce it to CPIH.
    Its quite a long time since we knew vaguely what was really happening to the economy, now the rest of government statistics has entered ‘alice’s world’.

  3. Ariane permalink
    August 30, 2020 3:03 pm

    For quite a while now, our gas and electricity bills have not been showing the percentage of our bill that used to be ‘environmental obligations.’

  4. Mad Mike permalink
    August 30, 2020 7:34 pm

    Regardless of these Humphrey inspired slights of hand, the question they can’t get away from is ” If the costs of renewables are coming down, and there is much shouting that they are, and renewables are contributing more and more to our electricity supply, why are my electricity bills rising year on year?”

  5. Harry Passfield permalink
    August 30, 2020 7:37 pm

    ‘…..might allow the government to cheat.’ Bears?Woods?

  6. Phillip Bratby permalink
    August 30, 2020 8:54 pm

    By coincidence, I am currently writing an article about the two consultations the government is carrying out on ‘planning for the Future’ and ‘Changes to the current Planning System’. I wrote “In common with all such consultation documents, they are written in a typical language only understood by bureaucrats. To the layman they are mostly gobbledygook”.

    Everything produced by the Whitehall civil servants seems to be written in the language which should officially be called gobbledygook. There must be special training for all new civil service entrants.

  7. john cooknell permalink
    August 30, 2020 10:01 pm

    if a private institution tried this it would be classified as false accounting.

    I am waiting for the Gobbleygook that explains the “smart meters” debacle.

    • dave permalink
      August 31, 2020 9:07 am

      The “Whitehall gobbledygook” actually has a meaning, but it merely raises the spectre of a well-known problem with National Income Accounting; namely, whether ANY government spending should be included in it.

      Free market transactions can be valued, on the basis that they represent a voluntary acknowledgement – by somebody – that something of value has been made and consumed.
      Because of “consumers’ surplus” it is actually conservative to use the market price. But that is another question.

      However, if government makes something and forces you to accept it, or adopt it as your own, where is the guarantee that it is worth anything? Indeed, it might actually be positively noxious and ruinous.

      The practical approach taken is that any government spending is “worth” at least what it costs. If a teacher is paid thirty thousand pounds to talk to conscripted children in a government school, it is assumed that thirty thousand pounds worth of education is produced and consumed by the children. (Actually, added to their human capital rather than immediately consumed).

      The pleasant assumption really is that government can do no wrong!

      In the case of the feed-in tariffs, the assumption is that – somehow – the environment of the country has been immediately improved. It must have been, because government would never force people to do anything that was not good for them! Though the consumer thinks he is losing something while being effectively taxed, the rulers decree that he is suffering from a stubborn delusion; for he is not woke enough to notice that the tax was immediately spent on something he would like to have, and he has really received an immediate benefit.

      • Ariane permalink
        August 31, 2020 11:17 am

        Ah, dave, but we are all saving the planet as per the dictates of the CCC enforced by the Climate Change Act 2008 (and in Scotland, 2009.)

      • Ariane permalink
        August 31, 2020 11:19 am

        And the recent Zero Carbon by 2050 legislation. Just carrying out the legislation…

      • Joe Public permalink
        August 31, 2020 1:06 pm

        @Dave:

        “In the case of the feed-in tariffs, the assumption is that – somehow – the environment of the country has been immediately improved.”

        £1.6billion of FiTs omitted from this year’s figures, yet £9.6billion of ROCs, CfDs & Capacity market costs admitted.

        The lack of consistency is showing three of the costs and not mentioning a major one which appeared in previous year’s figures which is inexcusable.

      • dave permalink
        September 1, 2020 9:37 am

        Ariane:

        I know that “they” do look at in terms of saving the planet. Logically, therefore, these sorts of expenses might be classified under Foreign Aid. However, the public thinks there is too much of this sort of waste, already, and so that presentation is out.

        Joe Public:

        Of course it is inexcusable. But somebody ordered, “Hide more of the green cost!”

        A realist version of the National Accounts would have a huge Expenditure Item called, “Money Down The Drain. These four costs would only be a small part of it.

        I think that many Conservative politicians, with their Oxford PPEs and the like, still have a secret feeling that Britain should “punch above its weight,” be “world class,” “set an example.” And that it is the job of the plebs to pay for this.

      • Ariane permalink
        September 1, 2020 10:12 am

        As long as the various bits of ‘climate legislation’ remain on the statute books and the well-fed fanatics at the Climate Change Committee continue to churn out their Carbon Budgets and ‘advice’ to our well-fed politicians, the plebs (who continue to lack any kind of leadership on this energy policy issue) will continue to be walked over, exploited and ‘kept in their place’ – as has usually been the case in Britain.

  8. Tim Hammond permalink
    August 31, 2020 8:31 am

    “Despite this change, feed-in tariffs will continue to add to energy bills and provide subsidies for those with solar panels eligible for the scheme.”

    That’s all that matters. Higher bills for more most, cash from the state for a few.

  9. James Broadhurst permalink
    August 31, 2020 10:32 am

    As Ed Davey was in charge of DECC in 2013, he would surely be delighted to take the LCF question further?

  10. It doesn't add up... permalink
    August 31, 2020 9:55 pm

    I can’t help feeling those CFD estimates are on the low side too. For 2020/21 they are assuming an average market reference price of £53.24/MWh in line with some BEIS assumptions (see panel 2).

    https://www.lowcarboncontracts.uk/dashboards/cfd/forecast-dashboards/forecast-dashboard

    Baseload (i.e. Drax) has been running at about £40/MWh, while Intermittent struggled to keep above £20/MWh in Q2 on a generation weighted basis. So instead of payouts averaging £90/MWh, they may be looking at £115/MWh.

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