With businesses’ energy bills going up in April, is the Government doing anything to help?
On first reading the headlines regarding DECC’s announcement at the end of March didn’t make for good reading: “UK measures to curb carbon emissions will add 36% to company power bills”.
This is due to a small rise from April 2013 in the Climate Change Levy (CCL) – the ‘green tax’ on carbon-producing energy products – from 0.509p/kWh to 0.524p/kWh for electricity and 0.177p/kWh to 0.182/kWh for gas.
Critics, including some industry lobby groups, suggested that the Government’s efforts to combat climate change were, once again, hitting businesses hard and undermining economic recovery.
Energy Intensive Business
The first point to make is that the ‘shock 36% rise’ is only applicable to the most energy-intensive businesses. More importantly, it doesn’t factor in generous Government compensation.
Additionally, the Government has already provided £250 million compensation and tax relief to these industries in 2011.
Other criticism, for example calling for the abolition of the Carbon Reduction Commitment (CRC), is also somewhat misplaced. For all its complications and limitations, the CRC has provided incentives for many of the largest companies to report their emissions and consequently become more energy efficient.
New simplifications to the scheme should also make it more effective.
There is also concern that certain SMEs could see energy bills increase by up to 22%.
With research suggesting that rising bills have adversely affected 40% of businesses and that a 25% year-on-year price rise would push one in twelve out of business, the Government cannot ignore such concerns.
However, businesses which use less than 12,000 kWh of electricity and 53,000 kWh of gas each year are exempt from the CCL. Furthermore, these low energy consumers only pay 5% VAT and not 20%. Businesses with a hospitality or residential element, for example B&Bs, care homes and campsites, are also exempt.
So the ‘climate change tax’ isn’t necessarily the SME enemy that some might suggest.
Although the Government is asking business to help finance the new energy infrastructure that the UK badly needs, it’s also introduced policies which can help offset these rising bills.
This allows businesses to install approved energy saving technologies, for example heat pumps and LED lighting, with no first-year capital cost. They can then repay the cost in subsequent years using the savings on their energy bills.
Although it has been delayed a number of times (current launch April 2014), new independent analysis suggests that the average project will offer a 16% rate of return – some as much as 20%. This is thanks to increased support recently promised by the Government. Consequently some businesses could repay the cost of a biomass boiler or heat pump in just six years.
This enables businesses to insulate their properties with no upfront cost – the capital cost repaid via savings on the energy bill. Unlike the domestic scheme there is no upper limit, so businesses can refurbish their entire office. There’s been a lot of criticism of the Green Deal but provided the initial assessment is done to a good standard the measures should indeed save businesses money.
Putting PV panels on the roof remains a good business investment, especially as the electricity is generated during the day when the office needs power for computers and air conditioning. A 10kW system can be paid off within 10 years.
There is evidence, therefore, that the Government is not leaving business high and dry when it comes to rising energy prices.
It’s important that businesses realise why prices are going up: primarily because of rising wholesale gas prices, decreasing generation capacity, and the need to build a new, low-carbon energy infrastructure to deal with climate change and provide energy security.
It’s also important that there is an open debate as to why businesses which are heavily reliant on fossil fuels and which lack new energy efficiency technologies are exposed to long-term risk and energy price rises.
Finally, it’s important for SMEs to take advantage of the energy policies currently on offer.