Levy Control Framework is ‘not fit for purpose’, says MP

The Levy Control Framework is no longer fit for purpose and will jeopardise the future deployment of renewables in the UK, according to Alan Whitehead MP.

Speaking at a PRASEG & APPGIE seminar on the future of solar in the House of Commons, the Labour MP outlined his concern over the state of the budget set aside under the Levy Control Framework (LCF).

The LCF caps the amount of money from consumers’ bills that is used for energy and climate change policies.

Whitehead said: “I’ve spent a lot of time looking at the issues surrounding the LCF. What I want to offer briefly this morning is a reflection on whether that framework itself is now fit for purpose as far as renewable energy developments as a whole are concerned and particularly where solar PV finds itself.”

Whitehead continued: “It is very clear that solar PV is a substantial success but the framework as it stands does not accommodate this – I don’t think I’m exaggerating too much to say that deployment according to LCF, in principle, looks like it needs to be slower and less successful.”

The Department of Energy and Climate Change (DECC) has said that the proposal to remove renewable obligation (RO) support for solar over 5MW was necessary “to control the costs of large-scale solar PV to ensure it is affordable in the context of the RO and the EMR".

Whitehead compared the state of budgets for the capacity market under EMR to that of the LCF, which is designed to support the deployment of low-carbon, renewable technologies. He said: “The Secretary of State recently announced the final outcome of the arrangements for capacity markets. He is aiming to procure, quite unbelievably, 53GW of gas-fired power stations – either new ones or the continuation of old gas-fired stations – by providing, again I don’t think I’m exaggerating too much, free money simply to be available to provide end power but not actually provide it.

“The fund that is there for deployment of renewables is capped and the fund for non-renewables is not capped, that is, there is not a point at which you have to say, you can’t actually bring anymore gas capacity online because it busts the budget we have for deployment,” added Whitehead.

In addition, Whitehead highlighted that the first tranche of CfD funding which was granted last year has already exhausted a large amount of the available budget under the LCF. The first round of funding was issued without competition and represents 58% of the £28.6 billion CfD budget to the 2020/2021 tax year.

Juliet Davenport, chief executive of Good Energy, agreed with Whitehead stating: “In terms of the LCF, this is an area where we’ve been asked to go into competitive auctions with other technologies but there are some that have been given contracts without competitive auction so essentially part of the budget has been used up already – a point we are concerned about.

“We have, not only the uncertainty of going through the planning process for all your investors in the project, but you also concerns over whether you will ever be able to sell the output from that project because you don’t know if someone will agree to a budget before you get there. That really is the big concern and why the LCF is at the nub of everything. The process that we are going through now is part of it but actually the long-term issue is the LCF and who will be lobbying to get the majority of that – this is the issue now.”

Whitehead explained: “Because the LCF has both a year-by-year rising effect that is capped, and a cumulative effect, you have to keep your eye on what is available for new entrants and what is the accumulation. This is where the problems are really starting to pile up.

“The whole picture that the overall LCF is now, no longer fit for purpose.”

The Labour MP highlighted the National Audit Office’s recent investigation into the first allocation of CfD funding which revealed that every year up to 2015 the forecast exceeds the cap. He said: “After 2015 moving on to 2017 you have the quite astonishing outcome that in 2015-16 it is predicted that there will only be £30 million available under the LCF for all new entrants.”

Whitehead continued: “The introduction of the auction-based CfD means that that effect will get worse – we know it will get worse because government, among other things, capped the carbon floor price so actually the price of energy will have that deducted from it.

“This means that if you are in receipt of a CfD what you will actually get is the difference between the strike price you get and the reference price. If that difference increases, which we know it will do, then more and more money will be taken up in accumulation for the LCF and less and less will be available for new entrants.

“The system simply doesn’t work and will have to be changed if we are to get any sensible deployment of renewables over the next period.”

The Labour MP expressed particular concern over the implications of the LCF cap. He noted: “Because one side of this equation is capped and the other side is not then the choices that will be made from a policy point of view will inevitably start straying from renewables and low-carbon choices towards non low-carbon choices.

“Unless that balance is rectified the choice will be to deploy one over the other – that seems to be a fundamentally retrogressive step as far as what we all want to see which is the emergence of a decarbonised energy sector and the establishment of low-carbon technologies to replace high-carbon ones.

“It seems to me that what solar PV has got itself caught up in now is a larger debate about where we are going as far as low-carbon/renewable energy is concerned. Unless we get that balance right then this will happen repeatedly in a very destabilising way.

“If this is not addressed then all the optimistic predictions about solar’s performance in the UK will be undermined because the policy instrument that was there to encourage it actually turned out to fundamentally discourage it instead.”

Hannah Brown, head of industry and investment at DECC hinted that the industry could expect to see more detail on how much money will be available under the CfD “later this month”.