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Summer Budget 2015: Carbon taxes Implications for data centres

Review of Carbon Taxation

There are provisions in the summer budget to review carbon taxation and ensure that the measures applied are cost effective. It is possible that the value of the CRC will come under question (we suspect that the future of the CRC is uncertain) and this might also present an opportunity for UK government to intervene on ETS issues where the cost of compliance outweighs the cost of buying allowances for data centre participants. We will ensure that we are engaged in the policy dialogue, seek your views on any proposals and report back.

Buying green power

The announcement that CCL exemption for renewables is to be withdrawn from August this year is a more immediate issue. We have long held the view (see our notes on green power decisions) that the exemption of renewables under one policy tool (CCL) and not under others (CRC, carbon accounting, etc) is inconsistent. Moreover, buying green power off grid suppliers rather than generating it yourself is not actually driving investment in renewable generation in the UK. This is done through the Renewables Obligation (RO), Feed in Tariffs (FITs) and various replacement schemes that are being reduced under the Electricity Market Reform measures. Moreover, buying green power does not have any impact on energy stewardship, reduce demand or improve efficiency: it is a purchasing decision.

Many data centre operators buy green power because it is required by their customers, or, mindful that they are large energy consumers, they wish to communicate a commitment to the green agenda. We understand this but always advise businesses to prioritise energy efficiency and energy reduction measures, in order to reduce net energy demand.

Implications for data centres

For data centres operating within the CCA (Climate Change Agreement) the change will be minimised. Instead of being exempt from CCL companies will get a 90% reduction on CCL paid on their eligible energy. They will simply need to complete PP10 and PP11 forms.

Data centre operators who buy green power will now have to pay CCL on that power. Those operators who are eligible for the CCA scheme and are not already participants can join the scheme and get a 90% rebate on the levy applied to their electricity and a 65% rebate on other fuels. What we don't yet know are the timescales and the detailed implications for companies in longer term energy contracts.

Further information

For further information please contact emma.fryer@techuk.org If you are already participating in the CCA and just wish to understand the implications of the change for you then please contact techuk@slrconsulting.com

1) The CCL costs about 0.5pence per KWh and to date has been applied to energy derived from fossil fuels. It is sometimes shown as a separate line on energy bills. Renewable power purchased from grid providers is exempt. Energy providers issue levy exemption certificates (LECs) to their customers. Those buying renewable power tend to pay a premium for taking some of the UK's renewable allocation (they don't of course actually receive green energy because they get the same grid mix as everyone else). The result is that companies can often buy green power cost neutrally - for about the same price as "brown" power once the CCL has been added. This change means that companies buying green power will now have to pay a genuine premium (or as some observers have stated, put their money where their mouth is). This may of course have an impact on the degree of premium that energy suppliers can demand and may bring the purchase of green power more closely in line with that of brown. It will be an interesting space to watch.

 

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