Your Bill Explained
What is CCL?
Climate Change Levy (CCL) is a UK specific energy tax that is applied to business customers who consume on average more than 33 kWh per day. CCL is not applied if the average consumption falls below this value which is called ‘de minimus’.
For clarity where a customer owns a single site with multiple MPANs, the total “de minimus” consumption is derived from aggregating the consumption for all MPANs on the site. This total is compared against the “de minimus” to determine whether a CCL levy should be applied.
A reduction in the CCL rate may be applied if you have the relevant CCL certificate issued by HMRC - www.hmrc.gov.uk/climate-change-levy
The rate applicable from 1 April 2012 for electricity is 0.509 p/kWh. The levy is subject to VAT.
What is VAT and at what level am I charged?
VAT is charged at either the Standard rate (20%) or at the Reduced rate (5%). Under HMRC rules as of April 2012, reduced VAT applies to charities and businesses that qualify for domestic use.
There is also the concept of Mixed Use VAT, where a business purchases energy some of which is for domestic or charitable purposes. In this instance, the organisation may be entitled to obtain a VAT Certificate from HMRC (www.hmrc.gov.uk) that entitles them to have a proportion (1–100%) of their energy bills qualify for Reduced VAT. The VAT certificate relates to a specific utility type and one or multiple MPANs located at a property. Each certificate has an effective from date and defines the percentage of consumption that qualifies for Reduced VAT.
Where a qualifying business carries out Business and domestic/charitable activities at the same premises, and at least 60 per cent of the activity is certified as “Non–Business” the whole invoice will qualify for Reduced Rate VAT.
The ‘de minimus’ rule can also apply to VAT charges - that is if the average consumption of all the MPANS falls below 33 kWh per day, then Reduced VAT (5%) may be applied. This logic is applied on a bill–by–bill basis and as such, it is possible that a customer over time may observe reduced rate on some bills and standard rate on others, depending on their consumption.
What is the Feed-in-Tariff?
The Feed-in-Tariff scheme (FiT) is a subsidy scheme introduced in 2010 to support small scale, renewable generation in the UK. The scheme is limited to projects under 5MW and works by providing a fixed price for up to X years set by the government to generators for each unit of electricity they generate.
The scheme is organised into FiT years, with payments being made to generators quarterly. Suppliers declare their volume and payments made to generators quarterly, which is then reconciled so all suppliers pay the same equivalent £/MWh cost (called levelisation).
What is the Renewables Obligation (RO)?
The RO is currently the main financial mechanism by which the Government incentivises the deployment of large-scale renewable electricity generation. The RO places a mandatory requirement on licensed UK electricity suppliers to source a specified and annually increasing proportion of electricity they supply to customers from eligible renewable sources or pay a penalty. The scheme is administered by Ofgem who issue Renewables Obligation Certificates (ROCs) to renewable electricity generators for every megawatt hour (MWh) of eligible renewable electricity they generate. Generators sell their ROCs to suppliers or traders which allows them to receive a premium in addition to the wholesale electricity price.