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14 | 7Th - 13Th FEbrUarY 2014 | UTILITY WEEK Policy & Regulation Market view What next for the carbon tax? The carbon floor price is under pressure but a U-turn would hurt investor confidence. Megan Darby asks: is it time for plan B? W hen ministers and officials were haggling with energy companies to find £50 of "green levy" cuts in the autumn, they found out just how hard it could be. A reshaping of the Energy Company Obligation (Eco) energy efficiency scheme, a rebate for the Warm Home Discount and a claiming of credit for network cost cuts barely got them over the line. Despite their efforts, there is still bickering about whether those on fixed tariffs will and should benefit. They missed what many see as the easi- est target: the carbon floor price. A tax that drives up costs for UK industry compared with its European rivals, it has been under attack since its inception. The "polluter pays" principle is fair enough in theory, but when energy-intensive industries and hard- pressed consumers squeal in unison, it is dif- ficult for politicians to ignore. There is an obvious reason for the Treas- ury to back the measure: it brings in money for the Exchequer. In combination with the funds from allowances sold through the EU Emissions Trading System (EU ETS), it could bring in £63 billion over the next 15 years. This year alone, EU ETS revenues total about £1 billion and the UK top-up £500 million. Latest reports suggest the Treasury is heading for a compromise: to freeze the car- bon floor price from 2016. An announcement is not expected until the Budget speech in March, but a Treasury statement did little to quash the rumour: "Establishing a mini- mum carbon price sends an early and cred- ible signal to help drive billions of pounds of investment in low-carbon electricity genera- tion. However, ensuring UK industry remains globally competitive is a priority and govern- ment acknowledges that rising energy costs is a key issue for many businesses. This is particularly true given the lower-than- expected European carbon price." The problem is, any change confirms what those trying to develop low carbon technol- ogy have said all along: a tax is an unreliable basis for investment because the chancellor can alter it at whim. Paul Thompson, head of policy at the Renewable Energy Associa- tion, says: "The logic of a carbon floor price is to give long-term stability to investors that there is a cost to carbon. So something that involves this kind of haggling and uncer- tainty rather undermines that point." A U-turn could be harmful, warns Renew- able UK director of policy, Gordon Edge. Sup- port levels for renewables have been set on the assumption that the wholesale electricity price will be boosted by the carbon tax. If that is taken away, the sector materially loses out. Plus, it will have "a significant impact on people's confidence in the whole policy agenda", he says. Energy suppliers are divided. EDF Energy, whose nuclear fleet benefits from the whole- sale price boost, backs it. Tony Cocker, chief executive of Eon, has long called for it to be scrapped. Keith Anderson of Scottish Power agrees, estimating the move would shave £33 off a typical dual fuel bill in 2015/16. Campaign group Energy Bill Revolution is pushing an alternative that could make the tax more acceptable to consumers. Supported by Eon, Npower and SSE, as well as various charities and more than 200 MPs, it calls for carbon revenues to be invested in energy efficiency measures. Spokesman Ed Matthew says: "The priority should be making this a proper green tax and using the revenue to help us all reduce our energy use." Consumer Futures agrees. Audrey Gal- lacher, the watchdog's director of energy, says: "Although the introduction of the floor price might have increased the chance of the UK meeting its carbon targets, we believe it has reduced the chance that fuel poverty tar- gets will be met. If the measure is to remain in place, Consumer Futures has consist- ently called for the revenue it collects to be returned to consumers." It would not please everyone. A spending pledge could be hard to pull off in a climate of austerity. It would not answer industry's complaints. However, it could make up for a drop in insulation rates since Cert and Cesp energy efficiency schemes were replaced by Eco and the Green Deal last year. What's more, it would allow the government to outflank Labour on the cost of living debate while keeping investors happy. Trouble in store There is no obvious route to commercialisation of electricity storage in the UK, says Megan Darby. Picture the scene: offices and factories are quiet, parks are packed and Xboxes sit silent while children find more wholesome out- door pursuits. It is the Sunday of an August Bank Holiday weekend and the sun is shin- ing. Solar panels on every roof are pump- ing out electrons like there's no tomorrow. Nuclear power stations are chuntering along. A breeze stirs in the windfarms. Not everyone can kick back with a glass of rosé. In National Grid's control room, some poor soul is tearing his hair out. There is too much power on the system. He constrains some wind turbines. National Grid has to pay them to switch off, which is not ideal but needs must. It's not enough, so where next? As Philip Lawton, 2020 operations man- ager at National Grid, explains: "The danger is we end up in a position where we cannot regulate downwards – there is no way for us of turning them off." He is talking at an Electricity Storage Network (ESN) conference in London. Many in the room think they have the answer. Electricity storage – be it pumped hydro, battery or liquid air – can absorb such sur- pluses and feed them back into the system when needed. Storage can help meet peak demand, bust through grid bottlenecks and provide flexibility in a system increasingly dominated by nuclear and renewables. The ESN reckons the UK needs 2GW of storage by 2020, but there are significant obstacles. Capital costs are hey, the supply chain is fragmented and the market doesn't value all of storage's fine qualities. Policy-wise, storage has rather fallen through the cracks. Some money is available for innovation trials, but there is no obvious route to commercialisation. The Department of Energy and Climate Change (Decc) has no dedicated electricity storage specialist. Ofgem is backing some storage projects from the Low Carbon Networks Fund, such as a 6MW battery at a UK Power Networks substation in Leighton Buzzard. These aim to help distribution network operators defer investment by relieving grid pressure points. Decc has awarded cash through its Energy Storage Demonstration Competition to three Analysis