CSE's guide to the Climate Change Levy

Climate Change Levy - The Facts

Despite the controversy surrounding its introduction, the Climate Change Levy (CCL) is now a reality that UK companies must face. By adding 10-15% to the electricity bill, this government charge will reduce profitability unless energy efficiency measures are taken.

The Climate Change Levy is not intended to raise tax revenue. The money is repaid to business in the form of a 0.3% reduction in National Insurance Contributions, with the exception of £50 million, which will be used for energy-efficiency information, and £100 million which will be set aside for Enhanced Capital Allowances. What the Government intends to do through the Climate Change Levy is to stimulate the use of energy efficient technology, and so help meet the UK's obligation of a 12.5% reduction in greenhouse gas emissions (Kyoto Protocol), and move towards the Government's domestic goal of a 20% reduction in carbon dioxide emissions.

The value of energy savings in industry is potentially far greater than the cost of the levy. In most cases companies that take action as a result of the levy should soon see their investment pay off.
Businesses which are looking to make savings in their energy requirements should look at installing Inverter Drives otherwise known as variable speed drives. (click for details on ABB HVAC Drives). 
ABB is the world leader in the manufacture and supply of energy efficient motors and variable speed drives and CSE offer a technical advice and selection service on the ACH600 range Frequency Converters for Pump and Fan applications.  Please Contact our Technical sales for information on solutions which may be available to you.
 

Climate Change Levy - Enhanced Capital Allowances

The Enhanced Capital Allowances (ECA's), introduced by the UK Treasury, essentially gives you a discount on energy efficient equipment. It enables UK companies and businesses to deduct the full cost of energy efficient equipment investments when arriving at their Corporation Tax or Income Tax bills in the year of purchase, rather than writing the equipment off over a number of years.

Depending on your tax rate, it will in most cases cut the cost by 6 - 7%. This will reduce or even eliminate the price differential to less efficient products, and shorten the payback time. Enhanced Capital Allowances are applicable to a list of specific technologies which meet the relevant energy efficiency criteria; (see below).

The approved list of technologies will be dynamic, with new technologies added as they are proven. Equally, technologies may be withdrawn from the list once they are considered by the Department of the Environment, Transport and Regions as 'standard' practice. Delaying investment decisions means that you could miss out on the benefits ECAs offer.

Climate Change Levy - Which Products Qualify

At the moment, the Government has approved 8 different types of technology as eligible for Enhanced Capital Allowances. The list is intended to be 'dynamic', in that once products are in widespread use, they will be removed from the list, and replaced with new ones.

For example, currently it is estimated that the vast majority of electric motors employed in UK industry are inefficient. Once the take-up of energy-efficient motors has reached a stage where the Government feels that they have become 'standard practice', the Motors category will be removed from the list of Qualifying Technologies.

It should be noted that while early action will help you qualify for ECAs, correct implementation of any of the qualifying technologies should help you drastically reduce your energy bills.

The  current  technologies  on the  list  are:          CHP (Combined Heat and Power),  boilers,  motors, variable speed drives, lighting, refrigeration, pipe insulation materials and thermal screens, which meet the relevant energy efficiency criteria.
 

Climate Change Levy - The Savings

The greater part of electricity consumed in industry, around two-thirds, is consumed by electric motors. This seems like a staggeringly high share, but the ubiquitous low voltage AC motor is fitted into virtually anything that moves.

In the UK alone, some 10 million motors are used, consuming £4 billion worth of electricity a year, so a factory with an electricity bill of £150,000 a year is probably burning £100,000 running motors alone.

Many of these motors are run far less efficiently than they could be, so there is potentially vast scope for savings.

Specifically in the area of motors and drives, ABB Automation (UK) Ltd. have developed a unique 'Energy Appraisal Scheme' which defines where energy can be saved and quantifies the cost savings that can be achieved by the implementation of more efficient technology.

As a first step, ABB Automation recommend that you:

Use variable speed drives whenever there is a need to reduce motor speed. This can save as much as 60% of the energy in, for example, a pumping application. Applied to a 90kW motor in continuous duty, this means £23,000 a year in saved energy.

Use high efficiency motors These are typically 3 to 5% more efficient than their standard efficiency counterparts. Applied to a 90kW motor, this could save £1,000 per year. So, if you have 50 such motors in your plant, you could be saving £50,000 per year.

Ensure that your motors are properly selected, installed and maintained. Most motors in industry are oversized for their duty; while a motor reaches optimum efficiency at around 75% duty, most motors are never loaded beyond 40%. Correcting this can save another 3 - 5%, and, using the same parameters as above, a further £50,000 can be saved. Energy is also saved by keeping motors and associated machinery greased and maintained in line with the manufacturer's guidelines.

More information about ABB Automation's Energy Appraisal Scheme can be found at: www.abb.co.uk/energy.
The following links will give you more detailed useful information on CCL and ECA
www.defra.gov.uk/environment/index.htm
www.eca.gov.uk/index.cfm