What is the CCL exemption for CHP?
On 1 April 2001, the Government introduced the Climate Change Levy (CCL). The Levy is chargeable on non-domestic supplies of electricity in the United Kingdom (subject to certain exclusions, exemptions, reduced-rate and half-rate supplies). Electricity is currently (with effect from 1 April 2008) subject to the Levy at a rate of £4.56/MWh.
One of the original reliefs from the CCL is Qualifying Power Output (QPO) electricity supplied direct from a combined heat and power (CHP) station to the consumer (direct supplies).
It was announced in the 2002 Budget that, in addition to the relief available for direct supplies, exemption from CCL would be extended to CHP QPO electricity sold via a licensed supplier (indirect supplies). This additional exemption was brought about by the Finance Act 2002 and the Climate Change Levy (General) (Amendments) Regulations 2003. The regulations took effect from 1 April 2003.
What are CHP LECs?
CHP Levy Exemption Certificates (CHP LECs) are electronic certificates. We issue them to eligible CHP stations for each Megawatt/hour (MWh) of qualifying electricity. CHP LECs are the evidence that QPO electricity was produced in a fully or partly exempt* CHP station.
An eligible CHP station is one that is capable of generating QPO electricity. To qualify as eligible, the station operator must hold both a valid ‘Secretary of State Combined Heat and Power Exemption Certificate’ (SoS Certificate) and a CHPQA Certificate. A CHP station does not need to obtain a separate accreditation from Ofgem.
CHP LECs are the primary evidence that suppliers use to demonstrate to HM Revenue & Customs the amount of electricity supplied from good quality CHP sources to non-domestic customers in the UK.
*An exempt CHP station is one the output from which is, by reason of the CHP exemption, exempt from the CCL. Full or part exemption from CCL is by means of a CCL Exemption Certificate issued by the Secretary of State under para 148, Sched 6, FA 2000.
Initially, this was in respect of direct supplies only. The relevant provision for indirect supply is Reg 51A in respect of supplies for which provision is made in para 20A(1), in Sched 6 of FA 2000.
The legislation
The relevant pieces of legislation are:
• Part IV (A) of the Climate Change Levy (General) Regulations 2001 (Statutory Instrument (SI) 2001 No. 838);
• The Climate Change Levy (General) (Amendments) Regulations 2003 (SI 2003 No. 604); and
• The Climate Change Levy (Miscellaneous Amendments) Regulations 2005 (SI 2005 No. 1716).
All this legislation is available on the Office of Public Sector Information website - link opens in a new browser window.
What is Ofgem’s role?
We are responsible for administering the CCL CHP provisions in respect of electricity produced or supplied in Great Britain.
Our responsibilities include:
• certifying electricity as QPO electricity;
• issuing CHP LECs;
• retaining, for 6 years, a record of each CHP LEC;
• ‘restricting’** CHP LECs, in certain circumstances;
• reconciling output each year;
• receiving notification of the certificate number of each CHP LEC redeemed by a supplier;
• receiving copies of certain notices regarding compliance, and
• providing information to HM Revenue & Customs.
Ofreg has a similar role in respect of electricity produced or supplied in Northern Ireland or produced in the Republic of Ireland.
**A process under Reg. 51D, whereby the validity of a CHP LEC is restricted to indirect supplies. Its purpose is to cover instances of non-compliance of which Ofgem is not immediately aware. Restriction means that the CHP operator cannot benefit from the exemption, but that a supplier to whom any relevant electricity has been sold can still allocate the restricted LEC.
Contacts
Rebecca Dixon, Manager CCL, REGO and NFFO
Email: rebecca.dixon@ofgem.gov.uk
Tel: 020 7901 7409
Email: chp@ofgem.gov.uk
Fax: 0207 901 7387