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05 May 2015
Danish subsidy scheme
UK climate change levy
Combining Danish and UK schemes
Many European countries have introduced subsidies or levies as incentives for a transition from fossil fuels to renewable energy sources. Combining different countries' incentive programmes may be possible to optimise investments in renewable energy production.
One such possibility – from a Danish perspective – has been to combine the use of Danish subsidies for wind farms with the levy exemption certificates scheme in the United Kingdom.
A previous update described Danish rules on government subsidies for production of electricity from wind farms (for further details please see: "Subsidy schemes for wind farms"). Offshore wind farms are subsidised with a contract for difference between a tendered price and the market spot price on the Nordic electricity market, North Pool. Production at onshore wind farms may receive a fixed price supplement of Dkr0.25 for the first 6,600 full-load hours. Subsidies are received for electricity delivered to the Danish grid.
The climate change levy is a tax on UK business energy use, charged at the time of supply. A business may be exempt from the levy if the energy it uses is generated from renewable sources and supplied for consumption in the United Kingdom.
Producers of electricity – also based outside the United Kingdom – may be accredited under the levy exemption scheme and claim levy exemption certificates on renewable energy exported to the grid. The certificates may be sold to a power purchaser and be used as evidence that the final customer using the energy should be exempt from the tax. In response to the levy, a market for levy exemption certificates has flourished, providing an opportunity for extra income for the electricity producer.
Danish subsidies are generally not affected by the use of subsidy schemes in other countries, thereby allowing the producer to combine different schemes. Subsidies are provided only for electricity being fed into the Danish electricity system, but the rules do not require the electricity to be consumed in Denmark. The exportation of electricity from Denmark is allowed.
The climate change levy exemption scheme, on the other hand, does not require the electricity to be produced in the United Kingdom. However, it does require that the electricity be supplied to and consumed in the United Kingdom. This means that a producer of renewable energy in Denmark may be accredited under the UK scheme and claim levy exemption certificates for electricity sold to businesses in the United Kingdom.
However, levy exemption certificates cannot be claimed for electricity which has received a renewable energy certificate to be used in the European energy certificate system. Consequently, any such certificates must be cancelled in order to claim levy exemption certificates.
For further information on this topic please contact Nicolaj Kleist at Bruun & Hjejle by telephone (+45 33 34 50 00) or email (firstname.lastname@example.org). The Bruun & Hjejle website can be accessed at www.bruunhjejle.com.
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