At present, the proceeds of the levy are used to support renewables and nuclear generation through the Non Fossil Fuel Obligation (NFFO) in England and Wales. Although it is called the "fossil fuel" levy, it is applied to electricity generated under NFFO and Scottish Renewables Obligation contracts. as well as to fossil fuel.
Nuclear's share of the levy's proceeds has been steadily declining and would have ceased altogether in 1998. When passed the new bill, however, will ensure that the nuclear industry continues to pay the levy when its contract -- effectively a NFFO contract -- expires. This will save consumers up to £70 million. Moreover, for the first time cheap nuclear electricity from France via the interconnector will also be subject to the levy.
The bill also contains the power to levy all electricity from licensed suppliers -- including from renewable sources. The government will consider whether to exercise this power when it has completed its review of how to support development of renewables. Energy minister John Battle says the bill gives the government flexibility to develop proposals to encourage new renewables in the most effective way possible. "We are determined not to close down any options."
During financial year ending March 1997 the levy in England and Wales raised £844 million. It has steadily decreased, from 10% on electricity bills between April and October 1996, down to 3.7% for the rest of the financial year. This reflects the reduction in subsidies to the nuclear industry. The levy is currently only 2.2%, and 0.7% in Scotland.