Fleet News

News analysis: alternative fuel grants

LEADING figures in the fleet industry have warned a drastic decision to slash grants for fleets converting to alternative fuels could kill off future growth.

Even before tomorrow's expected increase in duty for green fuels, confidence in alternative fuels was falling. Last week's announcement was the culmination of a review of the PowerShift grant scheme, which has been hampered by serious cash shortages recently.

In November last year, fleets applying for grants to help them buy or convert vehicles to run on liquefied petroleum gas (LPG) were told there was no more money left.

With five months before the end of the financial year, the Government-funded organisation responsible, the Energy Saving Trust (EST), said those who had applied for the grants would have to wait.

The crisis was followed by a process of consultation about how the grant system could be better managed in the new financial year. The solution, according to the EST, is to keep funding levels the same but slash the size of grants.

Phillip Sellwood, chief executive of EST, said: 'As a result of its success and high demand for TransportEnergy, PowerShift and CleanUp grants, we've been working with the Department for Transport to develop a new system of grant administration, that will ensure consistency of availability, while enabling us to continue helping transform the UK market to cleaner fuels.

'The changes have been made after discussion to ensure the new system can provide cost and environmental benefits, assure market stability and ensure value for money.'

The new grant levels are effective from April and other changes include a more streamlined application process. The revision in funding applies to England, Wales and Northern Ireland for PowerShift, and England only for CleanUp. The Scottish Executive and Welsh Assembly are still finalising their grant levels.

The confidence of companies thinking about committing to alternative fuels is bound to be affected. If the Government doesn't believe in LPG enough to provide the cash, why should fleets take a risk?

PowerShift helps fund the extra cost of buying an LPG vehicle or the conversion of an existing one, and CleanUp funds the retrofit of systems to older vehicles.

It is anticipated that the number of LPG vehicles converted or bought with a PowerShift grant will total 3,200 in the 2003-04 financial year – more than 1,000 more than the current financial year. However, fleets which received a grant letter after November 2003, but were put on a waiting list will receive the full grant. Those applying under the new system will receive the reduced grant.

The Society of Motor Manufacturers and Traders (SMMT) is concerned that under the new system of grants the PowerShift scheme will receive the same amount of funding as the CleanUp scheme, from a total fund of £26 million. Chief executive Christopher Macgowan has suggested more of the £7 million allocated to CleanUp should be used for PowerShift to avoid any cuts.

He said: 'More priority should have been given to the PowerShift programme which drives the development of the cleanest new vehicle technologies. Splitting funds down the middle seems to be an arbitrary compromise without thought of long-term goals.'

PowerShift funds a fraction of LPG vehicles

DAYS before the funding bombshell was delivered, Transport Minister David Jamieson revealed that a fraction of the alternative fuel vehicles on Britain's roads were supported by PowerShift grants.

Just over 10,000 vehicles have been supported by the multi-million pound grants scheme, yet the parc of LPG vehicles had reached 107,000 last year.

Furthermore, the PowerShift grant scheme had struggled to spend its budget in recent years, Jamieson claimed.

He told Parliament: 'Prior to 2003-04, the PowerShift grant programme had been under-subscribed. In November 2003, the Trust estimated it would overspend the TransportEnergy budget for England and Wales by at least £8 million if it continued accepting new applications to the end of the financial year.'

Despite this, Jamieson said funding levels for both PowerShift and CleanUp would stay the same and that is why the Energy Savings Trust had announced new grant levels. He also revealed how many LPG-powered vehicles had been converted or bought with the aid of PowerShift grants since 2000-01 and compared this to the growth in the total number of UK LPG vehicles since 2000, according to figures produced by the Liquid Petroleum Gas Association.

Jamieson also broke down the figures, but from 1997, for the total number of cars, vans and trucks which gained PowerShift grants.

Asked how many taxis had claimed a PowerShift grant, Jamieson replied: 'No taxis have claimed a PowerShift grant since 2000. Obtaining information for earlier years would incur disproportionate cost as it would require a manual trawl of the Energy Saving Trust's paper records.

'In addition, information on the number of passenger cars that received PowerShift grants and were subsequently opted as taxis is not held on the Trust's record.'

Number of vehicles funded by PowerShift
Year: Cars...Vans
1997-98: 92... 198
1998-99: 285... 373
1999-2000: 685... 695
2000-01: 1,714... 2,347
2001-02: 2,260... 2,382
2002-03: 720... 1,379
2003-04: 1,638... 1,410
Total: 7,394... 8,784

Total number of UK LPG Vehicles
2000 39,000
2001 65,000
2002 89,000
2003 107,000

Tory MP calls for compensation over tax rises

A CONSERVATIVE MP has called on Chancellor of the Exchequer Gordon Brown to compensate fleets it had encouraged to turn to alternative fuels.

The call followed the Government's move to introduce a three-year rise in fuel duty on LPG, announced last year.

In a Parliamentary question, Conservative MP for Castle Point, Bob Spink, asked if the Chancellor 'will make it his policy to compensate people who have converted their vehicles to run on LPG for the removal of taxation support'.

Secretary to the Treasury John Healey replied: 'In the last pre-Budget report, the Chancellor of the Exchequer announced an Alternative Fuels Framework, which sets out the rationale for Government support for alternative fuels and places environmental benefit at its core. In recognition of the importance to investors of providing long-term certainty in the market, the framework includes an unprecedented commitment to a three-year guarantee on the fuel duty differentials for alternative fuels.'

Healey said that the UK offered the biggest duty incentive for road fuel gases, including LPG, in Europe. He added: 'This incentive cost the Exchequer £75 million in duty forgone in 2002-03 alone.

'The Government also gave valuable support to this sector through grants for vehicle conversions, the PowerShift scheme, reduced crates of vehicle excise duty for gas-powered vehicles and company car tax relief.'

ACFO chief warns over Government attitude

ALTERNATIVE fuels will struggle to gain a larger foothold on UK fleets because of the Government's attitude, a leading fleet figure has warned.

Tony Leigh, chairman of the Association of Car Fleet Operators (ACFO), said: 'While I am pleased that there is to be a grant scheme for next year, I don't believe the level of support will be sufficient to revive the flagging fortunes of bi-fuel cars.

'It will help hybrid cars, although they have economic and environmental advantages without grant support.

'The problems with bi-fuel cars are the changes to the taxation of LPG by the Chancellor, which will wipe out any slim advantage the cars currently enjoy over petrol and as a consequence of that, the residual value of LPG cars as far as fleets are concerned. This can only fall in my opinion, which will outweigh any advantage in fuel costs.

'Still not resolved is the lack of filling stations nor a standardised system of pump nozzles. I can't see a future for bi-fuel cars, particularly with the advances in diesel engines and the tax position of Euro IV. My view is that Euro IV diesel will more than fill the gap until hydrogen or other fuel types become readily available.'

Matthew Carrington, chairman of the Retail Motor Industry Federation, added that yesterday's planned Budget increase on duty LPG would affect the value of dual-fuel cars and could affect the sale of the fuel.

Carrington said: 'LPG was originally introduced with a low rate of duty to encourage usage. By raising it, the Government will damage the popularity of the fuel with consumers and businesses alike.'

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