Chancellor Rishi Sunak unveiled the eagerly anticipated Budget this afternoon, including support for a “world-first” infrastructure bank and at least £15 billion in green bonds.
Both will help the UK to ‘Build Back Better’ he noted, with a continued focus on rebuilding the economy as the country looks to come out of the COVID-19 lockdown.
“It’s not enough to have some general desire to grow the economy,” said Sunak as he spoke in Parliament. “We need a real commitment to green growth.”
While the infrastructure bank, green bonds and support for offshore wind have been welcomed by the energy sector, there was little else specific to the sector, leaving many calling for further focus on green growth.
The UK Infrastructure Bank: financing the ‘green industrial revolution’
Sunak announced an initial capitalisation of £12 billion from the government for the creation of the first ever UK Infrastructure Bank. It will support at least £40 billion of total investment in infrastructure, he continued, following it opening in Leeds in the spring.
“The bank will invest across the United Kingdom in public and private projects to finance the green industrial revolution,” said Sunak.
The bank is a “welcome statement of intent” commented Tom Williams, head of energy and infrastructure at Downing LLP and investment manager of Downing Renewables & Infrastructure Trust.
He continued that while some may see the initial investment as “insufficient”, the government "is right that the private sector, which is already heavily invested in green initiatives and renewable infrastructure, is ready and willing to provide the bulk of the capital required to meet our net zero targets".
“A stable and consistent regulatory environment is also key to encouraging new levels of private investment and we ask the government to ensure the necessary framework is in place to allow investors to achieve these ambitious goals.”
Green ‘gilt’: New environmental bonds
Another policy first announced last year was built on in today’s Budget, with Sunak adding details to the UK’s new green bond.
The sovereign green bond – or green gilt – will be launched in the summer and help to build on the country’s ‘green curve’. For the financial year there will be a total minimum of £15 billon, with the full framework for this to be issued in June.
This framework will detail the types of expenditures the green gilt will support. Additionally, the government has committed to reporting all the contributions this bond makes towards “social benefits such as job creation and levelling up”.
In addition to the green gilt, Sunak announced a new retail savings product to “give all United Kingdom savers the chance to support green projects". This will be offered through NS&I later in 2021.
The announcement of both the gilts and the green retail savings product are a signal the government is “tapping into consumer demand for more sustainable and green saving products and investor interest in funding environmentally friendly projects,” said Claire Jones, head of responsible investment at LCP.
"While this is an important step, the government must make sure this isn't a PR 'greenwashing' exercise for investors and consumers. On the consumer side, savers are savvy and are entitled to clear and robust commitments on how their money will be used. They will want to know that their money is going into new green projects, not just rebadging projects that were already planned.
"It will be interesting to see how the interest rate and terms that are offered impact take up and how attractive they are compared to other savings products.”
Support for the "innovative industry" that is offshore wind
The government continued its recent strong support of the offshore wind sector in the Budget, with a commitment to upgrade port infrastructure to support both the sector and job creation.
“Offshore wind is an innovative industry where the United Kingdom already has a global competitive advantage,” said Sunak.
This includes support for the Able Marine Energy Park on the Humberside and a Memorandum of Understanding with Teesworks Offshore Manufacturing Centre.
RenewableUK’s chief executive Hugh McNeal said this was a "big-bang moment for offshore wind manufacturing" that will drive investment in a “globally competitive domestic supply chain".
"The government is putting its support squarely behind the kind of strategic approach to securing supply chain investment which the industry has been making the case for during our intensive work with ministers to deliver the green economic recovery this country needs. This new funding to develop world-class offshore wind hubs in Teesside and Humber is a clear example of levelling-up in action.”
In today’s Budget, the government also set out the intention to launch a £20 million programme to support the development of floating offshore wind technology across the UK as part of a push for energy innovation.
The best of the rest: Hydrogen and energy storage
Beyond these key areas there were a number of elements of the energy sector that the Budget touched on. Building on the previously stated commitment to double spending on energy innovation, the Budget mentioned the launch of a £68 million UK-wide competition to implement several first-of-a-kind energy storage prototypes or technology demonstrators.
Similarly it will launch a £4 million competition for the first phase of a biomass feedstock programme. In Holyhead in Wales, a new hydrogen hub will receive £4.8 million of government funding to pilot the creation of green hydrogen – that created using renewable electricity and an electrolyser – and its use as a zero emission fuel for HGVs. According to the Budget, this could support up to 500 jobs.
Dr Nina Skorupska CBE, chief executive of the Association for Renewable Energy and Clean Technology (REA), said there was a number of announcements to be “very positive” about in the Budget, including the funding for Holyhead, the UK Infrastructure Bank and deductions for capital allowance.
“However, I can’t help but feel that, despite the mitigating circumstances, this Budget was a missed opportunity for our country. It lacked the detail to provide a watershed moment for businesses in our sector and new ‘green’ projects are limited to only a few regions and countries of the UK.
“There are straightforward measures that could and should have been taken. The reduction of VAT on a range of renewable energy and clean technologies; clarity over the future of the Green Homes Grant; and a targeted extension of the Renewable Heat Incentive to boost bioenergy, geothermal and other renewable heat schemes."