Five energy trade associations have written a joint letter to the Chancellor Jeremy Hunt, calling on him to offer a more competitive capital allowance regime in the upcoming Spring Budget to incentivise investments in the UKs renewable industry.
The chief executives of Scottish Renewables, RenewableUK, Solar Energy UK, Energy UK and the Nuclear Industry Association all signed the letter warning the Chancellor that strong budget measures and a clear government plan to support green economic growth are vital to “preserve the UK’s international competitiveness.”
In the letter, the five trade associations – collectively representing over 750 companies – highlight the disparity between the Energy Profits Levy, which offers 91% investment relief for oil and gas, and the Electricity Generators Levy, which grants clean energy generators 0% relief.
The record £32.2 billion annual profits reported by oil and gas giant, Shell, this week has also renewed calls for a higher windfall tax for oil and gas companies, which sat at 25% last year and only increased to 35% in 1 January 2023, as opposed to the 45% levy imposed on large-electricity generators announced in last year’s Autumn Statement.
On top of this, the letter draws attention to the “perfect storm” of unfavourable exchange rates, the rising cost of raw material and inflation causing day ahead prices to reach a record high last December. The letter also referenced research from International Energy Agency, which found that the levelised cost of energy has risen by 20% globally in the past year and is still increasing.
This unfavourable economic environment has seen many project developers and supply chain companies – already operating within small margins – find that their “profits are disappearing completely”.
CEO at Energy UK, Emma Pinchbeck commented: “The investment climate for UK low carbon generation has worsened over recent months. Increased costs and renewed international competition risk squandering the UK’s lead as a clean technology pioneer. Government must – at the very least – reform the capital allowances regime to keep investment and industry here in the UK; we need this low carbon infrastructure to power our economy cheaply and get bills down in the long run”.
To address these key issues the trade associations are calling for the Spring Budget to include a reform of capital allowances, as well as financial investment incentives for low carbon energy.
These vital steps are key to maintaining the UK’s international competitiveness, continues the letter, sighting the favourable $216 billion Inflation Reduction Act in the US and the European Union’s REPowerEU package, which includes a Commission Recommendation to tackle slow permitting processes for major renewable projects.
In light of these international packages, the letter urges that the UK Government “should not underestimated the importance of delivering a clear signal to investors in the short term” as many clean energy projects in the UK are forced to delay their Final Investment Decision.
“If the UK is to stay ahead in the global race for clean energy and drive consumer bills down, we need the Chancellor to adopt bold measures in the Spring Budget to retain and boost private investment in the energy transition,” said RenewableUK’s CEO Dan McGrail.
“The significant threats which the renewable energy sector faces are putting at risk our ability to deliver green growth and meet the Government’s vital Net Zero target. Investments in renewable energy and new supply chains may dry up unless the Chancellor takes decisive action and implements the key measures which we have set out in our letter to secure tens of thousands of high quality jobs and attract billions in private investment.”