Energy industry members have described this year’s Spring Budget as a “missed opportunity” for funding net zero.
The Spring Budget was delivered in the House of Commons yesterday (6 March) by chancellor of the exchequer Jeremy Hunt and included a number of significant announcements regarding decarbonising the UK’s energy system.
This included the confirmation of the budget for the upcoming Contracts for Difference (CfD) Auction Round 6 (AR6) at over £1 billion and the extension of the oil and gas windfall tax – the Energy Profit Levy (EPL) – to 2029.
However, aside from the above changes, little more consideration was paid to decarbonisation, a factor that has left members of the energy industry “disheartened”.
Praise for the AR6 budget
The majority of energy industry members welcomed the increased AR6 budget of £1.025 billion. This is a major increase from the £227 million budget set for the preceding AR5 and the largest budget ever for a CfD auction round.
In a separate announcement to the budget the Department for Energy Security and Net Zero (DESNZ) stated that the increased budget “signals large-scale government backing to drive further investment in the UK’s thriving renewable sector”.
DESNZ added that the £800 million allocated to the offshore wind-specific pot (Pot 3) increased followed an “extensive review” of market evidence including the impact os global events on supply chains.
The Association for Renewable Energy and Clean Technology (REA) said it “welcomes the increase in the latest Contracts for Difference budget to over £1 billion, as the government takes steps to provide clarity and certainty for investment into the UK’s renewables sector”.
Further funding for nuclear and the Green Industries Accelerator Fund
In its continuing effort to bolster the UK’s nuclear industry, the UK government has entered into a £160 million deal with Japanese tech giant Hitachi to purchase the abandoned Wylfa nuclear project in Ynys Môn, Wales and the Oldbury-on-Severn nuclear site in South Gloucestershire, with the aim of reviving the plants, Hunt confirmed yesterday.
“The news that the government has reached agreement with Hitachi to buy the Wylfa site on Ynys Môn is excellent news and will hopefully now unlock the site and ensure new nuclear can be delivered on the island as quickly as possible,” said Sam Richards, founder and campaign director at pro-growth campaign group Britain Remade.
There was also praise for the £120 million investment increase for the Green Industries Growth Accelerator (GIGA), a £960 million fund revealed in the Autumn Statement 2023, supporting the expansion of nuclear, offshore wind and carbon capture, usage and storage (CCUS) supply chains.
“The Chancellor’s further commitment to the Green Industries Accelerator Fund signals a decisive step towards bolstering low-carbon manufacturing,” said Matthew Lumsden, CEO at battery manufacturer Connected Energy.
Bill Main, managing director at subsea manufacturer Balmoral Comtec echoed Lumsden, stating: “This move is set to unlock remarkable capabilities, while setting the stage for substantial strides towards net zero. The country is ripe with talent and innovation thanks to our deep roots offshore, so ‘betting on Britain’ is not just optimistic, but pragmatic.”
Caution advised over EPL extension
At a glance, an extension to the 35% oil and gas windfall tax from 2028 to 2029 appears cause for celebration for the renewable industry as, according to Hunt, gas prices are forecast to remain “abnormally high until 2028-29”.
Nonetheless, Kate Mulvany, principal consultant at Cornwall Insight, warned that the resulting profits of the tax must be used to deliver net zero plans to avoid weakening investor confidence.
“Without a solid transition strategy away from the UK’s oil and gas dependence and no assurance that tax revenues will directly support decarbonisation initiatives, the potential upheaval in investment could outweigh the benefits, posing risks to both UK energy security and employment in the energy sector,” said Mulvany.
“The stability of the UK’s regulatory environment has historically been a significant draw for investors looking to support renewable energy projects. Prolonging the windfall tax could weaken investor confidence, at a time when the UK is seeking record levels of investment to deliver the transition to net zero.
“Without a clear commitment to reinvest the windfall tax proceeds in the energy transition, the extension could affect more than the oil and gas sector. Extension to the Energy Profits Levy could further unsettle the GB energy generation investment landscape unless sufficient assurances are given that the tax on generators will not follow suit.”
An otherwise ‘barren budget’
Aside from the funding announcements detailed above, energy industry members expressed disappointment at the lack of more concrete measures to bolster the UK’s net zero economy.
“Apart from some welcome extensions to existing government schemes, such as a relatively small funding boost to the Green Industries Growth Accelerator, this was another barren budget for net zero,” said Will Walker, UK policy lead at climate change charity Ashden.
“The country is crying out for bold government leadership and a credible plan to address the triple-whammy of energy security, fuel poverty and the climate crisis. This has to be done through sustainable clean growth. Any plan needs to be backed with the right powers, resources and incentives to empower communities, leverage investment, upskill and expand the workforce, and revive the economy.”
Frank Gordon, director of policy at the REA expressed concern that the Budget “does not reflect the urgency of net zero”, adding that the announcement was “disappointing overall”.
Although describing the GIGA increase as “welcome”, Alasdair Johnstone, from the ENergy and Climate Intelligence Unit (ECIU) stated that the chancellor hadn’t “got the memo” on the economy growth opportunity presented by the net zero economy (which grew 9% last year).
“At a time when the US and EU are competing over investment clean industries, there was little in [the Budget] to attract investment in clean industries,” added Johnstone.
