Chancellor of the exchequer Jeremy Hunt confirmed that the Energy Profit Levy (EPL) will be extended to 2029 in this year’s Spring Budget, shortly before announcing that the budget for the 2024 Contracts for Difference (CfD) auction will be set at over £1 billion.
Confirming reports circulating earlier this week, Hunt addressed the House of Commons this afternoon (6 March): “The government is extending the Energy Profits Levy (EPL) by an additional year until March 2029, raising £1.5 billion.”
Introduced in May 2022, the EPL initially imposed a 25% windfall tax for oil and gas companies on “exceptional profits” arising from unexpectedly high prices. This threshold was then increased to 35% from 1 January 2023 and extended to 31 March 2028 as per the 2022 Autumn Statement.
Hunt attributed the decision to extend the Levy again to gas prices being forecast to remain “abnormally high until at least 2028-29.”
Despite this extension, Hunt reiterated the Conservative government’s support for continued oil and gas production, stating: “We want to encourage investment in the North Sea so we will retain generous investment allowances in the sector, we will also legislate in the finance bill to abolish the EPL should market prices fall to their historic norm for a sustained period of time”.
Government confirms ‘largest ever’ budget for CfD Auction Round 6
This year’s Spring Budget also saw the announcement of the “largest ever budget” for a single CfD auction round of £1.025 billion for Auction Round 6 (AR6).
Due to open on 27 March 2024, funding for AR6 will be split into technology groups dubbed ‘pots’. These are as follows:
- Pot 1 (£120 million budget): Energy from Waste with CHP, Hydro (>5MW and <50MW), Landfill Gas, Onshore Wind (>5MW), Remote Island Wind (>5MW), Sewage Gas, and Solar Photovoltaic (PV) (>5MW).
- Pot 2 (£105 million budget): Advanced Conversion Technologies (ACT), Anaerobic Digestion (AD) (>5MW), Dedicated Biomass with CHP, Floating Offshore Wind, Geothermal, Tidal Stream, Wave.
- Pot 3 (£800 million budget): Offshore Wind.
This is a colossal increase to the AR5 budget, which was set at £227 million even after receiving a £22 million increase from its initial budget.
The government is continuing to show signs of trying to ensure the mistakes of AR5 – which saw no offshore wind granted funding – are rectified to continue growing the UK’s wind sector. Late last year, the strike prices for all technologies within AR6 were also increased, the most notable of which was the strike price for offshore wind, which saw a 66% boost.
According to a recent report by RenewableUK, AR6 could see the UK double its current offshore wind capacity if the right incentives to bid are offered.
“The UK has been a global leader in developing renewables. After the failure of last year’s auction to attract any bids for new offshore projects, today’s announcement is an important test of the government’s resolve to get back on track with its own green energy targets,” said Keith Anderson, CEO at energy company ScottishPower.
“The government has taken a major step in the right direction today by quadrupling the available budget – a clear statement of intent in ramping up the ambition to bring cheaper, greener energy onto the system quickly.
“I expect the auction to be hugely competitive. Given the scale of the available pipeline, there is always the opportunity to go further, and so we would encourage the government to revisit the budget in the light of developments.”
Building up British nuclear
The Spring Budget also saw notable support for growing Britain’s nuclear industry. This included the announcement of 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 also confirmed that Great British Nuclear is now moving to the second stage of the Small Modular Reactor (SMR) process inviting six companies to submit their initial tender responses by June 2024.