This year’s Spring Budget provided little new for the energy sector and focused largely on extending existing policies.

The main points included an increased budget to help accelerate awards under this year’s Allocation Round (AR) 6 of the CfD programme. This came alongside a yearlong extension of the windfall tax and profit levy on oil and gas profits.

There was no progress on a UK carbon border adjustment mechanism (CBAM). There were some developments in expensing and more money for the Green Industries Growth Accelerator (GIGA) programme.

The government said it is also making progress on the network reforms announced at last year’s Autumn Statement. These include offering earlier grid connections to projects, worth £40 billion, alongside additional investment of £85bn from transmission network companies. From next January, the government has set out a new process. It will only offer a grid connection date to those projects that can show progress. This should help reduce the backlog.

Wondrwall CEO, Daniel Burton said the sector still needed greater reassurance on the longer-term plan on connecting renewables to the grid. “Though [the Chancellor] gave a nod to a faster connections process by January 2025, an upcoming general election and lack of needed detail could potentially unplug efforts rapidly.”

Grid connections have caught the political wind. The Labour Party has also emphasised speedier grid connections, including potential changes to planning rules.

Windfall tax and profit levy extension

Industry had widely expected the government to extend the windfall tax – known officially as the Energy Profits Levy (EPL). Bill Main, managing director at Balmoral Cometc summed up the reaction.

“Extending the windfall tax by another year could have big implications. Since its introduction in 2022, we’ve seen key offshore players considering their exit from UK waters, companies that could have a notable role in the energy transition. While the government considers its holistic approach, it does need to take into account all those with a part to play, [while] not alienating any one industry and risking losing the skills and technology that will be required to support us meeting legally binding climate ambitions.”

Charlotte Sallabank, tax partner at Katten Muchin Rosenman UK, noted the budget also extended the EPL to 2029. However, “the levy will cease if average oil and gas price falls below the Energy Security Investment Mechanism threshold prices”.

She said these tax extensions meant further concern among economists over the stability of the industry. The measures undermine the UK’s reputation for a stable regulatory environment.

Round 6 Boost

The budget committed a record £1bn-plus of public money for the upcoming AR6 of the UK’s contracts for difference (CfD) auction. This aims to make up for the underwhelming auction of 2023, according to James Turnbull, Head of UK Energy and Utilities at PA Consulting.

Breaking the £1bn down, £120mn is earmarked for established technologies such as onshore wind and solar. Another £105mn is dedicated to emerging technologies such as floating offshore wind and geothermal (including £10mn ringfenced for tidal again). The budget focused the largest amount, of £800mn, on offshore wind – four times the 2023 figure.

The government said the increase takes account of the impact of global events on supply chains. It follows an increase in the maximum price for offshore/floating wind in November to £73 per MWh. The government claims this year’s round will be a significant step towards delivering the UK’s 50 GW target for offshore wind by 2030.

Since 2010, the UK has seen £300bn of public and private low carbon investment, with another £100bn lined up to 2030.

2030 target

Alon Carmel, energy transition expert at PA Consulting, welcomed the “UK’s record-setting budget”. However, he warned the devil was in the detail. How close this amount came to ensuring the government reached its targets, including 50 GW offshore wind by 2030, will still “depend on the clearing prices and the level of competition”.

Carmel predicted prices would rise above 2022’s record low of £37 per MWh. As a result, the government would award a large volume. “Depending on clearing prices and competition levels, this budget could support 10 GW or potentially more of renewable energy capacity.”

He added that some projects that won CfDs in 2022 at the record lows are considering reducing the size of that CfD award and bidding the residual amounts into this year’s auction in anticipation of better prices.

Opinions differed on how much new capacity the CfD pot from the budget could deliver. According to Brian Allen, CEO of Rovco, Renewable UK reported this year’s auction will now only deliver 3-5 GW of capacity.

Damien Zachlod, managing director of EnBW Generation UK, said the industry needed an auction that recognised the record levels of construction ready projects after the unsuccessful AR5 in 2023. The imperfections with the budget allocation mechanics of the CfD allocation framework were “equivalent to driving with the handbrake on … Without government action to correct this issue, offshore wind farms that could be up and running by 2030 will be delayed.”

CBAM and clean heat disappointment

It was a missed opportunity for the UK to make progress on its CBAM, Judith Richardson, head of sustainability at Argon & Co, said. “It was hoped that the Budget would give much-needed clarity over the UK’s plans to implement the Carbon Border Adjustment Mechanism (CBAM). However, this opportunity was missed – and businesses are still largely in the dark.”

Richardson said all businesses needed certainty to scale up. “We urge the government to shed light on the UK CBAM and share its support for long-term, capital-intensive sustainability projects – as well as upskilling people for the green jobs of the future.”

Climate consultancy, Ashden, bemoaned the dropping of the Clean Heat Market Mechanisms. “After several net zero retreats in recent years, including the latest U-turn [last] week with the scrapping of the Clean Heat Market Mechanisms – sometimes given the misnomer of ‘the boiler tax’ – the industry really don’t know where they are any more.”

However, Anthony Ainsworth, COO at npower Business Solutions (nBS), welcomed the government’s intention to extend full expensing, this is where businesses get tax breaks for investing in assets that reduce emissions. This will now include leased assets, but said that with no concrete timeline it would be difficult for businesses to plan any investment based on the news.

Peter Reynolds, director of capital allowances at Forrest Brown, also welcomed the intention to extend full expensing and expressed concern over the lack of a start date.

He added that “more importantly, full expensing affects less than 1% of businesses when account is taken of those for whom the Annual Investment Allowance remains a more beneficial option”.

A bit more for GIGA

The Chancellor allocated another £120mn for GIGA. This brings total funding to over £1bn and aims to boost advanced manufacturing across clean energy supply chains.

Ainsworth of nBS said the additional money was a positive step, but noted the government had announced it before the budget.

Also, he pointed out that it wouldn’t come online until 2025. Furthermore, the plans would split it thinly “across multiple areas including offshore wind, nuclear, CCUS, electricity networks and hydrogen.”

Simon Crookston, tax partner at Crowe UK, said the Chancellor’s focus on businesses in the GIGA sectors was welcome. However, “it seems to be off target and provides little support for the majority of the UK’s businesses.”

He said the budget should have included incentives and investment relief on green capital expenditure and R&D for all the UK’s 5.6 million companies in the private sector.

Mike Adams, CEO of Elemental Energies, was positive on moves to back UK CCS.

“The Chancellor’s bolstering of CCS funding through the GIGA is an important display of commitment towards the sector. The UK possesses all the ingredients to spearhead the global CCS movement, has set ambitious targets … But the journey ahead demands substantial R&D and, without sufficient investment, our 2030 ambitions will not be achieved.”

He said realising CCS goals needed a collaborative effort between government, industry and the supply chain to stay the course. “The broader offshore sector needs a business climate that encourages innovation and dedication to both the North Sea and the energy transition.”

Nuclear now?

Similarly, James Turnbull expressed support for government commitments to the nuclear sector. “It was good to see the Chancellor confirming the UK’s commitment to … provide 25% of our energy from nuclear by 2050. Additional levelling up investment in Teesside, where the Hartlepool Nuclear Licensed Site exists, will help create a welcome “Green Hub” in this region.”

Paul Green, UK sector head for nuclear at law firm, Gowling WLG, also welcomed the renewed commitment to nuclear in the budget.

“This represents a fantastic opportunity for the innovative businesses in the sector, as well as a more independent energy source for this country. The six shortlisted technology vendors are currently working towards submitting their proposals to Great British Nuclear later this year … It will be interesting to see how far the government goes towards ringfencing this focus in a way that protects it from political variables.”

A mention for AI

The Chancellor mentioned the importance of AI’s potential role in the energy transition, something that Daniel Burton said was “a surge in the right direction.”

John Hartley, CEO of Levidian, a Cambridge-based cleantech company, agreed but said they wanted more support for R&D, including “a new R&D strategy that underpins partnerships between firms, higher education institutions, and Government.”

He said the government also needed to co-ordinate an annual national R&D conference “to boost co-operation and commit to permanent expensing from all parties.”

IP firm Marks & Clerk said it was noticing a massive trend in “green patents” focused on the energy sector but thought government “could be doing more to encourage businesses to keep their IP in the UK.”

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