What the Chancellor’s Spring Budget meant for the energy sector
Chancellor of the Exchequer Jeremy Hunt had his eye on a General Election that needs to be called before 28 January 2025 in this week’s Spring Budget with many of the measures announced being designed to win votes.
However, there were also many important measures and policies that the Chancellor unveiled of key importance to the energy sector.
Nuclear is a key pillar in delivering the energy transition and the Chancellor outlined a commitment that nuclear would provide up to a quarter of the UK’s electricity by 2050.
Hunt said, “I want the UK to lead the global race in developing cutting-edge nuclear technologies. I can therefore announce that Great British Nuclear will begin the next phase of the Small Modular Reactor (SMR) selection process, with companies now having until June to submit their initial tender responses.”
SMRs are reactors that have a capacity of up to around 300 MW(e) per unit, around a third of capacity of a traditional nuclear reactor. Their small size and easy assembly and transportation make them suitable for sites that would not work for a traditional reactor.
The Chancellor also announced that the government had reached an agreement on a £160 million deal with Hitachi to purchase the Wylfa site in Ynys Môn and the Oldbury site in South Gloucestershire.
“Ynys Môn has a vital role in delivering our nuclear ambitions,” said the Chancellor.
It is important to note that no decision has been made by the government on plans for new nuclear power stations on these two sites.
The Chancellor also reaffirmed the government’s plan to speed up connections to the National Grid, which is currently facing significant delays.
In November, Ofgem announced a new policy to cut grid connection times by moving away from a first-come, first served system. At the time of the announcement the queue of projects amounted to almost 400GW of electricity. The rule change is intended to terminate stalled “zombie” projects that were blocking the queue and allow ready-to-go generation and storage projects that could help achieve net zero are fast-tracked.
The Government said that since the new policy was announced, over 40GW of energy projects have been offered earlier grid connection dates, accelerating up to £40 billion of investment.
Other measures announced at the Budget include:
- The government has committed to remove the prepayment meter (PPM) standing charge premium on an enduring basis, saving PPM customers an average of £50 a year.
- The Government has also published the full parameters for the Contracts for Difference Allocation Round 6 (AR6), including setting the largest ever budget for a single round of over £1 billion, including £800 million investment in offshore wind.
- The launch of a taskforce, to be chaired by the Rt Hon Julian Smith CBE MP, to explore Alternative Dispute Resolution mechanisms for disputes on compensation between landowners and electricity network operators.
- The Electricity System Operator will publish a transitional Centralised Strategic Network Plan in March which is expected to stimulate up to £60 billion additional investment in the GB network.
- The establishment of a new National Energy System Operator in 2024, critical for the delivery of grid reforms and better system coordination, including through the new Strategic Spatial Energy Plan.
- Publishing new community benefits guidance by June 2024 and developing a new public register of community benefit packages.
- The Department for Energy Security and Net Zero consulting to introduce full cost recovery for planning casework it undertakes under the Electricity Act 1989 and Planning Act 2008, helping to boost capacity and ensure timely decisions as the volume of applications increase.
- The extension of the Energy Profits Levy (EPL) introduced in 2022 to the end of March 2029. At the same time, the Government committed to give the oil and gas sector certainty that the EPL will not apply if prices fall below the levels set by the Energy Security Investment Mechanism.
- The government announced up to a further £120 million for the Green Industries Growth Accelerator (GIGA), to support expansion of low carbon manufacturing supply chains across the UK. Up to £390 million of the over £1 billion of total funding available is expected to support supply chains of offshore wind & electricity networks and the same amount for supply chains of Carbon Capture Utilisation and Storage (CCUS) and hydrogen.
- Responding to the Spring Budget, Energy UK’s chief executive Emma Pinchbeck said, “The Government has listened to the energy industry about the need to deliver on the country’s ambitions for low carbon power with plans to deliver greater capacity from established renewables technologies like solar, onshore and offshore wind, as well as investing in new, emerging technologies like tidal, geothermal and floating offshore wind.
The extension of the EPL might be seen as helping deliver the UK’s net zero aspirations but there are no assurances that tax revenues will go towards decarbonisation. The extension of the levy could also weaken investor confidence in UK energy companies just when substantial investment is needed to help enable the energy transition.
Overall, there is plenty to be optimistic about in the Chancellor’s Spring Budget for the energy sector. The question will be whether any of these measures will be derailed in the event of a change of government at the General Election.