A clean energy superpower?

Cleaner energy investment

Advancing cleaner sources of energy generation is a key target for the government. The Budget announcement reiterated government ambitions for investment and growth in the clean energy sector including:

• Reversing the ban on onshore wind.
• Securing £34.8 billion of private investment into clean energy
• The creation of Great British Energy and the National Wealth Fund, to invest and mobilise investment respectively into the clean energy industry. 

The chancellor also shed some further light on government plans:

1. Electrolytic hydrogen production is an opportunity recognised by the government, with £2 billion of funding announced for 11 projects;
2. £3.9 billion in funding to be made available for 2025-26 for Carbon Capture, Usage and Storage Track-1 projects;
3. £125 million allocated to Great British Energy for 2025-26;
4. Use of the National Wealth Fund to "catalyse over £70 billion of private investment in the UK's clean energy and growth industries", while also targeting greater pension fund investment into UK growth assets; and
5. £2.7 billion of nuclear funding to continue Sizewell C's development through 2025-26, subject to confirmation the project shall proceed.

Grid connections

Curtailment is a common issue in renewable energy projects, with producers unable to feed electricity directly to the grid due to capacity constraints in the core network. The chancellor announced plans to accelerate grid connections and construct new network infrastructure.

To do so, the government is working with the new National Energy System Operator and Ofgem to "develop robust grid connection process", which can allow for viable projects to connect to the grid in a more timely manner.

Disappointingly, this, alongside confirmation more planning officers are to be recruited to speed up the planning process, are the extent of the announcements included in the budget to tackle the issue.

Taxing oil and gas

Taxes on oil and gas companies is one route the government is pursuing to fund decarbonisation.

Oil and gas companies will face  greater taxes to support the energy transition. The Energy Profits Levy shall be subject to the following changes:

• The levy will increase from 35% to 38%;
• The 29% investment allowance shall be removed;
• The levy itself will  be extended until March 2030.

To ensure stability in the transition, 100% first-year allowances in the Energy Profits Levy will remain. Consultations shall also be held in 2025 to determine how the oil and gas tax regime should respond to price shocks upon the levy’s conclusion in 2030. Investors in this industry should therefore expect higher tax bills and further announcements in 2025 as to how the tax regime will operate once the levy is phased out.

The budget also confirmed the decarbonisation allowance will remain for oil and gas companies to incentivise investment in cleaner, lower-emission technologies, which shall be 66%.

The clean energy impact – it’s still all about the grid

While the Budget has offered hope on the government's ambitions to drive and develop clean energy production, today's announcements may not go far enough to provide comfort to investors. 

While the levels of investment into the sector are welcomed, without the grid capacity infrastructure to support these projects it could see huge problems of curtailment and continued reliance on the existing gas network. 

If the government is able to effectively tackle planning backlogs and accelerate grid expansions, this twinned with increasing investment opportunities in the clean energy sector could provide a perfect opportunity on the government's intentions to make the UK a clean energy superpower.