It’s been a wild year politically in the UK. After a period when windfall taxes were resisted, we ended up with a government which bowed to them- as did most of the EU. And they even got extended to cover power. Chancellor Jeremy Hunt hit electricity generation companies with a 45% Energy Electricity Generator Levy, on their ‘excess returns’ as he attempted to fund measures to ease the cost of living crisis. That was in addition to the existing windfall tax on North Sea oil & gas operators which is to be raised from 25% to 35% and extended by 2 years until 2028.
Renewable energy suppliers that operate under the Contracts for Difference system are exempted from the new electricity tax, but not those who are operating under the Renewables Obligation (RO). So they will be hit quite hard- they had after all enjoyed a significant wind fall since the RO subsidy level was high, based on the assumption that gas was cheap. It no longer is. There will now be an incentive to shift from RO support to CfDs, but this may not be easy for some companies.
To help them, the government says that it’s ‘legislating for powers that would allow us to consider running a voluntary Contracts for Difference process for existing generators to take place in 2023’, to give generators longer-term revenue certainty & safeguard consumers from further price rises. However, they may need more help. Indeed, the solar energy industry lobby says solar is being disadvantaged, with loopholes in the wind fall tax system which let fossil fuels off the hook. Chris Hewett, Chief Executive of Solar Energy UK, said: ‘The Chancellor should be taking every opportunity to encourage investment in clean energy. Yet, there will be no tax relief for companies investing in meeting the government’s target of 70GW of solar capacity by 2035 – unlike investments in oil and gas production, which will be taxed less than fossil-free generators.’
He may not be offering more money, but Hunt does seem to be talking some of the talk on renewables. In the autumn budget statement he said ‘Britain is a global leader in renewable energy. Last year nearly 40% of our electricity came from offshore wind, solar & other renewable sources. Since 2010, our renewable energy production grew faster than any other large country in Europe.’ And he went on ‘we need to go further, with a major acceleration of home-grown technologies like offshore wind, carbon capture and storage, and, above all, nuclear’. Adding nuclear to the list is maybe a little devious, CCS too, especially since he then says ‘this will deliver new jobs, industries and export opportunities and secure the clean, affordable energy we need to power our future economy and reach Net Zero.’ Will nuclear (and CCS) really be affordable?
The government evidently thinks nuclear will be, although it needs more backing- there’s £700m to support the next stage in the Sizewell C finance programme. It is less clear if more money will be forthcoming to help legacy renewables cope with the shift to CfDs. Certainly any hint of bailing out existing projects is unlikely to go down well after the multi- billion Bulb Energy debacle. Power companies are not exactly popular just now. Even green power supplier Good Energy was amongst companies Ofgem told to improve how it dealt with struggling consumers .
Nevertheless, there are still clear pressures for more support for new renewables, and not just from the left. On the right, the Centre for Policy Studies is backing a new growth-oriented campaign group which says that the UK is slowing down on key projects and needs to do better. For example, it notes that ‘the Hornsea 3 wind farm off the Norfolk coast is a good example. When finished, it will be the largest offshore wind farm in the world, generating enough electricity to power three million homes, while creating 5,000 jobs. Yet the project has been delayed four times, and isn’t set to come online till 2027, despite originally being proposed in 2016’.
It adds ‘If we’re to reduce our reliance on foreign gas and slash bills, we need to address the bottlenecks in our planning system preventing new supply of energy from being built. It is, to give one example, utterly baffling that the Government looks set to keep the effective ban on onshore wind farms at the same time as forking out billions to cap household and business energy bills this winter. Too often policy mistakes, like the continued ban on onshore wind, happen because politicians listen to a vocal minority of voters opposed to building. In fact, polling we’ve commissioned shows there is majority support for new wind and solar projects’.
Fine, we need to do better, backing on shore wind as well as offshore wind. Despite what the Prime Minister says or said, that makes political sense- its popular with voters. Solar too. Hopefully we will see changes on all this, with Grant Shapps eventually (next April?!) accepting sensible growth policies for on shore wind and also for solar. But is all growth of everything always good? e.g. nuclear growth, which the lobby group also hints at? Maybe not. Chris Hewett, chief executive of Solar Energy UK, says that ‘the energy price crisis has been caused by the UK’s historical reliance on gas, which has backfired, causing enormous damage to the economy. A swifter move to decarbonised energy would have avoided the dire consequences we are seeing now.’ Fair enough. But that doesn’t mean opting for costly and slow to deploy nuclear decarbonisation. It means getting on with lower cost renewables fast and adjusting the wind fall taxes and CfD system to that end. And of course cutting back on energy wastage where ever possible.
Will we see anything like that in the new year? Or will the government get side-tracked by its nuclear obsession, with its newly created development outfit ‘Great British Nuclear’ expected to triple UK nuclear capacity by 2050 - getting to 24GW, with 20-30 SMRs and 4-6 new large reactors. Hard to believe. But so is backing a new coal mine. Let’s hope 2023 makes more sense….
In case you are interested: I am recovering slowly from my recent operation. It wasn't fun. But the NHS did well.
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