November 1, 2024
Matthew Lynas

British Chancellor Rachel Reeves said she wanted to “enable Britain to rebuild” in her government’s first budget speech, which contained several spending commitments impacting the deployment of solar and electricity. storage.

As part of the plans, the Department for Energy Security and Net Zero, which spearheads the UK government’s approach to the energy transition, will see its annual budget increase from £6.4 billion ($8.3 billion) in FY 2023-24, at the planned amount. 14.1 billion in 2024-25.

Reeves did not mention solar power in his speech to Parliament, but confirmed the Government would spend £125 million in 2025 to create the Great British Energy public investment vehicle. Based in Aberdeen, Scotland, GB Energy will be supported by £8.3 billion over the five-year term. The public company will be responsible for investing in renewable energy projects across the UK, with the aim of attracting private investment. The UK government is also planning to create a new National Wealth Fund with the aim of “catalysing more than £70 billion of private investment” in clean energy and other growth sectors.

Planning

The budget also included more cash for planning departments. The slow pace of planning approvals poses a significant barrier to the deployment of solar and storage in the UK and limits progress on the grid upgrade, as well as other key infrastructure and housing projects.

Reeves has pledged £46m to recruit 300 new planning officers. Its budget also commits the government to providing an additional £5 million to improve the planning regime for nationally significant infrastructure projects, the process by which solar projects exceeding 50 MW of capacity gain planning approval in England and Wales. In Scotland, the UK and Scottish governments launched a consultation in October 2024 to develop proposals to streamline the planning system for energy infrastructure projects that fall within Edinburgh’s jurisdiction.

Heat pump funds

Reeves has also committed more funds to a grants program which has so far been key to supporting the adoption of heat pumps in the UK. First introduced in England and Wales in April 2022, the Boiler Upgrade Scheme (BUS) provides grants to support the installation of more energy efficient heating in homes and commercial buildings in England and Wales. Wales.

From May 2022 to September 2024, 55,095 BUS grant applications were registered, of which 97% concerned air source heat pump installations. An average air source heat pump installation in England and Wales costs around £13,000, but a BUS grant will cover £7,500 of the cost.

Additional funding for the project is contained in the £3.4 billion earmarked for the Government’s ‘Warm Homes Plan’, which also includes £1.8 billion to support fuel poverty schemes. The Budget documents also state that the government will provide funding to “develop the UK’s heat pump manufacturing supply chains”, but without further details.

In Scotland, grants and loans are available through the Scottish Government’s Home Energy Scotland scheme. The Boiler Replacement Scheme in Northern Ireland has closed to applicants in 2023.

Green hydrogen

The Chancellor also provided some certainty around the UK’s flagship green hydrogen projects, pledging to fund contracts offered to 11 projects under the previous government. The UK Government’s first hydrogen allocation round (HAR1) launched in July 2022 and awarded contracts for a total of 125 MW of capacity at a weighted average strike price of GBP 241/MWh.

Reeves said the 11 projects would be “among the first commercial-scale projects in the world.” Cash for the hydrogen contracts is contained within the £3.9 billion set aside by Reeves to fund green hydrogen and carbon capture, utilization and storage projects during the financial year 2025-2026.

Carbon cost

Apart from some big spending promises, Labour’s first budget in 14 years was not short of tax-raising measures. These included an adjustment to the energy profits contribution (EPL). Introduced in May 2022, the EPL applies to the profits of oil and gas companies operating in the UK and the UK Continental Shelf, meaning it applies broadly to the North Sea industry. Reeves increased the EPL by three percentage points to 38%, removed a 29% investment allowance and extended the life of the levy until March 31, 2030. This means that the overall tax rate for oil and gas companies in the North Sea is now 78%.

Reeves also confirmed that the UK will introduce a Carbon Border Adjustment Mechanism (CBAM) from January 2027. The UK CBAM will impose a tax on industrial products from high carbon emitting sectors. A similar mechanism is expected to come into operation in the European Union in 2026.

Electric vehicles

Regarding vehicle electrification, the UK government will invest £200 million in electric vehicle (EV) charge point infrastructure over the period 2025-2026. Reeves has also committed £120 million in 2025-26 to support the purchase of new electric vans through the government’s plug-in vehicle grant scheme and to “support the manufacturing of wheelchair accessible electric vehicles”.

Tax incentives for the purchase of electric cars, such as reductions in vehicle excise rates and reductions in the company car tax regime, have also been maintained. The freeze on planned fuel tax increases on gasoline and diesel was also maintained.

Reaction

In a statement, Trevor Hutchings, chief executive of the UK’s Renewable Energy and Clean Technology Association (REA), hailed the budget as a “significant step forward”.

“Changing fiscal rules to unlock investment marks a bold departure from previous approaches, paving the way for new infrastructure and sustainable growth,” Hutchings said. “Confirmation of policies such as the Carbon Border Adjustment Mechanism, the Warm Homes Plan and GB Energy funding, as well as continued support for electric vehicles and increased funding for the Boiler Upgrade Scheme, all represent positive progress. Yet opportunities have been missed for more ambitious outcomes, such as increasing the fuel tax rate and carbon price floor, which could accelerate our transition to net zero emissions.

Brett Ryan, head of policy at Hydrogen UK, welcomed the confirmation of investment in hydrogen on a commercial scale.

“The reaffirmation of the multi-year investment in carbon capture and storage, as well as the funding of the 11 HAR1 projects, marks a much-anticipated official announcement on the government’s commitment to these clean energy sectors,” he said. -he declared.

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