Autumn statement: continued reaction

Energy barely got a mention in the chancellor’s autumn budget statement, only once being explicitly referred to in his speech to parliament. Philip Hammond pledged to “look carefully” in the coming months at the function of key markets including the energy retail market.

The big takeaway for utilities was that the Carbon Price Support (CPS) will remain in place – capped at its current rate until 2020/21 – although there was no further clarity on what will happen to the mechanism beyond then. Some had feared its removal in the face of lobbying by businesses with big energy bills.

There was no further clarity about the future of the Levy Control Framework beyond the end of the decade either. The full autumn budget statement document published by the Treasury said the government is “considering the future of the Levy Control Framework which it will set out at Budget 2017”.

The statement also revealed that:

  • The National Infrastructure Commission has been invited to put forward recommendations for investment on the basis that infrastructure spending will amount to between 1 and 1.2 per cent of GDP between 2020 and 2050, up from its current level of 0.8 per cent. All final spending decisions will be made by the government.
  • A green paper will be put forward in spring 2017 that will “closely examine markets which are not working fairly for consumers”. 
  • A new National Productivity Investment Fund (NPIF) will be allocated £23 billion to spend between 2017-18 and 2021-22, including on research and development.
  • Some of this money will be used to pay for a new Industrial Strategy Challenge Fund to support collaboration between business and the scientific community. It will be managed by Innovate UK and research councils, and modelled on the Defense Advanced Research Projects Agency (DARPA) programme in the US.
  • The NPIF will also provide £390 million of funding by 2020/21 to support ultra-low emission vehicles (ULEV), renewable fuels and autonomous vehicles. Of that £80 million will go towards ULEV charging infrastructure and £150 million towards low emission buses and taxis. Companies investing in charging points for electric vehicles will be offered a 100 per cent first-year tax allowance.
  • The Shale Wealth Fund will hand out up to £1 billion to local communities over and above industry schemes and other sources of government funding. The communities themselves will determine how the money is spent.

Read the initial reaction to autumn budget statement here. This is what others have said since:

Alan Whitehead, shadow energy and climate change minister

“The autumn statement was widely trailed as taking action on energy prices by placing a cap or similar on tariffs, but the chancellor has announced merely that there will be an enquiry into energy over the next few months ‘to make sure they are functioning fairly for all consumers’ – something that has already happened with the inadequate Competition and Markets Authority [CMA] enquiry. This is a completely inadequate response to a real issue of the overcharging of ‘sticky’ customers by energy companies.

“The statement made clear that the government is still considering the next steps for the Levy Control Framework, further delaying any indication about its future until Budget 2017. This is yet another delay in giving the industry the certainty it needs to get investments under way. I was pleased, however, to see that – contrary to briefing ahead of the statement – the Carbon Price Support has been maintained.

“The chancellor announced that he is abandoning his predecessor’s stance of not borrowing to secure investment in infrastructure, but he has made no mention of investment in the key area of upgrading the energy efficiency of our housing stock. This could have been a win-win – investment that reduces carbon dioxide emissions from homes, reduces fuel bills for householders and creates thousands of jobs.”

Mateusz Wronski, project leader for research and publications, Aurora Energy Research; speaking to Utility Week

“The statement was very energy light in accordance with our expectations. We knew that the Treasury didn’t have much time to focus on energy. It wasn’t the priority for obvious reasons and given the complexity of these policies there simply wasn’t enough time for them to come up with a coherent and long term strategy.

“The government confirmed it would maintain the cap on the Carbon Price Support at £18 per tonne. This is certainly a short term relief for the market… some expressed the fear that the CPS would be scrapped. This did not happen so at least in the short term the government has managed to provide certainty to industry that it is committed to maintaining that rate.

“Crucially, the government failed to provide any clarity on its intentions for the CPS beyond 2020/21. Under the old government the expectation was that we would at least learn what the rate will be for 2021/22 and that perhaps a longer trajectory would be outlined. Nothing of this sort happened. There is still a big uncertainty. Despite the short term relief, the overall atmosphere around the CPS is such that the industry still has some important reasons to worry…

“The extension of the guarantee scheme is another point which to some extent is relevant to the energy industry, especially for nuclear. We know that EDF in its construction of Hinkley will most likely not use the guarantee that was granted to it, but now the extension of the scheme… potentially indicates that the government will look to provide quite robust debt guarantees for future nuclear projects, and perhaps for future renewables projects.”

Jon Ferris, strategy director, Utilitywise; speaking to Utility Week

“On the one hand, I’m happy that we’re not seeing another big change. Some stability in energy policy is to be welcomed given all the chopping and changing over the last few years.

“On the other hand, we were expecting some form of long-term road map and an idea of where the Carbon Price Support was going to go through the 2020s; what’s going to happen with the Levy Control Framework given that we’ve already seen announcements for the next auction under the Contracts for Difference, as well as the expectation that Hinkley is going to go-ahead. We know costs are being committed to in the 2020s, but we’ve just got no idea of what the cap is and what might be left for any other investment…

“In the circumstances we find ourselves in, I think it’s even more important that the government gives business, both consuming and generating, clarity over the long-term vision and the direction of travel so we can have some confidence to invest regardless of all the uncertainty around what’s happening with Brexit…

“I’m slightly confused why they are inviting the NIC to set out recommendations when they’ve already had a very detailed and clear report… on the changes that we need to make to move towards a smarter more flexible system that will deliver more benefit from our existing infrastructure…

“We are pleased to see the Industrial Strategy Challenge Fund, particularly the way it’s being modelled on DARPA. If you look at how the US has also created an energy research fund, ARPA-E [Advanced Research Projects Agency – Energy]; that could be seen as a model to encourage and support investment in research that is high risk but could deliver in the long term. The only worry about that is… following the scrapping the CCS [carbon capture and storage] competition; is it something that industry is going to have confidence in?

“Again we’ve got a government that’s talking about taking a close look at the retail market. I’d have thought that having come out of a two-year CMA investigation we wouldn’t need to have close look. We should be focused on implementing their recommendations and then seeing if that produces the desired results so I was little bit surprised that there was no support for the CMA.”

Simon Virley, head of power and utilities, KPMG; speaking to Utility Week

“There was not a huge amount on power and utilities specifically, but low-carbon investors will welcome the fact that the Carbon Price Support’s been retained and there’s been a big boost for electric vehicles, but I think there are still big questions outstanding about what is the future for industrial policy; what does Brexit mean for energy?…

“There were limited announcements for the various things George Osborne said were going to be resolved by now but haven’t been, like what is the future of carbon pricing in the 2020s or the Levy Control Framework. What we do have is obviously extra support, both on the tax and spending side, for electric vehicles which will have an impact on power companies in the medium term…

“I think the issue of Brexit has of course complicated [the matter of the Carbon Price Support] massively because we don’t yet know whether the UK will be part of the EU ETS [Emissions Trading System].”

Phil Grant, energy advisory partner, Baringa Partners; speaking to Utility Week

“I think it’s what wasn’t said that’s disappointing. You can talk about a missed opportunity… I don’t think it really changes anything. There’s some relief for the owners of existing assets but for anybody building stuff today it doesn’t provide any greater clarity.

“I think the learnings through the last 12 months over the LEC [Levy Exemption Certificate] removal and speculation about the CPS, are that people can’t rely on the CPS to provide any degree of certainty, which is ironic given that the original intent of the Carbon Price Support was to deliver a lower cost of capital to low-carbon investment. It’s now having the complete opposite effect…

“I get the slight sense of relief that the CPS will remain in place… We’re in no worse situation today going into the capacity market than we were. I think if the CPS had been removed we would have caused quite a lot of disruption to the upcoming capacity auction.”

Paul Barwell, chief executive, Solar Trade Association

“We welcome the additional funding for infrastructure and electric vehicles – a ‘smart’ energy system will deliver enormous savings to business and consumers. It is also good news that there is no cut to the Carbon Price Support, and we look forward to working with the government over their emissions reduction plan and the future of the Levy Control Framework.

“However proposed business rate rises risk undermining an industry that is already adjusting to a low-support framework, and will make many systems uneconomical.”

Colin Elcoate, vice president of business development for power, SPX Flow

“Crucial detail on how investment will support key strands of energy policy was missing. The detail must be spelled out to encourage investment and give the UK’s supply chain the best chance possible to invest and prepare. Stability and consistency is key.

“I’m disappointed that there wasn’t any information on the UK’s future nuclear roadmap. With the green light given to Hinkley in 2016, the UK must seize the impetus to support the full scale reactor programme that will be vital if the country is to deliver baseload carbon-free electricity for generations to come.

“Finally, the whole nuclear energy industry is keen to have clarity on the government’s SMR [small modular reactor] competition – it’s my belief that SMRs will complement the UK’s energy mix and position the country as a prominent player in the global deployment of this key technology. Not giving that clarity in this statement is a missed opportunity.”