Budget 2016: the reaction from the industry

The chancellor George Osborne has confirmed the scrapping of the carbon reduction commitment (CRC) scheme in today’s budget, whilst announcing an increase the Climate Change Levy (CCL) increasing from 2019 to make up the difference in revenues.

To help the North Sea cope with the collapse in the price of oil, the supplementary charge on oil and gas will be halved from 20 per cent to 10 per cent and the Petroleum Revenue Tax will be abolished entirely. 

Subsidies worth £730 million will be made available for low-carbon generation through Contracts for Difference (CfD) auctions over the course of the current Parliament, with £290 million up for grabs in the first auction –  due to take place before the end of this year.

Funding for flood defences and resilience will be boosted by £700 million on top of £2.3 billion of existing spending.  

At least £50 million will be allocated to the development energy storage, demand-side response and other smart technologies, whilst £30 million will be spent on a research and development programme for Small Modular Reactors (SMRs).

The Carbon Price Support will remain at its current level of £18 per tonne of CO2. The long term plan will be laid out in the autumn statement.

Here’s some of the reaction to the Budget so far:

Director of the Energy and Climate Intelligence Unit Richard Black

“This was a fairly low-key Budget on the energy side; the chancellor didn’t conjure any rabbits from hats this time, but you could say he found a few hamsters at the bottom of teacups.

“Probably the most notable feature was that he accepted the National Infrastructure Commission’s conclusion that the future of the electricity system is diversified, decentralised and flexible … – not much on the money side, but profound philosophically.

“The £730 million announced for renewable energy should mean we’ll continue building offshore wind farms at about the current rate, but it’s equally notable that there’s nothing new for onshore wind, biomass and solar … And we still have no idea what support looks like [post] 2020.”

Deputy chief executive of Renewable UK Maf Smith

“We welcome the chancellor’s announcement that funding will be available for future rounds of competitive auctions to support offshore wind farms. The budget is tight but we’re up for the challenge. We’re confident that today’s announcement will deliver 3.5 gigawatts of new offshore wind capacity between 2021 and 2025 – powering more than 3.5 million British homes.
 
“Today’s announcement will increase confidence, attracting billions of pounds of investment in the UK’s supply chain. It’s long term commitments such as this which will keep the UK as the number one destination in the world for investors in this technology.”  

Ecotricity founder Dale Vince

 “The budget is remarkable not so much for what’s in it, but for what’s not; the chancellor forgot to mention a little thing called climate change – and in the same week that NASA called February’s global temperatures stunning and scientists from around the world declared a climate emergency. 

“Only two days ago, our own government promised to set a net zero emissions target into law, as agreed by the whole world in Paris just a couple of months ago. 

“What is this budget, and this chancellor, doing on this front? Very little it seems.”

Green Alliance director Matthew Spencer

“It’s fantastic that, this morning, the prime minister put us on the road to a largely carbon free energy system by 2030, but the chancellor hasn’t put enough fuel in the tank to get us there.

“Funding less than 1GW a year of offshore wind in the 2020s, with nothing for mature renewables, will leave a big gap in power generation however fast we pursue nuclear and gas.

“This is another example of the government being strong on climate targets, and weak on driving the necessary investment.”

Analysts at Jefferies

“Changes to tax rates for North Sea production will be helpful to Centrica going forward. Drax may be disappointed that biomass does not seem to be part of the renewable finance pot through to 2020 which suggests its ambitions to convert a 4th unit are unlikely ahead of 2020.

“The rapid growth of interconnectors is likely to place additional downward pressure on both the wholesale power price and the balancing market price.

“Finally, we will need to look closely at the potential impact of the changes to interest deductibility on the more highly leveraged utilities. It is also possible that this change may impact on the sale price that National Grid may achieve in disposing its UK gas distribution networks.”

Solar Trade Association chief executive Paul Barwell

“No VAT news is good news on Budget day. This delay means we can continue to make the very strong case for Treasury to abandon plans to hike up VAT on solar. It makes no sense to penalise British families that want to take meaningful action on climate.

“Much more needs to be done to get solar power back on track in the UK, but accepting Lord Adonis’s recommendation for a smart power system is actually a very strategically important announcement by the chancellor. It means the UK will start laying the foundation for a solar future.”

Renewable Energy Association chief executive Nina Skorupska

“The direction for this government is becoming increasing clear, with a huge tax cut for oil and gas with the most polluting industries continuing to be protected, but a tax raise for renewable generators through the now thoroughly misnamed CCL.

“The removal of the supplementary charge for oil and gas industry amounts to a £1 billion giveaway, added on top of the subsidies planned for nuclear, gas and diesel this year, all whilst renewables are getting continually squeezed and blocked.

“Less than three months after the government heralded the signing of the Paris agreement, we see more support for fossils fuels and protection for polluters. If the government are serious about their national and international commitments they need to back up the empty rhetoric with real actions.”

PwC indirect tax senior manager Jayne Harrold

“Energy tax reforms, through scrapping the CRC and replacing it with an increased rate of CCL from April 2019, as well as rebalancing the CCL rates away from electricity and towards gas, will greatly reduce the administration and compliance burden placed on many businesses that fall within the carbon reduction commitment scheme. 

“It’s no surprise that the rates of both aggregates levy and fuel duty remain frozen, but the announcement that the government is to consult on an aggregates levy exemption for utilities is a positive outcome. This will be welcome news to the water and power industries as it would exclude their pipe laying activities from the tax, which is difficult to administer.” 

Utilitywise head of energy markets Jon Ferris

“Abolishing the CRC will simplify business energy reporting, however the cost of carbon emissions will be transferred to a tax on energy consumption. The £600 million in lost treasury revenues will now need to be recovered from business energy consumption, including those that previously fell below the CRC threshold.                                                          

“The £730 million for renewable energy auctions is welcomed as it maintains the supply chain developed in the UK, however there is no mention of the Levy Control Framework beyond 2020. I would ask, where is the long-term plan for renewables?”

Institution of Civil Engineering (ICE) director general Nick Baveystock

“The chancellor’s ambition for the UK to become a world leader in electricity storage systems is a bold and promising step and echoes ICE’s view that this innovative technology could play a crucial part in achieving secure, affordable and cleaner energy.

“We are pleased government has heeded the advice from ICE and the National Infrastructure Commission and we will continue working with Decc, Ofgem and Parliamentarians with the aim of cutting red tape and removing the barriers that are currently hindering its progress.” 

National Grid director of the UK system operator Cordi O’Hara

“We welcome the announcement of investment in demand side and storage, announced in the budget. We have been championing the growth of demand side response through our Power Responsive campaign and we look forward to working with government and industry stakeholders to progress these opportunities.”

Oil and Gas Authority chief executive Andy Samuel

“The Oil and Gas Authority very much welcomes the measures announced as part of the chancellor’s budget announcements which provide timely support to investment in the UK oil and gas industry.

“The permanent reduction in Petroleum Revenue Tax from 35 per cent to zero per cent will help to create a level playing field between old and new fields, recognising the maturity of the basin. This, in addition to the reduction in the Supplementary Charge from 20 per cent to 10 per cent, sends a clear message that the government is continuing to strongly support the industry by providing a truly competitive fiscal regime.”