The Budget is More Bad News for Renewables

Today Chancellor George Osborne announced a series of measures which will, yet again, inflict pain on the renewable energy sector in the UK.

First off, the Government has increased the Climate Change Levy. The Conservatives removed the exemption of renewables from the CCL and so this, in turn, is a tax increase for renewable energy generators who are already seeing their incomes fall due to subsidy cuts. This is mildly tempered insofar as their drive to take onshore wind out of the Renewables Obligation a year early is being held up in the Lords and may yet fail, but is not going to improve investor confidence already shaken by subsidy reforms.

Furthermore, a corporation tax cut to 17% has been announced. This is more indirect but benefits large-scale generators who already enjoy some of the lowest corporation tax rates in the OECD and get access to larger scale subsidy schemes such as Contracts for Difference which small-scale developers do not.This confers further market advantage to centralised generators – the Big Six – at the expense of smaller developers working at distribution level already struggling due to cuts to FiTs.

Tax cuts for oil and gas have a more indirect effect. The North Sea needs support, yes, but only as a step towards transitioning away from it altogether. The North Sea has maybe 25-30 years left, tops, and whether we like it or not the industry needs short-term life support from the state. However, to provide state assistance to oil while cutting Feed-in-Tariffs for solar and cutting support for onshore wind is the complete opposite way to do that, scaring investors whilst sustaining dependence on an industry with declining value and a limited lifetime, particularly given the catastrophic environmental changes currently happening in the arctic hammering home the need to take immediate action to reduce emissions.

Using the increased revenue from the CCL increase, the Government has opted to abolish the Carbon Reduction Commitment, essentially scrapping what was a carbon tax. Instead of taxing energy intensive polluters, the tax burden has been shifted in-part onto renewable energy generators. The Government has also stated it wants to “reduce dependence on gas” by modifying the rates of the CCL. The problem with this is that it means increasing the dependence on electricity. Electrification of heat is causing minor panic among transmitters and generators because there’s no certain way of knowing at what pace and in what fashion electrification will occur and the exact impact this will have on demand.

The UK Government has signed into law a commitment to net zero emissions, which is an excellent gesture; but without financial backing of renewable energy, energy efficiency, grid flexibility, storage, and EU-wide market reform, it is just that. The Government has increased its ambition for network interconnection to 9GW (about 15% of the UK’s peak demand) which is an excellent move – but given the billions in savings to be made through demand side management and storage (which the Carbon Trust estimates to be up to £2.4bn per year by 2030), investing a paltry £50m over 5 years into demand-side and storage research is little more than gesture politics given the scale of investment in inflexible, must-run nuclear at Hinkley. Given the desire to electrify heating and the limited investment in energy efficiency, the need to invest in demand-side management technologies is even more pressing.

This budget is yet more bad news for renewable generators at a time when the need for clean energy has never been greater.