Budget for heat pumps leaves renewables out in the cold

Budget for heat pumps leaves renewables out in the cold

 This was a mixed bag for the energy sector. Despite the new Chancellor’s heavy focus on the environment and global warming in his Budget speech, and some tentative welcomes some corners, his first budget left large parts of the low-carbon economy cold.

With the COP26 climate change summit due to be hosted by the UK in Glasgow this November, this Budget was always expected to give a lot of attention to the environment and climate change. In the end, about 10% of the budget speech was dedicated to energy, carbon policy and the environment. Declaring “there can be no lasting prosperity for our people, if we do not protect our planet”, the chancellor outlined a plan to “create the high skill, high wage, low carbon jobs of the future”.

But what we got was thin on detail. Many of the most important decisions on energy and climate change have been deferred to Government reviews that will not follow until later in the year. Prime among them is the Treasury’s Net Zero review, launched in November, which will set out some strategic choices between now and COP26.

What may prove a less obvious opportunity for solar power’s ‘fundamental review’ of business rates, the terms of reference of which were published alongside the Budget. Business rates are the main barrier to the deployment of large rooftop solar PV, and some retailers have seen their business rates increase by six to eight times after installing solar PV on their roofs. This review might just provide a route to a more sensible way forward. The review will publish a call for evidence in spring 2020, and will report by the autumn.

There were a few measures to nudge consumers and businesses toward more sustainable behaviours. These include extending the Climate Change Agreement scheme until March 2025, to offer energy-intensive businesses a discount on their Climate Change Levy in exchange for reducing their energy use.

The Budget also brought good news for green heat energy, with various announcements to support the installation of heat pumps, biomass boilers and heat networks in UK homes. This included a new Low Carbon Heat Support Scheme, £70 million of additional funding for the Heat Networks Investment Project, and a further £270 million in a new Green Heat Networks Scheme. Alongside these investments is a modest new level of support for biomethane, supported by a new Green Gas Levy on gas suppliers, which will feed through to household energy bills of about £1 a year per household from next year, so around £27 million in total.

There was also some good news for the electric vehicle industry, which had already been promised £1 billion of investment to develop EV supply chains. The Budget had another £500 million of investment over five years in EV charging infrastructure, to ensure that drivers are never more than 30 miles from a rapid charging station, and a Rapid Charging Fund to help businesses connect their fast charge points to the grid. Meanwhile, EV innovators will share £900 million with nuclear fusion and space research. And to encourage adoption of the technology, £532 million of consumer incentives will be made available for ultra-low emission vehicles, and reduced taxation on zero-emission vehicles.

Unfortunately, the support for electric vehicles is soured, by the continued freeze of Fuel Duty for a tenth year in a row, which has been criticised as undermining efforts to encourage the transition to ultra-low emission vehicles, and cheapening the UK’s commitment to Net Zero.

But perhaps the most important thing about the Budget was what was missing. Many observers in the renewables industry were hoping for news of support for established or developing renewable energy, given the still-scant detail on how the Government plans to deliver its Net Zero targets. Yet there was no mention whatsoever of renewables, wind, solar or battery storage in Sunak’s speech – and the only mention of nuclear was funding for research on far-off nuclear fusion.

What there was, buried in the Treasury’s ‘Red Book’ of detailed Budget announcements, was an admission that onshore wind and solar, alongside offshore wind, will be the primary sources of the UK’s electricity in future. While this has been obvious to experts for some time, it has been a politically awkward fact for the Conservatives, whose rural voters include many opponents of onshore wind. This admission was hot on the heels of news a week earlier that the effective ban on the development of onshore wind and solar energy will be lifted, by opening up Contracts for Difference auctions to these established technologies. Together, these signs may point to a softening of the hostility of previous Conservative administrations to onshore wind and solar. But there was no tangible policy change in the budget.

We will have to wait and see whether planning policy outside Scotland and Wales will also catch up to this reality, or whether proposed onshore wind and solar developments in England will still be at the mercy of local anti-renewables campaigners. With planning applications for new UK clean energy projects at an all-time-high, now would be a good time.

On a political level, Rishi Sunak has pick-pocketed Labour for much of the language around its ‘Green New Deal’. While Labour stumbles, still Corbyn-led and comatose three months after its thumping in December’s election, the Government can pinch whatever headline policies it likes. But behind the political positioning, there are two ways of looking at this budget in terms of energy and low-carbon industries.

On the one hand, it contained lots to protect and enhance the UK’s global lead in science and technology, trying to turn those advantages toward creating commercially viable low-carbon technologies, with support for promising tech like CCS and hydrogen, alongside long shots like nuclear fusion and a new ARPA-like agency to fund research with a high chance of failure.

On the other hand, it was proven renewable technologies like wind and solar were left in the cold, and even good news on green heat and EVs are a long way from huge economic and societal changes needed to meet Net Zero by 2050.

It’s in this long-shot approach that the new influence of Number 10 advisors over the Treasury is most obvious. This Budget comes not from the usual caution that the Treasury is known for, but from a more insurgent school of thought, that sees climate change as a puzzle for elite, wonkish minds; that imagines there is a silver bullet just waiting for the right team of “weirdos and misfits” to discover it; and that there is no need for hard choices or uncomfortable changes. When the UK chairs the critical COP26 summit in November, that approach will struggle for credibility.

 

Dan Hogan

 Account Director

 M: 02075667965

 

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