The UK Chancellor’s autumn spending review, which followed the government’s “reset” of energy policy one week earlier, focused on energy innovation, the provision of shale gas and nuclear power, together with support to energy intensive industries. However, the review also cancelled the pioneering Carbon Capture and Storage (CCS) competition, which was a blow for the industry.
In an important announcement for energy intensive industries, George Osborne revealed that the costs of the Renewables Obligation and Feed in Tariffs will be permanently excluded from their energy bills. The decision was made in order to support their competitiveness, particularly in light of recent job losses in the steel industry. A compensation package had already been planned but the introduction of an exemption goes one step further and provides greater certainty. The announcement follows the deployment of compensation payments in recent years for the indirect costs of the EU Emissions Trading System (EU ETS) and Carbon Price Support. These mechanisms have a knock-on effect to wholesale electricity prices and, as a means of maintaining international competitiveness for energy-intensive businesses, the government provides compensation for sectors such as chemicals, steel and fertilisers.
n his speech, the chancellor also announced the doubling of innovation programmes which will focus on small modular nuclear reactors and delivering commitments on seed funding for “promising new renewable technologies” and smart grids. A commitment of £500 million was made, even though the Department of Energy and Climate Change received a 22% reduction to its overall budget.
The government maintained its commitment to the International Climate Fund, made earlier this year, of £5.8bn over the next 5 years. The purpose of Climate Finance is to help developing countries build resilience against climate change and forms an important element of the text being put forward for agreement at the Paris climate summit.
A significant announcement made by the Chancellor was the abolishment of the four year CCS competition, just 6 months before it was due to be awarded. CCS takes CO2 from fossil fuel power plants and buries it underground. The technology is increasingly being considered to be an essential tool to meet emissions reductions in addition to existing and planned mitigation commitments. As some countries continue to burn coal, the required investment in CCS may now fall to industry and private investors.
Other Spending Review announcements included increased funding for the Renewables Heat Incentive to £1.15 billion in 2021, while also reforming the scheme to save £700 million. In addition, it was announced that a Shale Wealth Fund would be established, which could be worth up to £1bn. The fund is designed to benefit local communities where shale gas projects are located. The government plans to invest in new gas-fired plants as coal generation is phased out.
Last week’s spending review concludes a number of changes made to UK energy policy this year. Sudden changes of direction have damaged investor confidence and Westminster is currently in discussions with industry to examine what steps the government can take to rebuild this confidence.
Written By- Nikki Wilson
