UK Spring Budget 2023 – Energy Highlights

The UK’s ongoing pursuit of net zero and a secure supply of clean energy are key themes of the Chancellor’s 2023 Spring Budget. The 2023 Spring Budget is a progression of the 2022 Autumn Statement, outlining the Government’s continued efforts to shield the UK from forecasted downturns, pursue inflation reduction measures, provide ongoing energy price relief and support critical long-term energy investment in homegrown green technologies.

From an energy perspective, the Chancellor’s key announcements include:

Carbon Capture, Utilisation and Storage

The Government announced £20 billion of funding for early deployment of Carbon Capture, Usage and Storage (“CCUS”). This is a significant announcement in the Government’s pursuit of net zero and its efforts to capitalise on the UK’s geological advantage (in North Sea aquifers and depleted oil and gas reservoirs) and preliminary work in the CCUS space. It is hoped that this funding will help unlock private investment, whilst prompting the creation of over 50,000 jobs across the UK, with a particular focus on the East Coast and North West of England and North Wales.

A shortlist of projects for the first phase of this new funding will be announced later this month. It is anticipated that the shortlist will be made up of projects within the two industrial clusters already selected by Government for development of CCUS, namely the East Coast Cluster in Teesside and the Humber and the HyNet Cluster in North West England around Merseyside and North Wales (known as “Track 1” projects as they are on course for launch by 2027).

Further projects will also be able to enter a selection process for Track 1 expansion launching this year, and two additional clusters will be settled through a Track 2 process (for projects launching after the mid-2020s). The timing of the Track 1 expansion, how it links with Track 2 and the process for Track 2 itself is not yet clear and Government has confirmed further details will be announced shortly. We understand that the eligibility criteria may be modified for Track 1 expansion and Track 2 projects, reflecting that some these projects will not be first-of-a-kind projects. However, the detail of this is yet to be clarified.

Additionally, in support of the ongoing decommissioning of oil and gas facilities, oil and gas assets will be permitted to be repurposed for use in CCUS projects (generating both development cost and time savings). To incentivise participants accordingly, the Government is proposing to introduce legislation in a future Finance Bill to establish the tax treatment of payments made into decommissioning funds by oil and gas companies in relation to such assets repurposed for use in CCUS projects.

Nuclear Power

As a means of incentivising private investment, the Government announced the launch of new industry body Great British Nuclear (“GBN”). GBN was first set up during 2022 and although details of projects which will be overseen by GBN have not yet been announced, the Government’s aim is to help address constraints in the UK nuclear market and support new nuclear builds, in pursuit of net zero and a secure clean energy future.

GBN will initially run a competition for the roll out of Small Modular Reactors (“SMR”). Following submissions and by the end of 2023, the Government intends to select leading SMR technologies and co-fund these projects in the UK, provided viability of the technology is demonstrated.

While SMRs will be GBN’s initial focus, the Government also noted that large Gigawatt-scale projects will be considered, subject to factors including value for money, approvals and technological readiness.

In parallel, whilst subject to further consultation, the Government is proposing to include nuclear energy in the green taxonomy (under which investments are defined as environmentally sustainable), to encourage private sector investment in nuclear projects.

Along with the recent appointment of the first Minister for Nuclear and Networks, the launch of GBN underscores the Government’s commitment to nuclear forming a key part of the UK’s decarbonised energy production portfolio.

Extension of the Climate Change Agreement

The Climate Change Agreement scheme, under which participants that meet agreed energy efficiency targets are entitled to reduced rates under the Climate Change Levy, will be extended by the Government until March 2027 (a further two years). The extension will be open to new participants in currently eligible sectors, including chemical manufacturing, data centres and steel production. Further review of the Climate Change Agreement will also be overseen by the recently established Department for Energy Security and Net Zero.

Energy Price Guarantee

The Energy Price Guarantee, which currently caps typical annual household energy bills at £2,500, will be extended for a further three months to the end of June 2023. To provide continued relief to households, the planned increase previously announced for 1 April to £3,000 will instead be implemented on 1 July.

Energy Bills Discount Scheme

In the business space, with the Energy Bill Relief Scheme coming to an end, the Energy Bills Discount Scheme will be introduced to provide all eligible businesses and other non-domestic energy users with a discount on high energy bills until 31 March 2024.

Capital Allowances

From 1 April 2023 until 31 March 2026, investments made by companies in qualifying plant and machinery will qualify for a 100% first-year allowance for main rate assets. Additionally, companies investing in special rate (including long life) assets will qualify for a 50% first-year allowance in the year of investment. While specific details of qualifying assets are to be provided, we anticipate there will be cross over with the assets required in green energy facilities.

Further announcements expected

The Chancellor also signalled that, in support of both the UK’s energy security and net zero commitments:

• later this month, a further energy-focussed action plan will be set out by the Government; and
• later this year, the Government will set out plans to refresh the Control for Low Carbon Levies; and the Autumn Statement will complete the Government’s response to the challenges created by the US Inflation Reduction Act, albeit it is not yet clear what this might include.

Developments expected later this year 

Earlier this month the Government provided its initial response on its consultation on the Review of Electricity Market Arrangements (REMA). We have published our thoughts on this response here, noting that further consultation is expected on the REMA later this year.

The Energy Bill is expected to make its way through Parliament during this session. This is a major legislative initiative that fully supports and furthers the UK’s net zero ambitions. It covers a slew of issues from licensing of carbon storage and transport to nuclear power plants and revenue support for hydrogen. The Electricity Generator Levy is also expected to be effected through the Energy Bill (as we discussed here).

If you would like to know more about how these announcements and future developments might impact your business, please do get in touch.