If the UK is to keep its world-leading role in clean energy and ensure a secure, homegrown energy supply for years to come, action is needed to bring in investment.
Concluding its Clean Growth Gap series alongside Oxford Economics, Energy UK explored the different measures that the UK can take to ensure it does not lose out to other countries on the economic opportunities net zero offers.
Setting the scene, it explained that the decisions the UK government makes this autumn will have far-reaching and long-term consequences for companies. To prevent the prospect of a severe or prolonged decline in investment, action is needed now, namely timely, decisive action that can help avoid a situation where the loss of jobs, skills and expertise make it impossible for the UK to regain its place on top of the clean economy.
An estimated 70% of the funding required for the transformation to net zero is set to come from the private sector. This is going to mean the government needs to reset its relationship with the private sector and set the right signals that demonstrate the UK is a great place to invest in clean energy technologies.
Setting out the actions for the UK to take moving forwards, it called for investment to be encouraged through the tax system. Ways of doing this would include reducing loss-relief rules, allowing for investment allowances to be spread more evenly over the life of a project; exempting renewable generation from the 25-year lifetime rule; and carrying out a holistic review of the treatment of clean technology in the tax system.
The Electricity Generator Levy needs to be rethought, with new projects exempted, investment allowances equivalent to that in the oil and gas sector introduced, a sunset clause added and an overall move away from responsible, revenue-based taxation of the power sector taken.
Efforts need to be taken to maximise capacity from future Contracts for Difference (CfD) rounds, meaning the parameters of Allocation Round (AR) 6 should be increased, reflecting the significant change of market conditions. The government should also commit to catching up on procurement missed in AR5; ensure that the CfD scheme provides adequate pricing incentives to deploy a range of renewables, including by returning offshore wind to a separate pot; and encourage innovation and cost reductions in emerging technologies, including tidal.
When it comes to creating a stable environment for investing, the government should confirm what options under REMA (Review of Electricity Market Arrangements) will definitely not be pursued as soon as possible; explore and exhaust incremental or shorter-term reforms to market design, ahead of making more fundamental or longer-term changes; confirming strategies for low-carbon technologies where they are currently missing or inadequate; and keep commitments to previously announced targets or policies, providing supply chain and investment certainty across the energy system.
To make infrastructure easier to build, the government should follow through with the commitment to reverse the ban on onshore wind in England, update the planning system and key planning documents to ensure clear criteria and alignment with net zero across the national, regional and local level, and ensure that all clean technologies, including low carbon generation, storage transport infrastructure and emerging technologies, such as hydrogen and CCUS, are adequately defined in law and supported.
It also called for the UK to maintain a strong and predictable carbon price, explaining that clear signals through this will allow for investment in decarbonisation, and set out a range of actions to deliver an energy network fit for the future. This will include maximising the use of “sticking plaster” solutions, such as queue amnesties; passing the Energy Bill recommendations for establishing frameworks for business models and investment in hydrogen and CCUS infrastructure; and taking a strategic view of the energy system that considers how to ensure anticipatory investments are well targeted.
