The Energy Transition | Key takeaways from the Autumn Statement for the clean energy sector
Published on 27th Nov 2023
Welcome to our top picks of the latest energy regulatory and market developments in the UK's transition to net zero
This week we look at the key announcements for the clean energy sector arising out of the Autumn Statement, the government's plan to upgrade the grid connections process, investment for net zero manufacturing and proposed changes to the CfD regime.
Key takeaways from the Autumn Statement for the clean energy sector
The government has issued the Autumn Statement 2023, an important annual update on its plans for the economy.
The statement includes the announcement of an exemption to the electricity generator levy (EGL) for all electricity generation projects on which a "substantive decision to proceed" is made after 22 November 2023. The exemption will also apply to the extension and repowering of existing projects. The accompanying technical note sets out some examples of actions which may constitute a decision to proceed, including the adoption of a main board level commitment and the release of project funding by major investors. The EGL will remain in force until 31 March 2028 and there will be no change in its operation for projects not covered by the exemption.
The government has also committed to expedite legislation which extends rights for The Crown Estate to borrow and invest, with the goal of unlocking an extra 20-30GW of capacity from the grant of new offshore wind seabed rights by 2030. Amendments to the Crown Estate Act 1961 would provide the organisation with the ability to borrow capital and invest more flexibly across its portfolio.
Developers will also benefit from the government's decision to make permanent the previously temporary capital allowances regime under which businesses can deduct the full cost of investing in new plant and machinery.
The government states the measures announced by the chancellor are intended to "support continued investment in the UK’s renewable generation capacity" and "further accelerate the UK’s world-leading offshore wind deployment".
Read more about the wider business tax measures announced in the Autumn Statement in this Insight.
Government and Ofgem release Connections Action Plan
The Department for Energy Security and Net Zero (DESNZ) and Ofgem have published a Connections Action Plan designed to accelerate grid connections by focusing on strategically important projects. As we have previously reported, Ofgem had previously expressed a desire to tackle blockages in the connections system and cut zombie projects to unlock 549GW of projects in the connections queue.
The new plan will incorporate connection acceleration measures already undertaken by the Electricity System Operator (ESO) and Energy Network Association and will focus on six key areas to accelerate connections:
- Raising entry requirements – there has been a recent trend of applying for a transmission connection in the hope of acquiring a saleable asset, sometimes without the relevant landowner's consent. New requirements will be introduced so that landowners must give their consent before applications are submitted so that speculative bids do not clog up the system.
- Removing stalled projects – Ofgem's plans to remove zombie projects will be fully implemented so that projects have to meet minimum milestones or be removed from the queue.
- Better utilising existing capacity – the ESO will review its standards and processes to optimise the existing network.
- Better allocation of existing network capacity – the ESO, network companies and Ofgem should explore options for allocating the connection capacity to the most strategically important projects. Projects which are ready to connect will be given priority.
- Improving data to sharpen obligations and incentives – the ESO will create a single digital view of connections alongside network companies to provide more transparent and accessible pre-application data and reduce friction at the interface across system boundaries.
- Developing longer term connections process models – the connections process models will be aligned with strategic planning, both central and regional, by the ESO.
The plan also includes the creation of a Connections Delivery Board to triage projects and cut the grid connection wait time from five years to six months.
Government announces £4.5bn boost for manufacturing with net zero focus
The government has announced a £4.5 billion package from 2025 of mixed grants and loans for UK manufacturers, including more than £2 billion for automotive manufacturing and almost £1 billion for clean energy component manufacturing.
Eligible manufacturers will need to be making “fundamental changes” to help reach net zero operations and to offer the products and components needed to drive the wider low-carbon transition.
Around £960 million has been ringfenced for businesses manufacturing solutions for hydrogen, nuclear, offshore wind and carbon capture, utilisation and storage, as well as to those manufacturing components for electricity networks. £2 billion of the funding is set aside for automotive companies, with the aim of helping to ease the transition to electric vehicle (EV) manufacturing ahead of the 2035 ban on new petrol and diesel car and van production.
As part of the announcement, the government also noted that it is set is to expand the Made Smarter programme to all English regions by the end of 2025. This scheme supports small and medium-sized manufacturers in accessing digital technologies that can improve efficiencies and will be rolled out UK-wide by the end of 2026.
Brigette Amoruso, the senior energy and climate change specialist for Make UK, a manufacturer's organisation, said the funding “will undoubtedly help the manufacturing sector make progress towards achieving net zero emissions”.
Ofgem announces energy price cap increase
Ofgem has announced that the maximum that customers can be charged for their energy bills will rise in January 2024. About 29 million customers will see an increase of 5% on the previous quarter from 1 January 2024 to 31 March 2024. For the average household, this will mean a rise of around £7.83 a month, with a per unit rate of 29p/kWh for electricity and 7p/kWh for gas.
Ofgem explained that the price cap rise was driven by rising international wholesale energy costs, which have risen by almost 10%. The regulator attributed this increase to market instability and global events, especially the conflict in Ukraine.
Ofgem Chief Executive, Jonathan Brearley, said he understood that customers may be concerned by the increase in the price cap, but that the rise was the "result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay." However, he also welcomed the "return of choice to the market."
Government seeks views on the introduction of non-price factors into Contracts for Difference
The government has launched a consultation which seeks views on its proposals to introduce a Contracts for Difference (CfD) Sustainable Industry Reward (SIR) from CfD Allocation Round 7 onwards. This comes after the Call for Evidence on introducing non-price factors into the CfD scheme and the subsequent government response which was published in September 2023.
The CfD SIR would reward projects that take meaningful steps to increase their sustainability credentials. A successful applicant would be provided with a financial uplift via SIR payments which would be in addition to their CfD payments. The consultation defines non-price factors as including those which improve the economic, environmental and social sustainability of the supply chains of offshore and floating offshore wind deployment.
As part of the government's push to reach net zero by 2050, it is proposing to deploy up to 50GW of offshore wind by 2030, including up to 5GW of floating offshore wind. However, offshore and floating offshore wind farms have fallen under increasing criticism for the lack of sustainability in their supply chains. The government hopes that these changes to CfD rewards will enable these generation targets to be met, without causing a detriment to the planet, communities, and the long term economic sustainability of supply chains.
Due to the unique scale and the unsustainable nature of the conditions facing offshore and floating offshore wind projects, only these types of renewable energy projects would be eligible to apply for the CfD SIR. The CfD SIR would replace the Supply Chains Plans (SCP) for offshore and floating offshore wind. However, existing SCPs would continue to be monitored, and projects over 300MW would be required to continue to comply with the existing SCP requirements.
The consultation closes on 11 January 2024.
This article was written with the assistance of Jack Duffy, Johnny Hartrick, Madeleine Begg and Luke Webb, trainee solicitors.