What does the UK budget mean for solar and storage? – pv magazine International

November 1, 2024
Matthew Lynas

UK Chancellor Rachel Reeves said she wanted to “deliver Britain back on track” as she delivered her government’s first budget speech, which included several spending commitments with implications for the deployment of solar power and storage.

Under the plans, the Department for Energy Security and Net Zero, which leads the UK government’s approach to the energy transition, will see its annual budget increase from GBP6.4 billion ($8.3 billion) to the planned GBP 6.4 billion ($8.3 billion) in the 2023-24 financial year. 14.1 billion in 2024-25.

Reeves did not single out solar energy in his speech to Parliament, but confirmed the government would spend GBP125 million in 2025 to set up state-owned investment vehicle Great British Energy. GB Energy, headquartered in Aberdeen, Scotland, will be supported with GBP 8.3 billion over the five-year parliamentary term. The government initiative will be tasked with investing in renewable energy projects across the UK, with the aim of attracting private investment in the process. The UK government also plans to create a new Sovereign Wealth Fund to “catalyze over GBP70bn of private investment” into clean energy and other growth industries.

Planning

The budget also included more cash for planning departments. Slow planning approvals are a significant barrier to solar and storage deployment in the UK, limiting the progress of grid upgrades as well as other important infrastructure and housing projects.

Reeves has pledged GBP46 million to recruit 300 new planning officers. Its budget also commits the government to provide an additional GBP5 million to deliver improvements to the planning regime for Nationally Significant Infrastructure Projects, the process by which solar projects exceeding 50MW capacity in England and Wales secure planning approval. In Scotland, the UK and Scottish governments launched a consultation in October 2024 with proposals to streamline the planning system for energy infrastructure projects falling within Edinburgh’s jurisdiction.

heat pump funds

Reeves has also committed further funding to a grant scheme that has to date played a key role in supporting heat pump adoption in the UK. First introduced in England and Wales in April 2022, the Boiler Upgrade Scheme (BUS) provides grants to support the installation of more energy-efficient heating in homes and commercial buildings in England and Wales.

There were 55,095 applications for BUS grants from May 2022 to September 2024, 97% of which were for air source heat pump installations. An average air source heat pump installation in England and Wales costs around GBP 13,000, but a BUS grant will cover GBP 7,500 of the cost.

Additional funds for the program are included in the GBP 3.4 billion allocated to the government’s ‘Warm Homes Scheme’; This fund also includes GBP 1.8 billion to support fuel poverty schemes. The budget documents also say the government will provide funding to “grow heat pump manufacturing supply chains in the UK”, but do not provide further details.

In Scotland, grants and loans are available through the Scottish Government’s Home Energy Scotland programme. The Boiler Replacement Scheme in Northern Ireland closes to applicants in 2023.

green hydrogen

The Chancellor also provided some certainty for flagship green hydrogen projects in the UK by pledging to fund contracts offered to 11 projects under the previous government. The UK government’s first hydrogen allocation round (HAR1) was launched in July 2022, with contracts signed for a total of 125MW of capacity at a weighted average strike price of GBP/MWh of 241GBP/MWh.

Reeves said the 11 projects would be “among the first commercial-scale projects anywhere in the world.” The cash for the hydrogen contracts is included in the GBP3.9 billion Reeves has set aside to fund green hydrogen and carbon capture, use and storage projects in the 2025-26 financial year.

carbon cost

Apart from some big spending promises, Labour’s first budget in 14 years was not short on tax-raising measures. These included an adjustment to the energy profits tax (EPL). Introduced in May 2022, the EPL applies to profits of oil and gas companies operating in the UK and on the UK continental shelf; This means it largely applies to industry in the North Sea. Reeves increased the EPL by three percentage points to 38%, eliminated the 29% investment allowance and extended the life of the tax until March 31, 2030. This means that the basic tax rate for oil and gas ventures in the North Sea is now 78%.

Reeves also confirmed that the UK will introduce a carbon border adjustment mechanism (CBAM) from January 2027. The UK CBAM will impose a tax on industrial goods from sectors with high carbon emissions. A similar mechanism is planned to be implemented in the European Union in 2026.

electric vehicles

On vehicle electrification, the UK government will invest GBP200 million in electric vehicle (EV) charging point infrastructure during 2025-26. Reeves has also committed GBP120 million in 2025-26 to support the purchase of new electric vans through the government’s plug-in vehicle grant scheme and to “support the production of wheelchair accessible electric vehicles”.

Tax incentives such as reduced vehicle excise rates and reductions in company car tax regimes for the purchase of electric cars have also been maintained. The freezing of planned increases in fuel taxes on gasoline and diesel continued.

Reaction

Trevor Hutchings, chief executive of the UK Renewable Energy and Clean Technology Association (REA), praised the budget as “an important step forward” in a statement.

“The change to fiscal rules to unlock investment signals a bold departure from previous approaches, paving the way for new infrastructure and sustainable growth,” Hutchings said. “The approval of policies such as the Carbon Border Adjustment Mechanism, the Warm Homes Scheme and UK Energy funding, along with continued support for electric vehicles and increased funding for the Boiler Upgrade Scheme, represent positive steps forward. “But there are missed opportunities to deliver more ambitious outcomes that could accelerate our transition to net zero, such as increasing the Fuel Duty rate and the Carbon Base Price.”

Brett Ryan, head of policy at Hydrogen UK, welcomed the approval of commercial-scale hydrogen investment.

“The reaffirmation of multi-year investment in carbon capture and storage and financing of 11 HAR1 projects marks a much-anticipated official announcement of the government’s commitment to these clean energy sectors,” he said.