The UK government has announced a range of measures totalling around £4bn to boost investment in green technologies and clean energy, as part of the Autumn Statement.
Today chancellor Jeremy Hunt announced a £960m Green Industries Growth Accelerator (GIGA) fund, to “ensure the UK continues to build strong supply chains and maximises global growth opportunities”.
This will support investments in manufacturing capabilities for the clean energy sectors “where the UK can gain the clearest strengths”. These are the controversial carbon capture utilisation and storage (CCUS), hydrogen, offshore wind, electricity networks and nuclear.
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The aim of GIGA is to enable the UK to “seize growth opportunities” through the transition to net zero, unlocking private investment, protecting jobs and creating new ones, and leveraging impact across the wider supply chain.
The fund will sit alongside the government’s already announced Powering Up Britain plans, designed to deliver the clean energy transition and boost green investment and job creation across the country.
Also announced today in the Autumn Statement was more than £2bn made available for the automotive sector to support the manufacturing and development of zero emission vehicles, their batteries and supply chain.
At the same time £975m is being made available for the aerospace sector to support the development of energy efficient and zero-carbon aircraft technology.
Green industries
Applied across the economy, including to the UK’s capital intensive green industries such as solar and offshore wind, the chancellor announced a move to bring in permanent full expensing, making capital investments in areas like technology and machinery immediately tax exempt, including the 50% first-year allowance for special rate assets.
He expressed a preference for investment incentives over subsidies, despite investor enthusiasm for measures such as the Inflation Reduction Act in the US and the Net-Zero Industry Act in the EU.
To further accelerate the UK’s offshore wind deployment, the government will bring forward legislation to provide the Crown Estate with borrowing and wider investment powers, which will help to unlock a further 20-30GW of new offshore wind seabed rights by 2030.
Government is working with The Crown Estate to bring forward additional floating wind in the Celtic Sea through the 2030s, which could see an additional 12GW of generation deployed, alongside the 4.5GW round due to open soon, with the potential to deliver £20bn of direct investment from deployment in the area, it claimed.
Green industries will also see a new investment exemption from the electricity generator levy (EGL). The government will legislate in an upcoming finance bill, so that where the substantive decision to proceed with a project to create a new electricity generation station or expand an existing generating station is made on or after 22 November 2023, receipts from that new generating station or additional capacity will not be subject to the levy. The EGL will end as planned on 31 March 2028.
The government has announced a joint action plan with Ofgem to “drastically” reduce the time it takes viable projects to connect to the electricity grid.
Regionally, the East Midlands Investment Zone, with a focus on green industries and advanced manufacturing, is expected by local partners to help to leverage £383m in private investment and help to create 4,200 jobs in the region over the next 10 years.
The government will also legislate in the Autumn Finance Bill 2023 to increase the plastic packaging tax rate in line with CPI, from 1 April 2024, to £217.85 per tonne. To ensure the plastic packaging tax continues to incentivise the use of recycled plastic in packaging, the government will publish an evaluation plan by the end of the year and gather further evidence to inform the future trajectory of the rate and recycled plastic content threshold.
Delivering the net-zero transition is “vital to the UK’s energy security and long-term prosperity”, the Autumn Statement said, adding the government is “focused on securing the investment needed to deliver clean energy and support industry to decarbonise”.
Oil and gas levy
However in documents published today alongside the Autumn Statement, the government announced its fiscal review of the oil and gas sector re-confirms that the energy profits levy will end in March 2028, or earlier if the energy security investment mechanism is triggered.
The government will develop a new mechanism that could be used to respond to such price shocks post-2028, “to ensure a fair return for the nation at times of unusually high oil and gas prices…while also ensuring this happens in a more predictable way, in order to not deter investment”.
The introduction of such a mechanism should not be presupposed if prices rise. The government will need to consider a range of factors before deciding whether to introduce such a mechanism, including the economic and fiscal context of the day, it said.
Elsewhere in the Autumn Statement the government said since Spring Budget 2023, it has made “strong progress” with its green financing programme, under which the UK issues sovereign green bonds, ‘green gilts’ via the Debt Management Office, and retail Green Savings Bonds via NS&I. The government aims to raise £10bn via green gilts this financial year.
The UK launched its inaugural green gilt maturing in 2033 on 21 September 2021, followed by a second green gilt, maturing in 2053 on 21 October 2021, bringing total proceeds raised by both issues to £16.1bn. In full year 2022-23, a further £9.9bn was raised by reopening the existing green gilts.
‘Investment in the transition’
In a recap of its green policies, the chancellor used the Autumn Statement to express that it has already mobilised £198bn of public and private investment in low-carbon energy since 2010, and the cross-economy measures in the Autumn Statement “will unlock further investment in the transition in the years ahead”.
The government said it is also providing support to help firms transition to a “resilient, low-carbon and industrially competitive future”. This includes spending £185m on the Industrial Energy Transformation Fund to support industrial sites invest in more energy efficient and low-carbon technologies.
This grant funding will come from the £6bn announced at Autumn Statement 2022 to support energy efficiency from 2025, with further allocations set out in due course.
The government is also providing around £300m a year in tax relief in exchange for firms meeting energy efficiency targets under the new six-year Climate Change Agreement scheme, which starts from 2025, and expanding VAT relief available on the installation of energy-saving materials in residential buildings or those used solely for a relevant charitable purpose.
The government has also set out the parameters for the next renewables Contracts for Difference auction round, increasing the maximum price that can be received, and will shortly publish further details on growing hydrogen and CCUS deployment.
‘Not far enough’
James Alexander, chief executive of the UK Sustainable Investment and Finance Association and ESG Clarity EU Committee member, said: “We welcome the chancellor’s plans to speed up grid connectivity and reform planning for renewable energy projects, which could reduce some of the burdens holding back private investment into the low-carbon economy, although it remains to be seen how effective these will be in practice.
“The size and scale of commitments made today still fall short of a sufficiently comprehensive response to the US Inflation Reduction Act, the EU’s Green Deal Industrial Plan, and similar initiatives in other jurisdictions.
“If the UK is to attract the capital needed to lead the global transition to a more sustainable future, creating jobs and economic prosperity, we must build investor confidence, address greenwashing risks, and tackle more of the UK’s underlying investment barriers. The chancellor didn’t go far enough.”
Tanya Steele, chief executive at WWF, agreed the Statement fell short of plans in other jurisdictions, saying: “The chancellor has squandered yet another opportunity to show real ambition and finally respond to the landmark US Inflation Reduction Act and EU’s Green Deal.”
She added: “His disappointingly piecemeal approach will leave the UK falling further behind in the race to seize the growth opportunity of the 21st century.”