Why the focus of this year’s Budget must be green growth
The new levy on electricity generators must be designed in a way that unblocks clean energy investment in the UK, argues the REA’s Nina Skorupska
The last six months of political uncertainty and an increasingly competitive international investment environment has stalled the UK’s current deployment pipeline of renewables and clean technologies. This has been further exacerbated by the design of the Electricity Generator Levy, which is due to be confirmed in the Spring Statement. In its current form does little to actively encourage new investment that we desperately need.
Unsurprisingly, investors are putting decisions on hold, and so government needs to urgently act if the UK is to remain a world leader in reaching net zero. Last week’s Climate Change Committee (CCC) power decarbonisation report could not have been clearer in highlighting that the delivery of renewable and clean technology infrastructure must be achieved at a much greater pace if we are to realise both energy security and our decarbonisation targets.
Following the announcement of the Electricity Generator Levy last autumn, the REA questioned government of the wisdom of subjecting the cheaper, greener renewable power sector to a more punishing tax regime than its oil and gas counterparts. Since then, it has remained an inexplicable disparity, and we hope for this to be rectified in the Chancellor’s upcoming spring budget. Our sector is key to tackling the volatile costs of fossil fuels at the heart of rising energy bills, and its treatment should be fair and equitable in relation to the oil and gas sector.
The REA recognises the immense economic challenges facing this country. We are fully behind the renewables and clean technology sector playing an important part to help ease the financial burden on households during this crisis – especially those companies who have benefitted from high wholesale prices. Done right, the sector could provide funding to help mitigate some of the pressures on energy bills, while also protecting the investment we need to help resolve the current energy crisis in the long term.
To do this, there are two specific changes to the Electricity Generator Levy that must be announced in the Budget. The first is to reform to the capital allowances regime for renewable energy and clean technology deployment. This would incentivise investment in new renewable and clean technologies through a tax break, even as the Levy comes into force. Importantly, it would also mirror the investment incentive currently provided to the oil and gas sector.
Secondly, the period that the Electricity Generator Levy will be in place must be shortened. The government intends currently for the levy to be in place until 2028. However, this is too long and will impact the market well beyond the period of the current energy crisis. To mitigate the impact of the Levy on future investment decisions, it should be legislated to end in 2026 at the latest.
Without these urgent actions, government risks losing out on the opportunity to address barriers blocking deployment of renewable and low carbon infrastructure, to deliver a secure, affordable and decarbonised power system.
The government must put out a strong message in the spring budget to unlock green growth in the UK. These measures are critical for getting investments in renewables moving again after a pause prompted by months of political uncertainty and in the launch of generous clean energy subsidy programmes in the US and EU.
The Spring Budget can act as a turning point in the right direction for our sector. The nation cannot afford any more lost time.
Nina Skorupska is chief executive of the Association for Renewable Energy and Clean Technology (REA)
