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Energy in the 2023 Budget

For businesses looking for reassurances regarding their energy prices, yesterday’s Budget announcement felt worryingly familiar. Now more than 18 months into the energy crisis, clarity on what support will be available for businesses struggling with their energy costs continues to feel like an afterthought.

Energy Price Support

In line with the Autumn Statement, the focus of the Budget it terms of energy costs was firmly on domestic bills and their impact on family finances. Rather than announcing any new measures, the Budget included an extension of an existing measure, the £2,500 price cap for the average domestic bill payer, until the end of June. This is intended to bridge the gap between the decline in wholesale gas and energy prices seen in early 2023 and when they filter through to bill payers. From July, energy bills are expected to begin to decline.

While the domestic support is welcomed, yet again there is a lack of clarity for business energy support. While the Budget confirmed that the Energy Price Guarantee will continue, whether the equivalent Energy Bills Relief Scheme for businesses will also be extended wasn’t clarified. As it stands, from April 1st businesses will instead be switched to the Energy Bills Discount Scheme, a significantly less generous mechanism that offers a discount on wholesale energy costs rather than a capped price. In addition, the price point where this discount will be introduced is significantly higher than the previous price cap, meaning that unless clarification comes in the next two weeks, support for domestic and business energy will be substantially different.

Net Zero

Previous Budgets have been criticised for overlooking the opportunity that improved energy efficiency offers. The importance of energy efficiency when it comes to energy security, as well as reducing costs and carbon emissions, seems to have finally been embraced by policy makers.

The Energy Efficiency Taskforce, announced in February and headed by former NatWest chief executive Dame Alison Rose, was singled out for support. With a stated target of reducing business energy consumption 15% by 2030, £600m in tax relief will be made available for eligible businesses to fund energy efficiency measures.

Carbon capture and storage will play a key role if the UK is to achieve its net zero ambitions, particularly for carbon-intensive sectors where it is impractical to eliminate all carbon emissions from their operations. £20 billion of support will be provided to further develop the technology over a two-decade period, with a target of eliminating up to 20 million tonnes of CO2 annually by 2030.

Elsewhere, while the growth in wind and solar generation was celebrated. there was also concession that the inflexible nature of these technologies means that an alternative generation method is needed to provide baseload. On this issue, the Government appears completely committed to a technology that they are increasingly positioning as a silver bullet to the UK’s energy woes: nuclear.

Committing to Nuclear

Jeremy Hunt appears to remain convinced that nuclear will be able to balance the books in terms of the UK’s energy supply and demand, as well as reducing our ongoing reliance on imported gas. The announcement of Great British Nuclear will see a new organisation look to enhance opportunities along the nuclear value chain, with a stated Government objective to provide for 50% of the UK’s energy demand with nuclear by 2050. The reclassification of nuclear generation as environmentally sustainable, while subject to review, is significant, allowing nuclear power to access the same investment incentives as renewable energy.

While the plan seems to make sense on paper, the great nuclear hope falls down when it comes to the question of how it will resolve the issues the UK faces in the short-term. The energy crisis appears to be receding, but our reliance on gas baseload, the pressures of the energy transition and tight winter margins aren’t going away.

The only current new nuclear capacity under construction in the UK, Hinkley Point C, has been a disaster. With work commencing in 2017, it is already two years late and has doubled its original budget. The most recent projections suggest it won’t be operational until 2028. Any additional nuclear capacity will almost certainly take a similar amount of time. Even before any issues or delays have arisen, the previously announced Sizewell C is unlikely to be finished before 2033 at the very earliest.

A competition to find the most viable small modular reactor was also announced, with a government commitment to co-fund the successful entry. However, that assumes that a successful technology is found, with modular nuclear reactors still largely in the proof-of-concept stage and some way from pulling its weight in the UK’s energy mix. Despite more than 80 concepts and unfinished demonstration projects, there remains only two working modular nuclear reactors globally, one Russian and one Chinese.

For businesses, the Budget presents some opportunities including potential access to tax relief to fund energy efficiency improvements. However, many will sympathise with criticism from the opposition that the Budget fails to tackle the long-term issues regarding energy in the UK.