Budget: Five changes to energy policy – and one that got away
Chancellor Jeremy Hunt announced a steady budget with few surprises today.
However, there were some big winners in the energy sector, while millions of Brits will feel relieved that support will remain stable over the coming months.
City A.M. looks at the main changes to energy policy announced today, and the one that didn’t happen.
Energy support package extended
Household energy bills will stay at £2,500 per year for the next three months, with Hunt maintaining the support package at current levels to shield millions of Brits from a painful £500 hike until the summer.
Downing Street hopes the effect of falling gas prices will be finally felt in energy bills this summer, with Cornwall Insight predicting the energy price cap will drop to around £2,000 per year from July.
The Treasury has priced the extension of the package at £2.9bn, while the Energy Price Guarantee is projected to cost £30bn by Cornwall Insight over its 18-month duration.
Sadly for businesses, there was no U-turn in the scaling down of their support package – with subsidies in the Energy Bill Relief Scheme to be replaced by the more frugal Energy Bills Discount Scheme – which will only apply to 70 per cent of energy used by businesses and is capped at £5.5bn.
The painful premium four million Brits on prepayment meters have faced for years in their energy bills has finally come to an end.
Vulnerable families will no longer be charged more for prepayment meters than customers on standard variable tariffs.
Hunt told the House of Commons the changes would be made to bring prepayment meter costs “in line with comparable with direct debit charges”.
He said: “Ofgem has already agreed with suppliers a temporary suspension to forced installations of prepayment meters.”
Fuel duty has been frozen at 5p per litre again for another 12 months, and will not increase in line with inflation, giving the average motorist an annual saving of £100 per year.
RAC head of roads policy Nicholas Lyes said: “The cut has given drivers some much-needed relief in what has been the most torrid year ever at the pumps, with price records being broken even after duty was cut. Given the importance of driving for consumers and businesses, duty should be kept low to help fight inflation.”
Government figures show the average cost of a litre of petrol and diesel at UK forecourts is around £1.47 and £1.67 respectively.
Prices reached record highs of £1.92 for petrol and £1.99 for diesel in July last year, following Russia’s invasion of Ukraine leading to an increase in the cost of oil.
Today was a big win for nuclear power with Hunt declaring that it now be classed as environmentally sustainable.
This gives it access to same incentives as renewable energy – as the government looks to ramp up nuclear power to 25 per cent of the country’s energy mix.
He also announced the launch of Great British Nuclear aimed at bringing down costs of producing nuclear power, alongside a competition to develop and approve small, modular reactors.
Tom Greatrex, chief executive of the Nuclear Industry Association said: ““We look forward to working with GBN on delivering a fleet of large and small scale stations to make us a clean energy powerhouse of the twenty-first century.”
The government has already committed £700m to Sizewell C, which awaits a final investment decision.
Hunt announced £20bn has been allocated for the development of Carbon Capture Usage and Storage known as CCUS to help offset emissions with oil and gas projects.
He announced this will support up to 50,000 jobs, attract private sector investment and help capture 20-30m tonnes of CO2 per year by 2030.
CCUS involves the capture of CO2 emissions from industrial processes onshore and storing it in deep underground formations in the North Sea or repurposing it for fuels and chemicals.
The UK launched its first ever carbon capture licensing round last summer, attracting 26 bids from 19 companies for new projects, with licenses to be awarded next year.
Hunt has been weighing up reforms to the windfall tax amid fears Equinor could pull out of the proposed Rosebank oil and gas project.
Rosebank is a massive field in the North Sea that could provide 500m barrels of oil and gas and is a key future development for the industry as the UK looks to maintain fossil fuel generation in British waters.
The Chancellor made no announcements today, but he has been considering price floor proposals, where the Energy Profits Levy will be switched off when oil and gas prices return to ‘normal levels’ – a number that has not been agreed.
The government is also considering plans to expand the scope of the investment relief – set at 91p in the pound – to include carbon capture and storage if tagged onto existing oil and gas fields to reduce emissions.
It remains to be seen whether an announcement will be made at a later date or if he opted against loosening the levy.