A lopsided prospectus? Commentators appraise the Spring Budget

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Nuclear energy and carbon capture, storage and utilisation (CCUS) were notable beneficiaries in the chancellor’s Spring Budget (presented on 15 March), which seemed geared towards shaking further life into home-grown energy production efforts.

A relative brightening of the economic outlook in recent months had set the scene for a budget with more room to assist households and businesses struggling with heating bills. Forecasts from the Office for Budget Responsibility (OBR) – published concurrently with the Spring Budget – expected the economy to shrink by only 0.2% in 2023, compared to the 1.4% predicted in November.

Indeed the main headline grabber seems to be the maintenance of the Energy Price Guarantee at its current level (i.e., a ceiling of £2,500 on the average household energy bill) for a further three months from April.

A less supportive outlook for businesses seems apparent from the statement. Plans to replace the current Energy Bill Relief Scheme with the less generous Energy Bills Discount Scheme are still going ahead unchanged. So, best to assume that firms will have to be more focused than ever on saving energy.

Those who are making progress with energy efficiency received some good news with the announcement that Climate Change Agreements will be extended by two more years from 1 April 2025.

Swimming pools and community organisations specifically were promised access to additional support funds – £60 million and £100 million, respectively – and some of this will be targeted towards implementing energy efficiency measures.

But there was little evidence of any new vision or boldness with energy efficiency. Low-carbon heating systems firm tepeo observed that the £450million Boiler Upgrade Scheme is “simply not reaching its target to help decarbonise the country, with only a third of the budget being used [so far].” It suggested the problem as the fixation on heat pumps which “can require a lot of upheaval to install, and around 40% of the UK’s homes simply aren’t suitable for their installation.”

A technology-agnostic approach would be a better bet, said the firm, insisting that “with such a diverse housing stock, a one-size-fits-all approach is never going to work.”

Home economics
The boldest feature of the statement seemed to be its attempt to stimulate the production of more home-grown “clean” energy, although noticeably not with any extra help for renewables. This included a £20bn package to support carbon capture, utilisation and storage (CCUS), a renewed focus on nuclear (including the decision to reclassify it as environmentally sustainable) and a refresh of the Control for Low Carbon Levies mechanism on energy policy costs. Taken together, these measures felt like “a step in the right direction towards a more sustainable UK energy market,” believed energy market consultancy Cornwall Insight.

The chancellor’s statement said the intention was to “increase resilience to future energy price shocks”.

“Because the wind doesn’t always blow and the sun doesn’t always shine, even under the conservatives, we will need another critical source of cheap, reliable energy and that is nuclear.”

“Increasing nuclear capacity is vital to meet our net zero obligations, so to encourage private sector investment into our nuclear programme, I confirm, subject to consultation, nuclear power will be classed as environmentally sustainable.”

“That will give an access to the same investment incentives as renewable energy and alongside that will come more public investment.”

Delivery of UK nuclear projects will be helped along by a new public body which has been set up, Great British Nuclear (GBN), which will “address constraints in the nuclear market and support new nuclear builds as the government works towards net zero.”

One of GBN’s first initiatives is a competition to encourage innovators to come up with designs for Small Modular Reactors, which launched in early March. The government hopes to select a winner by the end of the year, “and if demonstrated to be viable, [to] co-fund this exciting new technology in the UK.”

But further out, GBN is also interested in large Gigawatt-scale projects, “subject to value for money, relevant approvals and technology readiness and maturity.”

So far the only SMR technology seeking approval in the UK is Rolls Royce, which has secured funding commitments of £490M for reactors to be built in Oldbury and Berkeley in the south west of England, as New Civil Engineer reported.

No extra renewables support?
Hunt’s new focus on nuclear received criticism from those concerned about its unresolved problems, such as waste disposal, as well as those who thought it just wasn’t the best tool for the job.

Jo-Jo Hubbard, CEO of Electron, an energy tech firm facilitating local markets, said: “This single technology focus seems not to recognise that a) there are already three times as many megawatts waiting to be connected to the grid than we need for secure Net Zero power supply; b) battery storage and flexibility, coupled with excess renewables, also solves the same issue, and c) new nuclear will take over ten years to come online.”

“What we really need, in short order, is to connect new clean energy assets to the grid faster (taking a good look at the connections queue in the process) and to use existing grid and generation infrastructure more efficiently through local flexibility markets. “

“We are concerned that this is not the fastest route to customers accessing lower cost lower carbon power.”

In respect of nuclear, Chris Huhne of ADBA pointed out that “no new plants could be built now to have any impact on 2030 targets even if the sector could deliver on time and on budget.” Meanwhile we have “available home-grown solutions like green gas and onshore wind,” he said.

And he added that “new biogas plants can be built in two years cutting emissions and improving energy security.”

“The biogas currently generated by over 700 plants in the UK equals 42% of the volume of gas produced by the nuclear industry.”

“Fully deployed, it could reduce the UK’s annual greenhouse gas emissions by 6% by 2030.”

The other horse in the net zero race on which the budget seemed to offer a speculative punt – was CCUS, with a £20 billion investment. This “unprecedented” funding would “unlock private investment and job creation across the UK, particularly on the East Coast and in the North West of England and North Wales.”

A shortlist of projects for the first phase of CCUS deployment will be announced later this month, said the chancellor, with projects further out being able “to enter a selection process for Track 1 expansion launching this year, and 2 additional clusters will be selected through a Track 2 process, with details announced shortly.”

The economics of carbon capture have so far seemed to mitigate against its likely impact in the quest for net zero, with it being costly to capture carbon, and difficult to find anyone who wants to do anything with it (i.e., the “U” in “CCUS”) .

In a 2022 book, climate technology specialist Wake Smith estimated that there is demand for about 1% of the CO2 that is anthropogenically produced.1 Of that, about 57% would be for producing urea for the fertilizer industry, and 33% for enhanced recovery in the oil and gas industry (i.e., using it to help get more hydrocarbons out of the ground) – indeed these are the two largest markets for captured CO2 at present. A handful of markets accounts for the other 10%. Fizzy drinks production, for example, is one use that has generated column inches but is, in reality, “a tiny demand”, says Smith.

Another possibility he explores in the same book is the mixing of captured CO2 with hydrogen to produce “synthetic fuel”, to be combusted for energy generation, and providing an alternative to fossil fuels that could be endlessly recycled, but in demonstration projects so far conducted, these fuels remain much more expensive than coal, oil or gas.

Hunt’s CCUS announcement also contained no mention of support for the hydrogen industry, “something which could go hand in glove with CCUS to achieve the UK statutory Net Zero targets,” as William Hazell, CCS & Hydrogen sector specialist with Ramboll, put it, who appeared to be puzzled by the omission.

As to the promise of the announcement, Hazell said: “The devil will be in the detail as to whether this pot achieves its aim of accelerating the CCUS industry in the UK.”

“To be successful the funding will need to be front loaded for near term investments and focus on the most valuable net zero solutions.”

“The funding needs to act as a rapid catalyst and impact a wide range of geographic areas, not just those which have already progressed on Track 1 through the original cluster sequencing process.”

[1] Smith, Wake. Pandora’s Toolbox: The Hopes and Hazards of Climate Intervention. Cambridge University Press; New edition (24 Mar. 2022), p258