Sector’s wish list for Budget 2020

The Budget hasn’t even appeared yet but one of the sector’s big asks has already been answered – with this week’s announcement that onshore wind and solar farms have been readmitted to the Contracts for Difference (CfD) process.

Restoring the eligibility of these so-called Pot 1 technologies for support through the low carbon auction process was necessary, says Dr Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit.

“They had to do something on CfDs because the current schedule (of auctions) is not good enough for the new 40GW target.”

Resurrecting CfD support for onshore wind and solar will not the be only item on the industry’s wish list when chancellor of the exchequer Rishi Sunak stands up next Wednesday.

The Budget submission from the Solar Trade Association (STA) spies the potential for an unexpected Brexit dividend for low carbon generation.

It is calling on the Treasury to reverse a hike in VAT on solar and battery storage installations, which was introduced in October in line with a wider EU directive.

The change applied where materials account for more than 60 per cent of the total costs of installation. Where this is the case, the rate of VAT on those materials rose from 5 per cent to 20 per cent.

Until now, EU membership has largely tied the UK’s government’s hands on VAT matters – a situation which Brexit largely resolves.

It “cannot be justified” that heavily emitting fossil fuels, such as coal and fuel oil enjoy a lower rate than low carbon solutions, points out the submission from the STA.

These changes, which the STA suggests should also be applied to battery storage, would have a “negligible impact” on the Exchequer’s revenues, while stimulating the development of a technology that has a “significant” role to play in decarbonising the grid.

The STA estimates that 2.66GW of fresh solar installations must take place per annum in order to provide the 54GW that will be required by 2035 for the UK to meet its wider target to quadruple renewable electricity generation.

Less punitive treatment by the business rates regime, which is also within Sunak’s remit, would also help stimulate this rollout.

A review of the business property tax, which was announced in the Queen’s Speech in December, has been chiefly prompted by high street retailers’ concerns about exorbitant bills.

However, the exercise creates an opening to deal with the renewable sector’s own business rate gripes.

A revision in 2017 to the way rateable value of rooftop solar installations is determined resulted in what the STA describes as an “enormous” increase in the rates bills for their owners. This worked out at up to 800 per cent for some companies.

Both the STA and the Renewable Energy Association (REA) have called on the Treasury to exempt solar PV and battery storage devices from business rates, putting these technologies on a level playing field with gas-fired combined heat and power plants.

Those businesses which have installed these low carbon technologies have been penalised, says Frank Gordon, head of policy at the REA.

“We’ve got to a situation where companies that have taken the foresighted position to install solar panels are having to pay more.”

The REA is also keen for the Budget to include an extension of the Renewable Heat Incentive (RHI), which is due to expire in just over a year’s time despite no replacement scheme being put in place.

A “time-limited” extension would bolster confidence in a sector which is currently facing an imminent cliff edge, says Gordon.

The long lead-in time involved in delivering such projects is creating “uncertainty” for those currently at planning stage, he says: “It’s a massive factor. Financiers see it as a cliff edge situation and are very nervous about funding.”

Removing this looming uncertainty would help keep the still fledgling renewable heat industry ticking over, ultimately bolstering the UK’s efforts to meet its net zero target, it says.

Energy UK’s wish list meanwhile includes a first down payment on the Conservative party manifesto’s £9.2 billion pledge to boost investment in energy efficiency and greater certainty on carbon pricing.

On the latter subject, the industry body’s submission calls for the existing the £18 Carbon Price Support tax to be rolled forward into 2021/22 and for clarity on the future nature of the UK’s relationship with the EU Emission Trading System.

A whole host of questions though, like the future nature of support for nuclear projects, are likely to be dealt with not in the Budget but in the long-gestating energy white paper.

It would make sense for the white paper, which was first announced in late 2018 by the last-but-one business secretary Greg Clark, to appear alongside the National Infrastructure Strategy, which will consider a host of energy and decarbonisation related matters.

However late March now looks the most likely publication date for the white paper following last week’s statement by a government whip in the House of Lords that it will be not be out until the end of the first quarter.

BEIS watchers suspect that the reshuffle is the reasons for the latest delay. “The new secretary of state might try and put on his spin on things,” says Gordon.

It is crucial that the white paper packs a punch when it finally appears, insists Simon Markall, head of public affairs and engagement at Energy UK.

“We need to get this out now,” he says.

“The longer it doesn’t come out, the more important it is that when it comes out it is a clear framework and can’t be high level.  It has to be clear on what the way forward is for the industry on net zero because it has taken so long.”