UK risks being left behind on green investment, Hunt warned

The UK can no longer “take for granted” its competitive advantage as a destination for low-carbon energy investment because of the incentives on offer in other parts of the world, the industry has warned Jeremy Hunt.

In a letter to the chancellor of the exchequer, submitted ahead of next month’s Budget four leading trade associations have banded together to express concern that the government lacks a clear plan to continue attracting clean energy investment into the UK.

The UK has seen a boom in renewable energy investment over the past decade which has helped it to become the world’s leading generator of offshore wind power.

A combination of rising costs and unfavourable exchange rates threaten to completely erode generation companies’ margins, according to the letter, which was signed by the chief executives of EnergyUK, the Nuclear Industries Association, RenewableUK and Scottish Renewables.

In addition, initiatives such as the passage of the US government’s Inflation Reduction Act (IRA) and the European Union’s REPowerEU package offer an “attractive proposition” for clean energy investors. The IRA includes $216 billion worth of tax credits for investment in clean energy and transport projects.

By contrast, the letter says, the UK is introducing the new Electricity Generators Levy (EGL) on low carbon power generation profits without the allowances for capital investment in its windfall tax on fossil fuel producers.

“The UK can no longer take its competitive advantage as a mature market for granted.

“If the UK is to stay ahead in the global race for clean energy, it needs to adopt bold measures to retain and boost private investment in the energy transition.

“With global competition to attract investment in clean energy increasing, it is the US which has set the bar with the IRA and the EU is following suit with similar reforms. It is therefore imperative that the Spring Budget is used to secure the UK’s position as a leader in this race by introducing an ambitious package of capital allowances.

“Any delay or shortfall in ambition will mean that our climate targets, and the economic opportunities they offer, will be increasingly hard to realise. Time is against us and we cannot afford to get this wrong.”

As a starting point, the letter calls to include an investment allowance in the EGL to level the playing field between low-carbon and fossil fuel generation.

“Offering a more competitive capital allowance regime than is currently available for clean energy infrastructure is the only way to preserve our international competitiveness,” it says, adding that these changes will ensure the investment case for low-carbon energy projects remains “strong enough” to meet the UK’s ambitious net-zero emissions and energy security targets.

Emma Pinchbeck, chief executive of Energy UK, said: “The investment climate for UK low carbon generation has worsened over recent months. Increased costs and renewed international competition risk squandering the UK’s lead as a clean technology pioneer. Government must – at the very least – reform the capital allowances regime to keep investment and industry here in the UK; we need this low carbon infrastructure to power our economy cheaply and get bills down in the long run”.