What the Autumn statement holds for energy sector

The upcoming autumn statement by chancellor of the exchequer Jeremy Hunt is being billed as one of the government’s last opportunities to restore its flagging political fortunes. So what does the energy sector want from the Treasury’s showpiece end of year event and what is it likely to see?

Bills support

As the winter approaches, one of the energy sector’s big asks is a fresh bills support package for the most hard-up customers.

While the headline price cap may be down from the eye-watering levels seen last year, it still makes grim reading for those on the breadline.

Once the various forms of energy bills support on offer last winter are added up, low-income households ended up paying around £1,700. This is 13% below the current price cap, which looks set to hover around £2,000 for the foreseeable, Energy UK estimates.

In its submission to the chancellor of the exchequer’s autumn statement, which takes place on Wednesday (22 November), Energy UK warns that paying bills will remain very difficult for many customers this winter.

Not making additional support available this winter will be “disastrous for millions of low-income and vulnerable households”, reducing spending power with knock consequences for local economies across the UK, warns National Energy Action, the fuel poverty charity.

Energy UK has called for targeted £400 payments for all households receiving means tested benefits. Effectively extending last winter’s Energy Bill Support Scheme (EBSS) but focusing it on the 5.8 million households at most risk of fuel poverty would cost the government around £2.3 billionn, according to Energy UK’s response.

The dramatic fall in wholesale sale prices seen earlier this year, when the Energy Price Guarantee (EPG) held down all bills to £2,500 per annum, means the government has ended up forking out a lot less on the scheme than was originally feared.

NEA points to estimates that the lower-than-expected EPG bill means that the government has around £10 billion of headroom available.

As an alternative option to reviving the EBSS, NEA suggests doubling Warm Homes Discount payments this winter to £600, which would help many of those in fuel poverty.

The price tag for this administratively simple mechanism, which would bring down the energy bills of these low-income households down to pre-Ukraine war levels, works out at around £3.6 billion, estimates the NEA.

On this score though, the industry is expecting thin pickings next week.

When pressed on providing targeted bills support for low-income customers, ministers and officials point to the £900 worth of top-up payments it is making available through the benefits system this winter.

As for longer-term solutions, Energy UK says it is disappointed that the government has not made much progress on its thinking around a social tariff.

Here though the problem may be a gap in understanding between the government and the energy sector. Energy UK has suggested a taxpayer supported fix for low-income earners, which would avoid cross-subsidies simply moving pressures from one group of customers to another.

However Jeremy Hunt, the chancellor of the exchequer, appears to have a different concept of what the social tariff is.

“When he (Hunt) talks about social tariffs, he’s talking about something that’s quite different,” says one energy insider, noting that the chancellor views such tariff as one-off responses to escalating prices, like the EPG.

However fuel poverty campaigners are more helpful that there is a greater chance of movement on debt relief for customers who have fallen behind on their bills.

Clean energy

Energy UK has called for new projects to be exempted from the Electricity Generation Levy (EGL) and the introduction of investment allowances akin to those available to the oil and gas sectors.

Falling energy prices means that the EGL is expected to raise less revenue than originally forecast meaning that an allowance regime would cost the Exchequer “relatively little in the short term”, while encouraging investment in new generation capacity, it says.

RenewableUK meanwhile calls for the EGL to be removed from offshore wind farms delivered on a so called merchant basis, which means that the electricity is sold on the open market rather than via the guaranteed prices agreed under Contracts for Differences (CfDs) .

This includes the so called ‘merchant nose’ period, between when the construction of an offshore wind farm is finished and CfD contract with the government starts. Many developers rely on the sums earned during this usually brief period to enable their projects to stack up financially.

RenewableUK says this merchant nose period is more important than ever for offshore wind projects with increased supply chain costs, inflation and interest rates making margins extremely tight.

In a letter to the chancellor, RenewableUK also calls for offshore wind projects to be offered more generous capital allowances than those currently available.

Utility Week sources are confident that the current capital allowances regime, which allows companies to fully expense 100% of certain technologies like EV charging points or solar panels, is likely to be extended to beyond its current end date of 2025.

Industry sources are also bullish that the government will use next week’s announcement as the peg to announce its response to the Winser review of the transmission network planning, which was submitted to ministers in the summer.

It’s not just energy companies raising issues with the chancellor about the grid, says one industry source, noting that grid connections and costs are also “on the radar” of big business organisations like manufacturers body Make UK.

Moves to accelerate grid planning could be accompanied by moves to compensate communities where transmission infrastructure is being built, Utility Week understands.

However this is more likely to be in the form of payments into community funds rather than to individual customers because setting up the latter would take longer than the government wants to set up.

Energy efficiency

The prime minister effectively gave up on regulation for driving up the energy efficiency of the UK’s private rented housing with his September Downing Street announcement that landlords would no longer have to meet energy performance standards when letting out properties.

Instead, energy security secretary Claire Coutinho has called for greater use of carrots rather than sticks on encouraging a transition to greener homes.

One such set of carrots could be tax incentives. The NEA calls in its submission for the introduction of tax deductions for energy efficiency improvements to private rented properties. Existing exemptions, which landlords can claim for items like replacement furniture and insurance, should be extended to measures to upgrade energy efficiency, like loft insulation, it says. This measure would cost around £240m per annum, the NEA estimates.

But there is greater noise around a new stamp duty incentive to encourage people to buy more energy efficient homes, says Chris Friedler, policy manager (energy efficiency) at The Association for Decentralised Energy.

He observes interest from the Treasury in the concept, which has recently been championed by phalanx of Tory thinktanks.

Looking further ahead, Friedler says it would be “useful” for the government to flesh out the Treasury commitment to spend £6 billion on energy efficiency between 2025 and 2028.

Such a move would be “low risk” for the Treasury, given that it involves commitments that don’t have to be fulfilled until after the next election.

Equally though, he would be “surprised” if there is any announcement on rebalancing environmental policy levies on gas and electricity bills, given how politically contentious such as move could be in the run-up to a general election.