Budget news

On the 13 March 2020 the chancellor Rishi Sunak stood up and announced his first budget. However, it’s easy to forget this since so much has happened in the UK since then….

Assuming the Coronavirus requirements do not take over the budget commitments, the budget itself was a really positive one for renewable energy/green projects and users with a number of key announcements about how financial incentives and disincentives will increase uptake and supply of renewable energy whilst discouraging use of fossil fuel energies.

Firstly, let’s look at the incentives side of the announcements.

In the short term there are limited extensions to the Renewable Heat Incentive (RHI). For domestic participants this means new applications will continue to be accepted until the 31 March 2022, for non-domestic participants the scheme in its current form will end in March 2021. However, there will be a new set of tariff guarantees for larger projects in some technologies from March 2021 onwards. Quite what the detail of these schemes are, we will find out as the months progress and consultations are launched. Although, we expect these to be weighted towards large scale biomass, heat pumps and biomethane to grid. Similarly, government expect to consult on a new renewable heat grant scheme to continue from the RHI with these technologies included. This grant scheme has total budget of £100m for the years 2022-2024 inclusive.

There is also £270m allocated to a green heat network fund to run from 2022 – 2025. Which follows on from the Heat Network Investment Project (HNIP) currently in place and will help fund the extension of existing heat distribution systems so more people can benefit from renewable heat. It is expected that this will be targeted at the most cost-effective low carbon heat sources as a change from the existing HNIP which is source agnostic.

There will be a doubling of Energy Innovation research and development funding to £1bn plus, specifically, a further £20m of research and development funding for distillery companies to investigate green options.

There are limited extensions of some schemes – including continuation of zero allowances for low carbon vehicles and an extension to Climate Change Agreements and Climate Change Levy (CCL) reduction scheme for major energy users (Pigs, Poultry and Horticulture) for a further two years taking it to 2025. This allows those who have got an agreement and meet their energy savings targets to get discounts of 81% on gas/LPG etc. CCL charges and 92% on electricity CCL charges from April 2020 onwards.

This latter brings us onto the disincentives for fossil fuel use.

Whilst the CCL charges on electricity will be frozen from 2022, they will be raised on some heating fuels. This will help to discourage their use and in a further discouragement to use gas, to help pay for some of the incentives, a new Green Gas Levy will be introduced, which is likely to apply to all users of gas in a similar way to the Feed-in Tariff is charged on electricity prices. We expect to see details of this in a consultation from the government in the coming months with an implementation date planned from Autumn 2021.

On top of this, the UK government expects to apply an ambitious carbon price (probably in the region of £15 - £20/tonne) to help progress to achieving a net zero state by 2050. They expect to provide some details of how this scheme may look in Spring/Summer 2020 with the aim to apply the carbon price from January 2021 following the end of the Brexit transition period.

Although fuel duty has been frozen for another year, there are plans to abolish the red diesel tax relief in 2023 for users other than agriculture, low carbon heating, fishing and rail. Whilst this is good news for our sector, the removal for others is a demonstration of intent and may well change as we move forward.

Finally, there were some limited environmental announcements worth keeping an eye on.

The government intend to introduce a so-called Nature for Climate Fund, this will invest up to £640m in tree planting and peatland restoration in England and hopes to increase the rate of tree planting by up to 600% over the next five years. In addition, a Nature Recovery Network Fund will help to support and ‘restore’ existing habitats and wildlife. Finally a Natural Environment Impact Fund will help to provide green projects that could be suitable for commercial investment – a private carbon trading scheme perhaps?!

So, in all, a good number of announcements about how the government aims to accelerate the UK as low carbon and will become a net zero economy, which will have some immediate impact to agricultural business as well as some schemes to keep an eye on in the immediate future.