UK embraces nuclear, gives energy intensive sector free ride

The U.K.’s Department of Energy and Climate Change (DECC) on Wednesday announced it would double the budget of its innovation program over the next five years while cutting overall costs by 22% by 20202.

The Department is raising innovation program spending to £500 million, an increase it said would “strengthen the future security of supply, reduce the costs of decarbonization and boost industrial and research capabilities.”

While the innovation program boost will provide seed funding for new renewable energy technologies and smart grids, it will support development of small modular nuclear reactors, an area in which the government hopes to position the U.K. as a global leader.

Indeed, the Conservative government’s budget review also includes funding for “an ambitious nuclear research program that will revive the U.K.’s nuclear expertise.”

As the government embraces state-of-the-art nuclear technology, it is also spending more than £11 billion on the Nuclear Decommissioning Authority (NDA) and its continuing work to clean up ageing nuclear sites.

U.K. solar website Solar Power Portal cited opposition Labour MP Alan Whitehead, who questioned whether the Department would be abler to properly function at all in view of the deep budget cuts and the considerable amount of funding was allocated to cleaning up nuclear sites.

In addition, the government will permanently exempt energy intensive industries like steel and chemicals from the cost of environmental tariffs, British Chancellor of the Exchequer George Osborne said during his Autumn Statement speech on Wednesday. Osborne said the exemption would “keep their bills down, keep them competitive and keep them here.”

At the same time, the government will provide £295 million over five years to improve the energy efficiency of schools, hospitals and other public sector buildings. Separately, it will increase funding to its Renewable Heat Incentive to £1.15 billion in 2021 to ensure that the U.K. continues to make progress towards its climate goals while saving some £700 million by 2020-21.

The DECC will also contribute a £1.7 billion to the government’s £5.8 billion International Climate Fund, which assists the poorest and most vulnerable countries decarbonize and adapt to the effects of climate change.

The Department aims to lower overall spending by 22% — or £220 million — through greater efficiency in corporate services and reducing the cost of contracts through 2020. The DECC will seek to pool back office and corporate services and reduce the costs of contracts to manage the country’s coal and nuclear liabilities.

The DECC’s budget overhaul is part of the government’s Spending Review and Autumn Statement, which sets out a four-year plan “to fix the public finances, return the country to surplus and run a healthy economy that starts to pay down the debt.”

DECC Secretary Amber Rudd said her priority was “to deliver secure, affordable, clean energy supplies” that households and business could rely on. “As we transition to a low-carbon economy as cost effectively as possible, finding new sources of energy that are cheap, reliable and clean is essential, which is why we are boosting our spending on innovation and backing the industries of the future.”

The U.K.’s solar industry has reacted with disappointment to Osborne’s speech and the DECC budget overhaul.

Leonie Greene, head of external affairs at the Solar Trade Association, took issue with the government’s continued support of fossil fuel generation to the detriment of solar.

"Climate change means we should tilt the playing field towards renewables as fossil fuels are not paying their true costs. Something has gone very wrong when solar is actively discriminated against in the tax system compared to fossil generation. New large-scale solar currently has no public support. As an absolute minimum solar projects should receive the same tax benefits as other energy technologies such as oil, gas and energy from waste."

The Solar Trade Association has called for enhanced capital allowances of 100% in the first year for a project as is the case for fossil fuels and energy from waste heat. "Solar is currently discriminated against under capital allowances, where 18% of expenditure can be taken as a tax deduction for general plant and machinery, including for wind, yet solar receives just an 8% allowance," the Association said. Osborne said only businesses in certain enterprise zones would be able to claim 100% enhanced capital allowances.

In addition, the Association pointed out that despite the chancellor’s statement that investment in renewables and low carbon would double to 2020, the assumptions used were unclear as solar under the feed-in tariff faces a 98% cut in expenditure to just £7 million over three years.

Solar Trade Association CEO Paul Barwell added that planned personnel reductions at the DECC could have a negative impact. "Energy policy is a highly technical and complex policy area where in-depth analysis of every sector is needed in order to avoid costly errors. Cutting this many staff could end up being a false economy for the chancellor.”