November 27 2017
On 12 October 2017, the Department for Business, Energy and Industrial Strategy ("BEIS") published its long-awaited Clean Growth Strategy ("the Strategy"). The Strategy was produced to comply with the Climate Change Act 2008, which requires BEIS to lay before Parliament a report setting out proposals and policies for meeting its carbon budgets. Notable policies outlined in the Strategy are £557 million for further Pot 2 Contract for Difference auctions, the return to favour of Carbon Capture, Usage and Storage ("CCUS") (although little extra funding), and confirmation that solar panels installed with a battery will attract a reduced VAT rate.
The two guiding objectives underpinning the Clean Growth Strategy are to meet the UK's energy needs and commitments at the lowest possible cost to UK taxpayers, consumers and businesses, and to maximise the social and economic benefits to the UK from the transition to a low carbon economy.
The Strategy sets out plans for an extra £557 million for further Pot 2 Contract for Difference auctions with the next one planned for Spring 2019. Although the Pot 2 auctions are for "less-established technologies", the results of the last auction suggest that the majority of this Pot may be allocated to offshore wind. The Strategy itself states that nascent technologies such as wave and tidal stream must demonstrate how they can compete with other forms of generation before being allocated a prominent role in the government's decarbonisation strategy.
The government's support for additional offshore wind deployment is more steadfast, provided that it remains cost–efficient and deliverable. Furthermore, onshore wind projects on the remote islands of Scotland that directly benefit local communities will be eligible for the next Pot 2 auction, subject to obtaining State aid approval.
The Strategy proposes to establish a CCUS Costs Challenge Taskforce to deliver a plan to reduce the cost of deploying CCUS, which will in turn underpin the government's ambition of deploying CCUS at scale during the 2030s, subject to costs coming down. The support for CCUS marks a reversal of policy by the government after a £1bn competition for CCUS Technology was scrapped in 2015, just days before the UN climate change summit in Paris. BEIS will also review the delivery and investment models for CCUS in the UK to remove barriers to deployment and promote private-public cooperation in the sector. However, significantly, the Strategy only allocates £100 million from the BEIS Energy Innovation Programme for CCUS, including £20 million for a carbon capture and utilisation demonstration programme; the government is awaiting a breakthrough which makes the technology more economical before providing further investment.
Through the Industrial Strategy Challenge Fund ("ISCF)", the government has earmarked £246 million over four years in the design, development and manufacture of batteries for the electrification of vehicles as part of the Faraday Challenge. Furthermore, when an installer installs solar panels with a battery in residential accommodation, this will attract a reduced VAT rate of 5%, provided that the installation conditions are met.
The government has re-affirmed its commitment to implement the 29 actions set out in the Smart Systems and Flexibility Plan published on 24 July 2017. Of particular note is the confirmation that every household will be offered a smart meter by their energy supplier by the end of 2020. The government considers that promoting these smart appliances will allow consumers to benefit from using energy at times when it is cheaper, in order to make the energy market more competitive. The energy price cap announced on the same day as the Strategy is intended to reduce consumer bills until the roll-out of smart technology is complete.
The UK's current emissions policy relies on EU mechanisms in a number of different areas, including the EU Emissions Trading System ("EU ETS") which covers around 40% of UK emissions under carbon budgets. The EU ETS is the largest cap-and-trade system for carbon emissions in the world. Although the government is hedging its bets on future participation in the EU ETS, the Strategy states its firm commitment to carbon pricing as an emissions reduction tool. The government will set out more detail on carbon prices in the 2017 Autumn Budget.
The Strategy will be updated annually to correlate with the statutory responses to the Committee on Climate Change's reports on progress, leading up to the sixth carbon budget by 30 June 2021. A raft of further consultations and papers were proposed in the Strategy. Most immediately, it is hoped the Autumn Budget 2017 and Industrial Strategy White Paper will provide greater detail on the government's energy policy in the weeks ahead.
For further information on this topic please contact Robert Lane, Munir Hassan, Sarah King or Louise Dalton at CMS Cameron McKenna Nabarro Olswang LLP by telephone (+44 20 7367 3000) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The CMS Cameron McKenna Nabarro Olswang LLP website can be accessed at cms.law.
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