What did the Autumn Statement do to secure energy supply and reduce energy use?

Posted on 26 November 2015.

 

George Osborne delivered his third spending review along with the Autumn Statement yesterdayHis promise to eliminate the UK deficit by the end of the decade has been severely challenged by pressures from the Health Service, UK Security and Defence, amongst others.  Despite this, and doubt in many quarters about whether the £20bn savings target and the predicted deficit this year of £70bn will be achieved, the Chancellor reaffirmed his promise to deliver both during this speech. 

It was gratifying to see that energy figured more prominently than ever before in the Chancellor’s plans, although not everything could be seen as a positive step forward for the environment.

The big blow for the environment was the announcement on permanently exempting energy intensive industries for organisations such as steel and chemicals from from the cost of environmental tariffs. Whilst this may achieve the aim of making the organisations more competitive and keeping them in the UK, it does mean that the biggest carbon producers will not have to pay tax relative to their carbon production. Hopefully they will still have targets and be encouraged to reduce energy consumption.

Looking to the security of supply, there were several positive statements.  In addition to the announcement of a ‘small modular nuclear energy reactors’ programme that will at last assist in terms of UK security of supply,  a shale gas wealth fund was also announced.  It was also announced that the fund for developing low carbon energy and renewables will more than double over the lifetime of the parliament.

There was also a series of positive announcements regarding funding for energy initiatives:

  • A commitment was made in preparation for the Paris Climate Conference (COP 21) next week that ‘climate finance’, the budget for climate change mitigation and adaptation projects and programs, would be increased by 50% over the next five years.

  • Research into ultra-low energy vehicles will continue.

  • Spending on energy research will double

Changes were also announced to the current Energy Companies Obligation, a government scheme to obligate larger suppliers to deliver energy efficiency measures to domestic premises in Britain, (running until March 2017).  The scheme is to be replaced with a new cheaper Energy Supplier Obligation which will run for five years. The promise made was that on average 24 million households will save £30 a year on their energy bills from 2017 as a result of this which, on the face of it, looks like a good deal.

However, whilst funding of all the above measures will be partly met by DECC’s day to day resource budget being slashed by 22% and the proposed cut to the Renewable Heat Incentive by £700 million, part of the cost will also inevitably be met by ongoing increases in domestic and industrial electricity charges.  For domestic consumers, this may well offset any benefit derived from the new Energy Supplier Obligation.

Interestingly at PM Question time beforehand Cameron was asked if the Government would meet its target of making renewables represent 15% of UK generation by 2020.  The Prime Minister said investments in wind power and solar power would treble under this parliament and also finally confirmed commitment to meet this 2020 target.

Whilst it is pleasing that energy played such a key role in the Autumn Statement, the devil is in the detail which will unravel in the coming weeks.  It will be interesting to see, for example which energy intensive industries will be permanently exempt from environmental tariffs.  It will also be interesting to see how the 50% additional climate finance budget will be spent following the Paris COP 21 next week.