Spring Budget 2024 – key takeaways for the energy industry

UK Chancellor Jeremy Hunt announced a range of tax measures in yesterday’s 2024 Spring Budget. The rhetoric made it clear it was an ‘election budget’, unsurprising given this could be the current government’s final fiscal statement before the general election.

This article outlines four key takeaways for the energy industry.

Extension to Energy Profits Levy (EPL)

The 35% surcharge on profits by oil and gas producers was due to end in March 2028. The Chancellor announced an extension to the expiry date of the legislation to March 2029, explaining in his speech that ‘the increase in energy prices caused by the Ukraine war is expected to last longer, so too will the sector's windfall profits.’ The 2024 Spring Budget Report (Budget) predicts that gas prices are forecast to remain ‘abnormally high’ until at least 2028-2029. The government is however committed to bringing forward legislation to end the EPL early if oil and gas prices fall below the relevant Energy Investment Security Mechanism Thresholds (ESIM). The ESIM threshold prices are currently $71.40 per barrel for oil and £0.54 per therm for gas and will be adjusted annually from 1 April 2024 by CPI.

Additional funding for the Green Industries Growth Accelerator (GIGA)

The GIGA is a fund that was announced in the 2023 Autumn Statement and is aimed at supporting the expansion of clean energy supply chains. The Chancellor announced a £120 million increase to the GIGA budget. Of the over £1 billion of total funding now available, the Budget delineates sector funding splits with: (i) up to £390 million of funding expected to go to supply chains for offshore wind and electricity networks and (ii) up to £390 million expected to go to supply chains for Carbon Capture Utilisation and Storage (CCUS) and hydrogen. This sits alongside the £300 million already allocated to nuclear fuels for the High Assay Low Enriched Uranium (HALEU) programme.

Emphasis on government support for nuclear

The Chancellor reiterated the government’s ambitions to have nuclear energy supply a quarter of the UK’s electricity by 2050 with ‘nuclear’ being the most frequently cited technology in the Budget. The Chancellor highlighted the next stage of Great British Nuclear’s Small Modular Reactor competition and confirmed that the government has reached a £160 million agreement with Hitachi to buy its Wylfa sites in Anglesey.

More grid connection reform on the way?

Previous announcements on planning and grid connection reform were also cited in the Budget, with additional mentions of government working with ESO on ‘further interim reforms to the grid queue process by summer 2024’, potentially signalling further measures if connection queue issues are not adequately resolved over the next few months.

Conclusion

Proponents of a swift transition to net zero will be disappointed by the lack of proposals that have been put forward to the Chancellor recently such as VAT reductions for public EV charging and measures to incentivise home energy efficiency and the uptake of heat pumps. However an extension to the EPL and not the electricity generator equivalent (the Electricity Generator Levy) will be welcomed by the clean energy industry. DESNZ also separately published its budget notice for Allocation Round 6 of the Contract for Difference scheme, announcing the largest ever budget for a single round at £1.025 billion, £800 million of which will be allocated to offshore wind. Differing approaches towards taxing the oil and gas sector and funding a decarbonised electricity grid will no doubt continue to be contentious topics in the lead up to the general election.

If you have any queries regarding the Spring Budget, please contact Shraiya Thapa.