Britain’s Budget: Energy and environment measures UPDATE 2

As predicted in this morning’s FT, the big news for renewables is a change in the subsidy scheme to favour offshore wind, with an extra £525m payment over the period 2011-14. The cunning thing about this is that the money does not come from the greatly over-stretched public finances, but from the Renewables Obligation, which is paid for through electricity bills. So consumers will blame their suppliers for the extra cost, not the government. The other clever thing is that the subsidy for offshore wind will be twice that for onshore wind for projects with orders placed in 2009-10, but only 1.75 times for projects that go ahead in 2010-11. By implication, after that it will be back down to its present level of 1.5 times. That gives developers a strong incentive to get on and build their wind farms.

Consumers also seem set to pay for the expansion of the government’s support for carbon capture and storage: the plan now is to support two to four plants, instead of just one, as previously planned. That means Ed Miliband, the energy secretary, should be able to keep everyone happy by backing most or even all of the four consortiums that have entered the competition to run Britain’s first commercial-scale CCS plant. There is some merit in that: the four groups each have different approaches and bring different strengths to the task.

It will also enable Mr Miliband to give the go-ahead to Eon’s controversial new Kingsnorth coal-fired power station, and to the Powerfuel project, using a more radical technology, which by coincidence happens to be sited in his own constituency.

The problem is that supporting all these projects properly could easily cost billions, and so far we have no details of how that cost will be met. The Treasury says there will be a “mechanism”, which seems to mean an extra levy on bills. The only amount committed from public spending is £90m to pay for the costs of detailed project design. Mr Miliband is talking in Parliament on Thursday morning, and presumably will give more details then.

The other important energy news is that there will be more tax breaks to encourage development of smaller oil and gas fields in the North Sea. The government claims this could unlock a further 2bn barrels equivalent of reserves. That seems a pretty big claim, given that the total cost of the new relief, called a field allowance, is expected to be just £10m a year.

Also there is “up to £4bn” of promised investment in energy, including but not exclusively renewables, from the EIB.

And Combined Heat and Power generators have been given the tax break they were asking for, which should make them very happy and stimulate further investment.

Here is Ed Miliband explaining the measures:

Related stories:

All the environment news from the Budget (FT)
Britain’s Budget: How green is it? (FT Energy Source)

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