Chancellor’s energy commitments: £1bn shale oil wealth fund: new small nuclear power plants, and commitment to renew RHI

George Osborne, MP, Chancellor
George Osborne, MP, Chancellor

5.00pm

The following commitments were specified by Chancellor George Osborne in his spending review announced live in the House of Commons earlier today.

For the Department of Energy and Climate Change, Osborne’s statement means:

  • Doubling DECC’s innovation programme to £500 million over five years, which will ‘strengthen the future security of supply, reduce the costs of decarbonisation and boost industrial and research capabilities’
  • Funding for an ‘ambitious’ nuclear research programme that will revive the UK’s nuclear expertise
  • A £1.7 billion share of the government’s £5.8 billion International Climate Fund, which will help the poorest and most vulnerable countries decarbonise and adapt to the effects of climate change
  • DECC savings of 22% by 2019-20 delivered through efficiencies in corporate services and reducing the cost of contracts

The government’s doubling of investment in DECC’s innovation programme will help position the UK as ‘an international leader in small modular nuclear reactors’, and deliver commitments on seed funding for promising new renewable energy technologies and smart grids.

The government will also  increase funding for the Renewable Heat Incentive to £1.15 billion in 2021 to ensure that the UK continues to make progress towards its climate goals while reforming the scheme to improve value for money, delivering savings of almost £700 million by 2020-21.

The Chancellor also announced policies to:

* Require the industry to allocate a shale oil / gas wealth fund of £1 billion so local communities can share in shale wealth

*To exempt steel and chemicals industries in UK from environmental tariffs on energy use … ‘to keep steel jobs in Britain’, and

*To replace ECO so as to produce a saving of £30 a year on the average annual household energy bills – ‘going green should not have to cost the Earth’

The chancellor also used the 94% drop in North Sea oil revenues forecast by the Office of Budget Responsibility to take a political swipe at the SNP/Scottish Government/ Scottish Independence.

The Renewable Energy Association – the largest such trade body in the UK – said it was ‘cautiously optimistic’ despite the £700 million cut in funding for the Renewable Heat Initiative.

Responding to the reductions to DECC funding announced in the Chancellor’s Comprehensive Spending Review, David Nussbaum, Chief Executive, WWF-UK, said: “How will a disempowered DECC accelerate the essential transition to a low-carbon economy?  And how can the UK lead internationally if we are cutting funding to improve the energy efficiency of our homes?

“The Government must do better than this if it is to live up to its aspiration to leave nature in a better state than it was when it took office.”

Shale Wealth Fund

Commenting on the Chancellor’s announcement on the shale gas industry, Chris Lewis, partner in EY’s energy team, said:

“The announcement to create a Shale Wealth Fund (SWF) to support the creation of a shale gas industry should accelerate investment in this sector.

“One of the biggest challenges the sector faces right now is funding projects as a result of drawn out planning applications and the low current gas price.  This long planning is making investors reluctant to hand over cash as under the current system projects are uneconomical.

“The creation of a Shale Wealth Fund helps garner community engagement because the communities will directly benefit from the projects that are happening in their own back yard. It will also speed up and streamline the planning process by connecting the investors with the local communities and planning decision makers.”

 

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