As with many budgets when we look at the energy measures in this year’s budget many issues raised in the speech turn out to be less significant than they sound and many of the more significant measures are found buried in the Red Book (which sets out the detailed Budget measures) published after the Chancellor finishes speaking. A good example of the former would be the announcement of funding for small modular nuclear reactors (SMRs) which on closer examination is merely the funding of the next stage of the existing feasibility studies. In the latter category would be the rather dry sounding subject of energy code governance. However these codes are critical in determining the profit or loss of energy projects, the security of electricity supplies and the level of market competition. There are a huge number of these codes and they are currently governed by rather arcane committees of companies in the industry with little oversight by the regulator. DECC have long been known to be concerned about this and the budget papers show that Ofgem will be given new powers to take greater oversight of these code governance arrangements.
So looking at what the Budget has to say on nuclear directly we see that the Treasury will allocate at least £30 million for a Small Modular Reactor (SMR)-enabling advanced manufacturing research and development programme to develop nuclear skills capacity in this area. This is funding for the next stage of the existing SMR programme which is at a feasibility stage. There is also a promise of a roadmap to deliver SMRs in the UK.
In measures that could support the nuclear sector a key measure is the changing of the fuel ratio in the Climate Change Levy (which will have higher rates with the Budget’s announcement of the abolition of the Carbon Reduction Commitment). This will set the rates from a ratio of 2.5:1 (gas:electricity) in 2019 to 1:1 by 2025. This will help to discourage the use of gas on the system which will help to reduce carbon emissions by pushing the fuel mix more towards renewables and nuclear. This is an interesting development as when addressing security of supply issues the Government has stated that increased use of gas will be needed to achieve this so it is not entirely joined up policy formation.
However on a more disappointing note for nuclear (and renewables) the Carbon Price Support level will again be frozen at £18/t Carbon although it will be uprated with inflation from 2020/21. The Government will not set out the long-term direction for the price until the Autumn Statement. While there has to be some doubt about its future, the intention to uprate in 2020 seems to imply that the Treasury is keen to maintain the income, even if they do not support its environmental objectives.
Unsurprisingly reaction in the nuclear industry has welcomed the announcements on SMRs but has also expressed some disquiet on the Carbon Price Support despite the assistance from the Climate Change Levy. On behalf of the industry Tom Greatrex, Chief Executive of the Nuclear Industry Association, said, “While we welcome the progress made in advancing small nuclear reactor development in the UK, it is disappointing the long-term direction of the carbon price floor will not be set out until the Autumn Statement and that there was no announcement in relation to the levy control framework, for investment in low carbon infrastructure beyond 2020.
“These are key market mechanisms to provide investor confidence for long term projects and clarity is important in concluding long-term investment decisions.
“Small modular reactors could potentially play a significant complementary role to the UK’s existing new build programme and it is welcome that the Government is looking seriously at the development of SMRs. It is important that the road map, the Chancellor has promised by the autumn should maximise the opportunities for UK industry.”