Spring Budget 2023: The Green Revolution and Carbon Capture Technology

With five kids and a large household, initially, the voter pleasing headline “childcare revolution” and extension of the energy price cap had me jumping for joy in our lounge. Albeit tentatively, with all of the Lego lying around, jumping could have been more of a hazardous experience than a joyful one.

However, once the initial giddiness of these policies subsided, I was reminded of what will truly impact my children’s future – reducing the impact of climate change.

Capital Allowances

One key aspect of the budget which may impact the UK’s green revolution and renewable future is the planned changes to capital allowances The current Super-Deduction will be replaced on March 31st by a Full Expenditure capital allowance, granting companies the right to expense in year in full any eligible plant and machinery (or 50% first year allowance for special rate items). Although there is disagreement over the degree to whether this is a “give – away”, as the total ultimately eligible to claim over time is not impacted. Providing a company is already profitable, bringing forward the capital allowance benefit could see absolute net present value benefits of up to 7p/£1 spent*.

*based upon a 1 year spend, claiming plant & machinery capital allowances for 25 years vs 100% expense year 1 at a 10% discount rate and 25% tax rate.

Rising costs have been the main contributing factor in stifling investment in renewable energy and infrastructure. Despite current energy pricing being at an all-time high, many development projects will not be online to benefit from this energy pricing but they are still suffering from the impacts of soaring inflation (itself partly as a result of high energy pricing). The recent all-time highs of capacity market clearing prices were largely attributed to these rising costs which set the bar higher for what the market needed to get its minimal investment hurdle. The situation is so stark that even flagship projects like the intended £8 billion extension of Hornsea 3, a UK windfarm slated to power 2 million homes, could be at risk without government intervention.

Projects which are ready to commence a majority of their spend within the next three years and have existing asset profits (if an expansion) or wider tax group profits to offset immediately will see the most gain and this shift could tip the balance for borderline deals. However, other projects will see a sliding scale of benefit and therefore may not even be able to go ahead at all.

Carbon Capture and Storage

Of more interest to me both professionally and as a father was the £20 billion commitment to help ensure the early deployment of carbon capture, usage and storage (CCUS). This commitment was further reiterated in April’s “Net Zero Growth Plan” and the CCUS Net Zero Investment Roadmap. The goal is to make the UK a global leader in CCUS to create an industry worth to the UK of up to £8bn annually by 2050 with aims to capture 20-30MtCO2 annually by 2030.

Whilst the focus of many is rightly at-source energy demand/consumption and supply side CO2 reduction an often-overlooked arena is how to remove CO2 which will inevitably still be produced during the net-zero transition and far into the future. Carbon capture technology has had investment, but when compared to renewable energy is still in its infancy, with the development, commercialisation, installation process and the large costs associated with it. The £20 billion in treasury money committed could make a big difference as its potential contribution to carbon reduction and another string in the bow of UK industry.

The waste industry has received this news extremely positively with Suez, Enfinium and Encyclis (formerly Covanta Europe) all declaring that this new policy will be a “kick start” to development of a world leading system in the UK, creating jobs, stimulating supply chain partnerships and permanently removing carbon from the residual waste cycle.

Amberside’s Involvement

At Amberside, our focus is to help ensure our clients can deliver renewable energy and infrastructure projects with full confidence in their business case. Whilst the new capital expense regime will help, many projects are still borderline for viability. This is where good financial analysis, insight and modelling comes to the fore as small inefficiencies in the business cases can be the difference in determining whether a project goes ahead or not.

Today my main excitement is over the government’s announcement of its intention to support CCUS. Amberside has recently been appointed as lead financial advisor by North London Waste Authority “NLWA”, which is one of the UK’s largest waste authorities for the development of a CCUS facility at an eco park which is currently under construction. Our team are excited about supporting this project and applying our skills to a rapidly growing and important sector, now finally getting the recognition it deserves for its importance in meeting our net zero goals.

Amberside’s past mandates account for almost 50% of operating residual waste capacity within the UK. We are in a prime position to apply our deep insight to helping develop CCUS business plans within this sector and beyond.