Budget 2012: “clarity desperately needed”

With all eyes on 11 Downing Street next Wednesday, edie asks what should the development community, and in particular the energy sector expect from this year's budget? Head of energy for specialist communications agency PPS Group Leander Clarke considers this question and gives her thoughts on how any potential announcements might impact upon development in the energy sector.

Next Wednesday, March 21, at around 12.30pm, the Chancellor of the Exchequer George Osborne, will stand at the despatch box and deliver his third annual statement to the house on the state of the nation’s finances: The Budget.

Given recent headlines it is clear there will be a focus on the consumer with an attempt to impose further regulation to those operating in the energy retail market. As a vote-winning exercise it is difficult to see how the budget could avoid tackling rising energy costs and the much-discussed market dominance of the ‘Big-Six’.

However, while government will want to take a clear stand on these issues it can’t afford to alienate many of the large energy companies that it also relies on to deliver its carbon reduction targets and security of supply through home-grown renewable energy projects. A clever balancing act will therefore be required and one can’t help but wonder how much the consumer will really benefit beyond the rhetoric.

Investment in infrastructure will be key to this budget, as the government continues to look at how our energy is generated and delivered through the electricity market reform (EMR). How investment in renewable and low-carbon generation will continue beyond the Renewable Obligation Certificates is still subject to consultation but it is likely we will see some reflection of government thinking played out in this budget.

Oil and gas will be in for a reprieve after last year’s smash and grab raid on North Sea Oil revenues, which resulted in the outcome of less, rather than more, revenue coming into the Treasury’s coffers. This will assuage the Tory back-bench lobby that is sceptical of all things renewable requiring the drip-feed of Treasury subsidy and signal that natural gas in particular is back in favour as part of a balanced energy portfolio.

There will be winners and losers of course; for instance we might expect a significant change in the Government’s commitment to Carbon Capture and Storage (CCS) technology following the collapse of the flagship CCS pilot at Longannet last year.

This budget could signal a dramatic move away from financial backing for CCS in the near future. However this will be to the benefit of other ‘more viable’ technologies and investment opportunities such as marine and tidal, and a growth of projects such as the newly designated South West Marine Energy Park.

Creating the right conditions for investment will be a strong theme next week. We would therefore also expect to see further commitment to the Green Investment Bank in an attempt to attract private sector funding to the market.

Of course investment in infrastructure has to go hand in hand with creating the right planning conditions to deliver projects. We already understand the difficulty some technologies face at the hands of the planning process. The statistics for onshore wind project consent, for example, stands at around 50%, and this is creating barriers for further investment in the technology. Offshore wind and other nationally significant infrastructure projects face further planning uncertainty as the IPC becomes the National Infrastructure Directorate in April.

We are likely to see the final version of the National Planning Policy Framework (NPPF) be announced and published, assuming DCLG has finally got it over the line. Included within the NPPF will be the definitive wording on what is meant by ‘sustainable development’. Once the final NPPF is in place much will start to flow after almost two years of talk of re-orientating the planning system.

So in summary, it will be a budget desperate to assuage consumer and media disquiet surrounding energy prices and the perceived strangle-hold the ‘Big-Six’ has on the retail market; while creating a suitable investment and policy environment for these same companies to make money and deliver the low-carbon energy projects needed to meet government targets.

Whatever is announced next week, we can only hope that it will provide us all with the clarity and certainty so desperately needed to ensure UK shores are attractive for those operating in the energy market.

Leander Clarke is head of energy for specialist communications agency PPS Group

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