With the dust settling on Chancellor Rachel Reeves’s Budget, which she claimed would help deliver the government’s mission to make Britain a clean energy superpower, the energy sector has welcomed that bold statement of intent, albeit tempered with a degree of scepticism about the government’s ability to transition intent into delivery.
That scepticism can be attributed partly to the government’s confirmation that it will increase and extend the energy profits levy (EPL) on oil and gas production to a headline rate of 78 per cent and remove the associated investment allowance, which some industry insiders predict could hinder investment in energy transition.
Noting that these measures were widely expected, Graeme Clubley, partner in the energy and climate change team at CMS, said he was thankful the UK Government did not follow through on other threatened changes to the capital allowances regime.
“The windfall price conditions that arose following Russia’s invasion of Ukraine no longer exist and the continuing high tax burden places significant pressure on the North Sea oil and gas sector,” he said.
“The recent announcement by Apache that it intends to exit North Sea operations by the end of 2029 is a further sign of weakening investment confidence. A stable, predictable and reasonable tax regime is badly needed to revive confidence.
“It’s welcome that the UK Government plans to consult on the post-EPL tax regime next year, although many will see this as ‘too little, too late’.”
Commenting that the regulatory environment is also extremely challenging, Clubley notes that the industry is unable to make much progress on new developments until the UK Government’s consultation on new guidance for environmental impact assessment closes and the guidance is produced.
“With the recent publication of the National Energy System Operator (NESO) CP30 Report, we can expect the UK Government to increase its focus on building, connecting and operating a clean power system,” he said.
“While the report concluded this aim was possible to achieve by 2030 at the same time as maintaining security of supply, it recognises that it will be a huge challenge requiring massive infrastructure investments over a very short period to drive substantial increases in wind and solar energy capacity.
“With current ‘anticyclonic gloom’ weather patterns impacting renewables production, we must also ensure that gas-fuelled electricity generation remains an option until other viable alternatives are put in place,” said Clubley.
Bob Ruddiman, co-head of energy at Burness Paull, commented: “We are at a crossroads in the energy transition as we balance progress towards net zero, security of supply, and moving beyond an energy system that is purely about generation.
“Energy demand is growing and becoming more diverse – driven in part by the growth in electric vehicles – and expanding the network and other infrastructure is key to meeting our evolving needs. If we get it right, we can not only meet our domestic requirements but also maximise the export opportunities. It’s a massive economic and societal opportunity, and Scotland is at its forefront.”
It’s a sentiment shared by David McEwing, energy partner at Addleshaw Goddard, who said that the three biggest challenges for the renewable sector are supply chain issues, any reduction of the focus on ESG for companies, and grid connection.
“There are lots of great opportunities, especially for Scotland. The danger is that we’re heading into 2025, and still talking about opportunities that are some way from being realised. Time moves a lot faster than the changes required to fast track the energy transition. Will we still be here in 2030 talking about grid connections, hydrogen business models and bringing CCUS (carbon capture, utilization, and storage) to use at scale?”
Amy McDowell, partner, energy and strategic land at Gillespie Macandrew, noted that while there is a degree of frustration with delays in planning, consents and grid connection, there is a renewed awareness of the need for collaboration and a joined-up approach GB-wide.
“We are seeing that awareness with the creation of NESO and TMO4+ [regulations due to come into force in January to accelerate the UK’s net zero transition] with collaboration between Scottish and UK governments and between developers sharing learned lessons and how they are tackling the NPF4 development plan [Scotland’s national spatial strategy setting out spatial principles, regional priorities, national developments and national planning policy],” she said.
Her colleague, Derek McCulloch, partner, head of energy, infrastructure and natural resources, added that the alignment of Westminster and the devolved parliaments is vital to get a GB strategy working.
“The big positive out of the Budget measures is that now, for the first time in a long time, we have both Westminster and the Scottish Government – which is already aligned with renewable energy development – in-step,” he said.
Acknowledging that developers are well aware of the challenges arising from the consenting processes, grid infrastructure constraints and the difficulties that can arise in gaining land rights, Holmes Mackillop director Ralph Riddiough points out that green targets and jobs turn on successful development, raising the question about what developers can do to make the process easier.
“Community benefits can be persuasive locally, but another approach is to make communities feel that a project is theirs – give them input into choosing where the development will be situated,” he said.
“Communities can have a loud voice, but consumer interests generally need to be considered because, no matter how projects are developed, it’s consumers who pick up the tab.
“We live in a society with huge demands for modern comforts and yet challenging levels of energy poverty. Consideration could also be given to nationalising parts of our infrastructure – our industry in the UK is more privatised than is the case in other countries.”
Encouragingly, McDowell suggests that developers are starting to look at sites in a smarter way.
“There’s a real push at considering co-location of technologies, repowering and extending existing sites, and a sense that, with this Labour Government, there’s a push from both sides to be ambitious and to really go for these renewable energy targets,” she said.
“So, if developers can continue to refine and maximise what they can get out of sites at the same time as streamlining the process to get money in – and to use the TMO+4 reforms to make the grid process more efficient – then hopefully that starts to see more projects flowing through quicker and getting to the spade-in-the-ground stage.”
Ruddiman is optimistic about the prospects for the legal profession in 2025 and beyond.
“From a legal perspective, it’s a real growth area – and will be long into the future. Energy projects require just about every legal specialism during their lifecycle, from conception all the way through to decommissioning – financing, planning and construction, property, regulatory, M&A, employment, disputes, and health and safety. It’s a hugely exciting and interesting area.”