© Supplied by X The UK energy sector has outlined its list of priorities ahead of the UK government’s comprehensive spending review on 11 June.
Chancellor Rachel Reeves will hand down her second major fiscal statement following the delivery of her first budget in October last year.
In Labour’s first budget in 14 years, Reeves outlined major policy shifts including an increase to the windfall tax on oil and gas firms and funding for green hydrogen projects.
Now, the Chancellor will hand down a Spring review which will reveal the Labour government’s priorities for spending ranging from healthcare to defence.
As for the energy sector, UK firms will be looking for answers to key funding questions.
Areas of particular interest include carbon capture and storage (CCS), offshore wind, nuclear energy, and the future of oil and gas licensing.
There are also reports that Labour’s flagship publicly-owned GB Energy could be in line for cuts to its £8.3 billion budget.
With public finances stretched, the Institute for Fiscal Studies (IFS) has highlighted that a big increase to defence spending leaves little room for other priorities.
“Given that, it will not be possible to also prioritise investments in public services, net zero and growth-friendly areas while staying within the envelope,” the IFS said.
“It is perhaps the decision the government makes here that will give us the clearest sense of its true priorities.”
Energy Voice takes a look at what’s at stake in the 2025 spending review, and what it could reveal about the Chancellor and energy secretary Ed Miliband’s priorities.
Carbon capture and storage
Many firms in the oil and gas supply chain will be looking to see funding commitments from Labour for major CCS projects in Scotland and the Humber.
North Sea operator Harbour Energy’s Viking CCS and the Acorn project in Scotland form part of the government’s track-2 process.
The first wave of major CCS projects are already underway in Teesside and Liverpool Bay after the UK government committed £22bn to the industry over 25 years.
But progress on track-2 funding has been long delayed, leading to frustration from project developers, major industrial emitters and Scottish politicians.
Harbour Energy also cited delays to Viking as part of its recent decision to cut 250 jobs from its headquarters in Aberdeen.
CCS sector ‘primed for growth’
The Carbon Capture and Storage Association (CCSA) trade body has said the CCS supply chain is “primed for growth”, but it needs certainty from the spending review.
The CCSA said with the right support, the UK CCS supply chain could be worth £2.5bn per year by 2040, but warned track-1 projects alone will not be enough.
© Supplied by ShellThe trade body called for funding commitments for Acorn and Viking, alongside track-1 expansion projects, and a clear programme for future CCS project allocation.
The CCSA also wants to see targeted financial support to help UK manufacturers and service providers “scale up and transition” into CCS delivery.
CCSA chief executive Olivia Powis the industry needs to see a steady pipeline of projects to provide confidence for investors and suppliers.
“The UK supply chain is ready to respond with the skills, innovation and capabilities needed to make UK CCUS a world-leading industry,”
“But continued Government commitment and a pipeline of future projects is essential to ensure that domestic suppliers can compete, scale up and create lasting jobs across the country – otherwise we will see investors and this industry go overseas.”
Calls to back Acorn and Viking
Offshore Energies UK (OEUK) also called on the government to back Viking CCS and Acorn.
OEUK said the two projects have the potential to invest £25bn by 2035, potentially creating over 30,000 jobs.
Acorn is “critical” for futureproofing heavy industry in Scotland, OEUK said, while Viking is located in the UK’s most industrialised and emissions intensive region.
OEUK chief executive David Whitehouse said the industry wants to see announce a “clear funding envelope for track-2 and beyond”.
“This is needed so key projects like Acorn in Scotland and Humber-based Viking can go ahead, create jobs, help British industry decarbonise and importantly invest in Britain,” he said.
Offshore wind
OEUK also urged the government to provide strong backing for the offshore wind sector and commit £7.5bn over the next three contracts for difference (CfD) auctions.
Labour is aiming for the “biggest and most successful” renewables auction in UK history in this year’s seventh allocation round (AR7) as part of its ambitions to decarbonise the country’s electricity grid by 2030.
OEUK said it wants to see the UK government continue its focus on growing floating and fixed offshore wind and provide funding certainty until AR9.
Fellow trade body RenewableUK is also calling for a decision on the controversial question of zonal pricing.
© Supplied by SSEIn its spending review submission, RenewableUK called for wind energy to play a key role in the UK government’s forthcoming industrial strategy to provide regional growth opportunities.
The organisation also wants to see strategic investments in port upgrades, changes to allow GB Energy and the National Wealth Fund to provide grant funding, and more funding for planning authorities and regulators such as Ofgem to speed up consenting times.
Labour’s clean power goals rest heavily on the AR7 auction this year, with industry leaders wanting to see at least 6 GW of capacity secured through CfDs.
As a result, expect to see plenty of focus on offshore wind as the Chancellor hands down her spending review on Wednesday.
North Sea oil and gas
Meanwhile, OEUK is also continuing to urge the Labour government to reverse its decision to raise and extend the Energy Profits Levy (EPL) windfall tax.
OEUK said the spending review should “help the UK’s offshore energy and other industrial sectors unlock economic growth and strengthen supply chains”.
Whitehouse said with the UK importing over 40% of its energy supplies, the country needs “more wind, hydrogen, oil and gas, and CCUS”, all sectors where offshore operators are investing.
“These are critical times and our sector can help government lay a credible path to economic growth. This starts with support for homegrown energy,” he said.
“We must work together to unlock business investment across UK energy opportunities. This includes the build out of renewables alongside the responsible production of oil and gas.”
Alongside the windfall tax, Labour is also undertaking consultations on the future of the North Sea focused on oil and gas licensing and the sector’s climate compatibility.
Nuclear energy
Nuclear power is shaping up to form a key part of the spending review, amid reports of a series of high profile upcoming announcements from the government.
The FT reported that ministers are expected to reaffirm the government’s commitment to the £20bn Sizewell C nuclear reactor “in or around the spending review”.
Meanwhile, the FT said Prime Minister Sir Keir Starmer will announce the final go-ahead for the Sizewell C in a summit with French President Emmanuel Macron in July.
Labour is also reportedly in talks with EDF to buy back three English sites as part of plans to expand nuclear generation, alongside other potential sites in Wales.
Meanwhile, the UK government could also make an announcement on the rollout of small modular reactors (SMRs) in the spending review.
© Image: Rolls Royce SMRGovernment-owned Great British Nuclear (GBN) is currently considering SMR proposals from GE Hitachi, Holtec, Rolls Royce SMR and Westinghouse.
Nuclear sector highlights grid balancing potential
Earlier this year, trade body Energy UK urged Labour to “unleash the potential of nuclear energy” amid renewed interest driven by tech companies such as Microsoft, Amazon, Google and Meta.
The nuclear sector currently employs around 64,000 people, and Energy UK said the delivery of Sizewell C could create a further 70,000 jobs and provide a £4.4bn economic boost.
Meanwhile, Nuclear Industry Association chief executive Tom Greatrex urged greater investment in the sector to reduce billions in costs associated with grid balancing.
“The government is absolutely right to press on with Sizewell C and a fleet of SMRs to get more reliable power on the grid and contain ballooning system costs,” Greatrex said.
“Consumers are paying the price of Britain’s reliance on gas after decades of not investing in nuclear, the only available source of homegrown firm, clean power.
“More nuclear means a more price-predictable, more secure and cleaner energy system so it’s vital that we commit to new projects.”
Hydrogen
Supporting the growth of the UK hydrogen sector has been a key focus for the Labour government, with the shortlist for the second hydrogen allocation (HAR2) announced earlier this year.
Industry minister Sarah Jones has also pledged to deliver an updated hydrogen strategy later this year, building on the roadmap set out by the previous Conservative government.
Alongside the green hydrogen projects in HAR1 and HAR2, the UK government is also backing blue hydrogen projects as part of the track-1 CCS clusters.
If Labour gives its backing to the track-2 Acorn and Viking projects, further blue hydrogen developments could get underway.
But the hydrogen sector has been beset by challenges including sustained high production costs and questions over the scale of demand required.
North Sea operator BP scrapped a major green hydrogen project in Teesside earlier this year, while HAR1 projects have been hit by lengthy delays.
‘Compelling’ case for UK hydrogen, sector says
Speaking in April, Hydrogen UK chief executive Clare Jackson acknowledged progress within the sector has moved “painfully slowly”, but said the case for hydrogen has “never been more compelling”.
Meanwhile, North West Hydrogen Alliance (NWHA) chair Dave Richardson has called on the government to prioritise hydrogen investment in the spending review.
The NWHA said hydrogen holds “transformative potential” for the north west of England, with forecasts of a £3.4bn economic boost and the creation 11,500 jobs.
© Supplied by EET HydrogenRichardson said the UK is at a “critical juncture” and urged the government to capitalise on the “unparalleled opportunity” hydrogen presents.
“Scaling back on hydrogen ambitions would not only jeopardise the UK’s net zero commitments but also risk ceding leadership in a high-growth global market to international competitors,” he said.
“Hydrogen is a once-in-a-generation opportunity to drive economic growth, create high-value jobs, and establish the UK as a global leader in energy transition technologies.”
GB Energy, energy storage, and more
The spending review could also provide key insights into the government’s plans for long-term infrastructure investment and raising capital spending.
Investment in grid upgrades and long duration energy storage (LDES) are essential to Labour’s plans for a decarbonised power supply.
But with battery storage developers and pumped storage hydro investors criticising government’s LDES cap and floor scheme in recent weeks, it remains to be seen whether Reeves will include any changes in the spending review.
As for emerging sectors like floating wind, wave and tidal energy, any increase to CfD budgets could provide opportunities to boost ringfenced funding pots.
Labour’s flagship publicly owned GB Energy, based in Aberdeen, is also rumoured to potentially be in line for cuts to its £8.3bn budget allocation.
While a spokesperson for the Department for Energy Security and Net Zero previously told Energy Voice that the government “remains fully committed” to the GB Energy budget, the spending review will be an opportunity for Labour to put that speculation to rest.
