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16 | 4TH - 10TH DECEMBER 2015 | UTILITY WEEK Policy & Regulation Analysis Spending under review Jillian Ambrose analyses the government's Autumn Statement and sorts the winners from the losers. T he more cynical corners of the energy debate have long claimed that policy is determined not through meticulously analysed data collated by the Department of Energy and Climate Change (Decc), but by the whims of the Treasury. Cynical, perhaps. But under the weight of the government's latest Comprehensive Spending Review, comparisons between Decc's vision of the energy policy future and the wishes of the Treasury were inevitable. In simple terms: the spending review crystallises the government's support of nuclear power and shale gas, while continu- ing to dismantle the coalition government's focus on the Energy Company Obligation (Eco) and renewables. However, look closer and a few surprises emerge: a pleasant one for the nascent heat industry, which will see funding set aside for as much as 200 heat networks, but cata- strophic for the UK's scrapped carbon cap- ture and storage push. For Decc itself, belts will be tightened with a 22 per cent cut expected to be made to the department by the end of the decade through reductions in the budgets for cor- porate services and the cost of contracts. In addition, the Department for Environment, Food and Rural Affairs (Defra) will see a 15 per cent cut over the same period. "Decc will deliver £220 million of resource savings by 2019/20 through efficiencies from pooling back office and corporate services and reducing the costs of contracts to man- age the country's historic coal and nuclear liabilities," says the Treasury. Both sets of cuts are a long way from the 40 per cent maximum for unprotected departments first suggested by the Treasury earlier this year. And both come with sweet- eners, including a £500 million injection into Decc's funding pot for innovation over the next five years. A large part of the innovation funding is expected to help position the UK as an inter- national leader in small modular nuclear reactors, with the remainder to be chan- nelled into delivering commitments on seed funding for new renewable energy technolo- gies and smart grids. In addition, about £300 million of fund- ing will be made available for up to 200 heat networks, a "milestone" for the industry, says Association for Decentralised Energy director Tim Rotheray. Nuclear decommissioning has always rep- resented the bulk of Decc's spending, and on top of the innovation spend on small nuclear projects the Treasury has promised more than £11 billion for the Nuclear Decommis- sioning Authority to continue its work clean- ing up historic nuclear sites. Although still a huge amount of money, the funding represents a saving of £1 bil- lion on current costs, and is intended to tackle some of the long-standing concerns that the NDA offers consumers terrible value for money. Alongside nuclear, the Conservative government has consistently shown strong support for shale, despite the implac- able opposition the industry faces from some quarters. Nuclear Treasury will provide funding for an ambitious nuclear research programme that will revive the UK's nuclear expertise. Heat Over £300 million of funding for up to 200 heat networks. Shale The government will establish a Shale Wealth Fund from shale gas revenues which will see up to 10 per cent of the tax revenues from shale gas spent locally. Innovation The Treasury will double Decc's innovation programme to £500 million over five years. DEPARTMENT OF ENERGY AND CLIMATE CHANGE Baseline (£billion) Plans (£ billion) 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 (2) Resource DEL (1) 0.9 0.9 1.0 1.0 0.9 * Capital DEL 2.3 2.4 2.5 2.4 2.3 2.8 Total DEL 3.3 3.3 3.4 3.3 3.2 * (1) In this table, Resource DEL excludes depreciation. DEL = departmental expenditure limit (2) 2020/21 Resource DEL departmental budgets have only been set for some departments. For the rest, these budgets will be set in full at the next Spending Review. Source: government figures Decc Treasury will require savings of 22 per cent by 2019/20 through cuts to corporate services and the cost of contracts. CCS Treasury will scrap the £1 billion carbon capture and storage competition. Energy efficiency costs The Energy Company Obligation scheme will be replaced by a "cheaper domestic energy efficiency scheme". RHI Savings of almost £700 million are to be made to the Renewable Heat Incentive by 2020/21 despite an increase in funding of £1.15 billion in 2021.