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UTILITY WEEK | 11TH - 17TH MARCH 2016 | 13 Policy & Regulation Previous Budgets have not been kind to energy, but the oil price slump has moved the goal posts. T his is the chancellor's eighth Budget but the memories of his last still linger, with support for onshore wind and solar being curtailed earlier than expected. Many have come to expect this from govern- ment over the past few years, so in some ways the precedent has been set, but it still doesn't give much faith to a sector in need of support to deliver the government's own policies. As Peter Atherton of Jefferies remarked at our seminar in November, investors deal in uncertainty all the time. However, there is "good" and "bad" uncertainty, and it seems this government is set on pursuing the latter. We see four key areas of the sector that will become clearer, or where announcements made at this year's Budget: UK oil and gas; infrastructure; nuclear; and tidal. UK Oil and Gas UK oil and gas revenues are at their lowest since records began. This industry is "on the brink", suggested oil tycoon Algy Cluff, who pioneered exploration in the North Sea in the 1970s. This reality presents a num- ber of challenges. First, the UK's tax revenues from the North Sea have plummeted and the Office for Budget Responsibility predicts receipts of £130 million for 2015/16, compared with £11 billion four years ago. This will have an additional impact on exploration and supply chains on a scale not seen for decades. This is a likely area of focus, where Osborne will continue to use fiscal means to steady the ship until prices rise, such as ditching the 20 per cent supplementary tax levied on oil firms. National Infrastructure Commis- sion The Budget will be the first opportu- nity to see how effective, influential, and independent the NIC is following the publication of its energy report. The chancellor asked the NIC to report ahead of the Budget, so it will be interesting to see what Osborne's response will be. NIC's report con- cluded that UK energy infrastructure is in much need of replacing. I there- fore am anticipating he will announce additional government support for interconnection and look to make changes to regulated costs for storage, which is said to be hampering devel- opment, ahead of an expected launch of a consultation on the UK's energy storage network and capacity. Nuclear While Hinkley looks ever more pre- carious and unlikely, it is expected that the government will publish its feasibility study of small nuclear reac- tors in the UK alongside the Budget. This follows on from the chancel- lor's innovation pledge alongside the Autumn Statement last year. Tidal The key renewable technology project lauded by the prime minister before the last election was Swansea Bay Tidal Lagoon. Since then, the project has been hampered by delays relating to the strike price negotiations with the government. In February, energy secretary Amber Rudd ordered a review of the scheme to begin in early spring and the outcomes presented later in the year. However, the chan- cellor may provide an update in his Budget as to the government's posi- tion, given the developer responded by saying a decision needed to be made within a matter of weeks to have any chance of progressing and "the review will be for nothing". Overall, the chancellor has a pivotal role in delivering the govern- ment's energy policy, and decisions will need to be made this year to ensure the UK has enough capacity beyond 2020. Mr Osborne – will you keep our lights on? Mike Harrison, principal consultant, JBP Energy Last time around: The 2015 Budget, and the emergency sum- mer Budget in July, both hit the renewables sector hard, while giving the beleaguered oil and gas industry a slight boost. Here is a brief reminder of what chancellor George Osborne's last two Budgets meant for utilities. March 2015 Budget • £1.3bn of tax breaks announced for the oil and gas industry. • Opened talks with Tidal Lagoon Power on providing financial support for the Swan- sea Bay Tidal Lagoon. • Announced intentions to reform distribu- tion and transmission regimes with competitive tendering. Summer 2015 Emergency Budget • Scrapped Climate Change Levy exemption for renewable generation. • Oil and gas tax exemptions broadened with £10m exploration tax relief. Big numbers: UK economy GDP: £450,483m (Q4 2015) Growth rate: 2.2% (2015), down from 2.9% in 2014 National debt: £1,542.6bn, equiva- lent to 81% of GDP (Dec 2015) Deficit: £88bn (4.9% of GDP) [2014/15]; £69.5bn (3.7%) [2015/16 estimate] Big numbers: Departmental spending cuts* (*announced in November) Decc £70m Defra £83m Analyst view Mike Harrison 2% ➟ 4% ➟