As European and U.S. lawmakers home in on domestic supply chain incentives, U.K. industry players fear being left on the sideline.

The U.S. Inflation Reduction Act, a $369 billion climate and energy plan that includes funding for clean technology supply chains, started a global subsidy race for green industries when it was passed in August 2022. Europe followed with the Green Deal Industrial Plan, which intends to relax state-aid rules to allow member states to better support local manufacturing.

Although the EU's plan is seen as lacking the financial teeth of the U.S. bill, which is reported to have created over 100,000 jobs already, it does provide a support framework for European businesses that the U.K. does not have access to.

"With widespread uncertainty and increasing international competition, the U.K.'s status as a leading destination for investment in clean energy is at risk," said Claire Mack, CEO of industry group Scottish Renewables.

Renewable energy companies and trade groups are now calling for a support plan in the U.K.

"The investment climate for U.K. low-carbon generation has worsened over recent months," Emma Pinchbeck, CEO of trade association Energy UK, said in a Feb. 3 statement. "Increased costs and renewed international competition risk squandering the U.K.'s lead as a clean technology pioneer."

Reducing taxes for new investment in renewables would be a first step, Pinchbeck said. "Government must — at the very least — reform the capital allowances regime to keep investment and industry here in the U.K.," the executive added.

Renewables generators should get an investment allowance under the windfall tax they are currently subjected to, according to the Confederation of British Industry, the U.K.'s largest business trade group.

The so-called electricity generator levy reins in revenue above £75/MWh made by low-carbon generators, a benchmark price above which the government considers returns to be "exceptional." Under a similar tax imposed on the oil and gas sector, companies are eligible for a 90% rebate on investments made in the U.K., a move that softens the impact of clawback measures.

"We're now seeing a huge step up in ambition on the energy transition globally ... so now is the time for the U.K. to send its own bold investment signals to maintain its leadership position," Alistair Phillips-Davies, CEO at U.K. utility SSE PLC, said in an emailed statement.

The U.K. is one of Europe's largest renewables markets and has consistently drawn international investors, especially in its offshore wind space, but growth in its local supply chains is not a given.

Having lost a close relationship with the European Union after Brexit, and with no prospect of a free trade agreement with the U.S., the U.K. is stuck between a rock and a hard place, according to Jonny Peters, senior policy adviser covering trade and climate at think tank E3G.

"Across all clean-tech sectors, we are now in a context of increased global competition — it's no longer enough to be a first mover," Peters said in an interview.

Since the U.K. cannot outcompete the U.S. or EU, it should find niches of excellence and focus on nurturing such business models, Peters said. This includes the energy transition of the North Sea, where oil and gas are passing the baton to offshore wind, as well as industrial transformation, for instance, in the steel sector.

The country has a struggling steel industry, with the biggest sites in Wales. Such sites could be prime candidates for advanced steelmaking technologies pioneered in places such as Sweden, with electric arc furnaces and green hydrogen-derived steel, Peters said.

Race to build supply chains

Some key levers for change were highlighted by former U.K. Energy Minister Chris Skidmore's Net-Zero Review in January, including speedier grid connections for solar and onshore wind and planning reform for onshore renewables. Skidmore also recommended the use of tax incentives for businesses investing in decarbonization and a 10-year mission to make heat pumps a widespread technology in the U.K.

Industry is now appealing for the government to use the March 15 spring budget, a fiscal event where Chancellor of the Exchequer Jeremy Hunt will lay out his new spending plan, to give clean tech a shot in the arm.

Market watchers do not anticipate major new spending, however, with the government at loggerheads with unions from across the public sector over pay, while demands for support with the cost of living crisis and the creaking National Health Service are unrelenting.

"We know that this government is finding it incredibly hard to spend money," Peters said, adding that while not all of the industrial incentives have to be financial, the incumbent Conservative Party's frugality may be short-sighted.

"The Government considers the impact of international policies on U.K. investment to ensure the Government meets its net-zero and economic growth ambitions," a government spokesperson said, adding that it had "helped to secure" almost £20 billion in green investment in the past two years.

Phillips-Davies described a "race to build knowledge, expertise and supply chains," especially in emerging technologies such as floating offshore wind, carbon capture and hydrogen. While geography and existing infrastructure mean the country is well positioned, a lack of ambition means the industry will be developed elsewhere, the SSE CEO said.

As part of that ambition, Phillips-Davies wants to see a speedier consenting process for new wind farms, as well as more emphasis on developing carbon capture and hydrogen industries.

Green hydrogen has been particularly drawn toward the U.S. market, thanks to Inflation Reduction Act subsidies and a less cumbersome administrative process.

ITM Power PLC, a U.K. hydrogen equipment maker, said Jan. 31 that the positive business environment in the U.S. makes it an attractive location for overseas factories. In September 2022, the company abandoned plans for a second site in Sheffield, U.K.

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