Now There's £585bn of Subsidies Galore

Updated subsidy database shows the government plans to lavish over £585bn of our money on Net Zero and energy related subsidies.

Introduction

Regular readers may remember an article ‘Subsidies Galore’ from late 2024 documenting the scale of the subsidies on offer for Net Zero and other energy related activities. Well, a couple of weeks ago, the Government announced it had updated the Subsidy Control Transparency Database with its estimate of the cost of the recent AR7 renewables auction. The database is a treasure trove of information about how the Government plans to burn hundreds of billions of pounds to subsidise Net Zero. In total, I counted over £585bn (up from £328bn in the 2024 article) of Net Zero and energy related subsidies, with a staggering £40bn earmarked just for AR7.

Time to dig into the detail to uncover how the green gravy train want to squander our money.

Subsidy Control Transparency Database

Before we dig into the Net Zero and energy related items, we should note an important caveat about the whole database. The data quality is somewhat suspect, for instance the most expensive subsidy line is SC1005, UK Film Tax Relief Prolongation, is supposed to cost £2,960bn, that’s more than UK GDP, between April 2020 and April 2025. It is very unlikely that this figure is accurate and so it calls into question the accuracy of other entries in the database. In addition, there are two items related to the Renewables Obligation Scheme (ROCs), items SC11007 and SC10753 that have budget values of £1 and £0, respectively. These have been adjusted by adding up the buyout value of ROCs from 2008-2024 and adding the OBR estimates of the cost of the scheme from 2025/26 to 2030/31, which accounts for £104bn of the difference to the last article. This is likely an under-estimate of the full cost of ROCs because the scheme began before 2008 and will extend well beyond 2031.

There are so many Net Zero and energy-related schemes that it is difficult to cover them all, so we will focus on the largest items and highlight some of the most grotesque absurdities.

Electricity Generation Subsidies

The largest cluster of subsidies is for generating electricity. This includes Renewables Obligations, the largest scheme, with an estimated cost over £104bn as discussed above. The next largest group relates to the Contracts for Difference (CfDs) scheme. The government estimates this will cost in total over £102bn, made up of £40bn for AR7, £20bn for AR6 (down from the previous estimate because Hornsea 4 has been cancelled), £15bn for AR4, £5bn for AR5 and another £15bn for earlier rounds. There are also separate entries for Hornsea 1, Beatrice and Walney Extension amounting to another £7.4bn in total. Walney has already received £2.2bn in subsidy compared to the estimate of £2.1bn. Hornsea 1 and Beatrice will also likely receive more than the budgeted amount.

Feed-in-Tariffs are calculated to costs us £31bn and wind energy on remote islands another £15bn. Teesside biomass plant is thought to be in line to receive £1.1bn in subsidies. The ROC cost of Drax is included in the ROC line.

That is a total of over £260bn of subsidies to produce renewable electricity. Enough to build at least five Hinkley Point C’s that would deliver 16GW of reliable power.

But the energy subsides do not stop there. The Renewable Heat Incentive (RHI) is forecast to cost another £44bn. The RHI is essentially a scheme to incentivise farmers to burn wood to heat empty sheds out to 2040. There is also another £2bn for the Green Gas Support Scheme.

Subsidies to Backup Intermittent Renewables

As well as being expensive, wind and solar renewables are of course intermittent, so we need to pay for backup when the sun is not shining and the wind is not blowing (or blowing too hard). The government has created the Capacity Market to provide the backup, but of course it too will require a subsidy estimated at £72bn.

Subsidies to Make Wind Turbines

Apparently, the £260bn to subsidise renewables is not enough to stimulate making wind turbines. The industry has been offered another bung in the form of the Clean Industry Bonus, estimated to cost £544m to invest in more sustainable supply chains. There is another £480m to support the indirect costs of renewable energy in the UK.

Subsidies for Using Expensive Energy

Of course, such expensive electricity is too expensive for industry, so we have another set of subsidies to compensate for high energy prices. The energy related item with the highest value is the British Industry Supercharger Package for energy intensive industries (EIIs) with a value of £51.4bn. This is designed to provide “electricity price support” to around 370 energy intensive businesses in sectors such as steel, paper and batteries. There is another £4bn to exempt EIIs from the cost of Sizewell C and £936m for the Energy Bills Discount Scheme again targeted at EIIs.

This is simply a tangle of cross subsidies in a vain attempt to mitigate the government’s insane energy policy.

Subsidies to Make Electricity Generation Less Efficient

The madness does not stop there, because there is a total of £59.7bn of carbon capture related subsidies. £30bn has been allocated to the Dispatchable Power Agreement Business Model (Item SC11175), designed to support gas-fired power stations by incentivising the installation carbon capture and storage (CCUS) equipment. There is another £16.7bn for the two carbon capture business models split equally between the Industrial Carbon Capture Business Model and the Waste Industrial Carbon Capture Business Model. In addition, £13bn has been allocated to the CCUS Transport and Storage Regulatory Investment model and about £100m to various carbon capture innovation schemes.

Of course, capturing the carbon dioxide from coal and gas-fired power plants just makes them less efficient and more expensive. The government is subsidising a crime against thermodynamics.

Subsidies for Hydrogen

Another £3bn has been set aside for another thermodynamic war crime – green hydrogen. £2.3bn is forecast to be spent on the Hydrogen Production Business Model (also called HAR1), with another £589m on Hydrogen Transport hubs. The balance of the £3bn comprises various funds, accelerators and innovation schemes.

Subsidies to Transform Society

Disfiguring our power sector is not enough to achieve Net Zero, so there are various other subsidies to transform industry and wider society. There is a total of £4.2bn allocated to transforming industry including £1.9bn for DRIVE35 to support large-scale zero emissions investment in the automotive industry and £1.8bn for Automotive Transformation Funds to electrify the automotive supply chain. Another £508m is allocated to various schemes for Industrial Decarbonisation, transforming industrial energy.

Several other items relate to decarbonising heat in social housing, worth a total of £2.2bn and a further £450m for boiler upgrade schemes. These schemes are designed to implement the same types of measures that the Government DEEP report calculated would have payback times measured in centuries or millennia.

On top of all that, there is another £609m of subsidies for various ultra-low emissions bus projects.

Subsidies for Reliable Energy

As well as subsidising unreliable and intermittent electricity generators like wind and solar, even more money will be spent on nuclear power. £62.6bn is earmarked in subsidy for Sizewell C. This is perhaps a reflection of over-zealous regulation of the nuclear industry and poor procurement by contracting again for the French EPR design that has run over-budget every time it has been built. £409m will be spent on various nuclear research and development projects, including £210m on The Low-Cost Nuclear Programme which does not seem to have worked.

They have also calculated that the Hinkley Point C nuclear power plant will cost only £130m, which is an anomalously low figure since the current strike price of that project’s CfD is almost £131/MWh.

Conclusions

We must exercise some caution when drawing conclusions because of the obvious howlers in the data. Of course, we are not going to spend £2,960bn on tax relief for the film industry. However, when it comes to the energy related items, it does appear as though the mistakes tend to under-estimate the cost of subsidies.

We see a ridiculous spectacle of hundreds of billions of pounds being squandered on renewables subsidies while funnelling tens of billions more into industry to mitigate the impact of the resulting high energy prices. The spectacle is made even worse by tens of billions more being spent on backup and making our firm power capacity less efficient and even more expensive with CCUS and hydrogen. The nuclear programme is a showcase of over-zealous regulation and incompetent procurement. Everything about these subsidies is completely insane.

These subsidies and cross-subsidies are only a small part of the problem though, because there are additional taxes like the Energy Profits Levy on oil and gas producers, the Climate Change Levy, the Carbon Price Support Scheme and the Emissions Trading system that are adding further costs to businesses and households. Taken together, they are sucking the life out of the economy. Imagine what society would look like if we stopped subsidising unreliable and expensive forms of energy. Bills would be lower; taxes could be lower and more companies would have the confidence to invest in Britain and create jobs and growth. We must ditch Net Zero now.

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