The National Grid confirmed recently that the UK has completed more than a full month without power input from the country’s coal-fired power stations. With the number of coal-free days continuing to increase as of the time of writing, the percentage of UK energy derived from carbon-free sources looks set to continue to rise in 2020.[i]
Perhaps brought into focus by this and other environmentally-advantageous side effects of COVID-19, it seems at this stage of the pandemic at least, that green innovation will continue to be a priority for the UK government for the foreseeable future. UK Business Secretary, Alok Sharma, told a key global climate summit in April 2020 that, as countries emerge from the emergency phase of COVID-19, “we must collectively support a green and resilient recovery that helps us deliver our existing commitments”.[ii] Also, funding for green energy innovation could be supported by the UK government’s GBP 1.25bn fund to support innovative start-ups, small and medium-size enterprises focused on research and development.
If current UK legislation is unchanged, there remains strong incentive for green energy innovation, which will be needed to plug gaps left by the imminent cessation of fossil fuel use. Companies will be required to innovate to stay relevant, with many existing solutions becoming phased out in the medium-term:
- The UK is committed to coal-free energy generation by 2025, and to bring all greenhouse gas emissions to net zero by 2050. The UK’s reliance on coal has already reduced from around forty percent in 2012, to less than three percent in 2019. The contribution of renewables is now at record levels, standing at 36.9 percent.[iii]
- The UK plans to ban petrol, diesel, hybrid and plug-in hybrids cars from 2035. As a result, people will be able to buy only new electric or hydrogen cars and vans.
- Nuclear output will also decline as every existing reactor except for Sizewell B comes up for retirement. The UK’s only new nuclear reactor (Hinkley Point C) should come online in the second half of the 2020s. Given the extremely long lead times for nuclear new build (planning for this reactor began ten years ago), it is relatively certain that Britain’s nuclear capacity will significantly reduce over the coming decade.
- The outlook for renewable energy, such as offshore wind power, is looking positive within the UK. The UK government has indicated that they are aiming for 40GW of power from offshore wind by 2030, which is more than four times the current amount.
Other legislative drivers of green innovation, in the energy sector and beyond
Companies that patent key inventions that shape the UK energy sector will be at a significant commercial advantage, and under current legislation, are given incentives within the patent system. The UK Intellectual Property Office provides a “green channel” for UK patent applications that provide an environmental benefit. This service allows applicants to accelerate the examination process before the UK IPO, making patenting a green invention more simple and efficient than it might otherwise be.
The UK Patent Box scheme is designed to encourage companies to keep and commercialise intellectual property in the UK, by taxing profits earned from patented inventions at ten percent, rather than the higher rate of corporation tax.
The UK also offers R&D tax incentives for small and medium-sized enterprises. This R&D tax relief allows companies to:
- Deduct an extra 130 percent of their qualifying costs from their yearly profit, as well as the normal one-hundred percent deduction, to make a total 230 percent deduction
- Claim a tax credit if the company is loss making, worth up to 14.5 percent of the surrenderable loss