Renewable Energy and Research and Development Tax

R&D Tax Credits

The UK is facing the prospect of an energy crisis within a decade. With energy consumption expected to rise and coal power set to be phased out, there’s a very real possibility that demand could soon outstrip supply. According to a recent report from the Institute of Mechanical Engineers, blackouts might be commonplace by 2025.

Rather than see the lights go out across the United Kingdom, the government would have to choose between two less than appealing options.

The government might opt to extend the operational life of Britain’s aging coal power stations. But this would be a short term fix at best, and it would have serious implications for the UK’s legally binding commitment to tackle climate change.

A second option would be to import additional energy from abroad. This raises issues of energy security, particularly since many of the regions most abundant in fossil fuels are amongst the least politically stable.

A Bright Future for Renewable Energy

If a crisis is to be averted and the UK is to be able to meet her own energy needs, then renewable energy will have to play a key role.

The UK has already made some substantial progress in this area. As recently as 2010 only 6.5 percent of Britain’s electricity was generated by renewable energy; in the last quarter of 2015 that figure rose to 25.3%. This was the first time that renewables generated more electricity than coal.

Despite this much-improved performance, many companies in the renewable energy sector are concerned at the mixed messages coming from the government. A post-Brexit commitment to reduce carbon emissions by 57% by 2030 was welcomed, but the decision to cut certain subsidies is seen by many as an indication that the government’s commitment to renewable energy is not as robust as it could be.

However, while renewable energy might be facing a moment of uncertainty in the UK, the overall health of the sector remains robust.

Some established renewable energy technologies have now matured to the point where they can compete head-to-head with fossil fuels on price. For example, the price of photovoltaic solar panels has been reduced by 99% over the past forty years, and the cost of generating a watt of electricity through solar power has fallen from an eye-watering £1350 in 1958 to just £0.55 today.

Wind, tidal and wave power have all followed a similar trajectory with costs falling and efficiency soaring.

Huge advances in renewable energy technology mean that it’s now become economically viable for some countries to go a long way towards eliminating their need for fossil fuels altogether. At the time of writing, Costa Rica’s electricity grid has been powered entirely by renewables for more than four months.

With Costa Rica leading the pack and several other countries close behind, authorities such as Bloomberg are predicting phenomenal growth in the renewable energy sector. Despite the recent slump in the cost of fossil fuels, 2015 was a record year for investment in renewable energy.

Could the UK run on entirely renewable energy?

If Costa Rica can be run on renewable energy, then could any amount of tax credits and subsidies help the UK do the same?

Brian Mackay, a Cambridge University professor and former advisor to the Department of Energy and Climate Change, has crunched the numbers and the answer is theoretically yes, but it wouldn’t be easy.

In order to power an advanced industrialised nation like the United Kingdom with renewable energy, vast swathes of the countryside and shoreline would have to be given over to capturing or producing that energy.

Mackay calculated that even if the entirety of the United Kingdom was given over to producing biofuel, it still wouldn’t be enough to match current energy consumption. Wind farms produce around twice as much energy per square metre as energy crops but would still require half the UK’s landmass to meet current energy requirements.

Other sources of renewable energy

Even allowing for substantial future improvements in technology, it’s unlikely that solar, wind, wave and tidal energy alone will entirely replace fossil fuels in the United Kingdom in the foreseeable future. However, there is a great deal of work being done looking into innovative ways of producing and storing renewable energy.

From converting algae into biofuel to harnessing the power of solar winds, scientists and innovators are searching for unexpected ways to compliment the more traditional forms of renewable energy.

Renewable energy and research and development tax credits

Renewable energy is attracting record investment and becoming profitable, but cuts to subsidies will hurt many companies operating in the United Kingdom.

If your company is undertaking innovative work in the renewable energy sector, it’s worth making sure you are claiming for everything you are entitled to.

The UK Government runs a scheme which allows businesses to claim back tax credits against money invested in research and development projects. The most recent statistics show that more than twenty-thousand companies shared a combined total of £1.75 billion in R&D tax credits in 2013/14 alone.

If you haven’t yet made a claim or you’re not sure whether your company would qualify, contact us and we can help guide you through the process.