The government’s Spending Review 2025 (SR25) has sent shockwaves through the energy sector, with a significant shift in funding priorities that could reshape the landscape of UK energy development. The Department for Energy Security and Net Zero (DESNZ) is set to receive a 16% increase in departmental spending, reaching £12.6 billion by 2028-29. This boost is intended to catalyse private investment, a consistent message from the government regarding the funding for Great British Energy (GB Energy). However, the diversion of £2.5 billion from GB Energy to nuclear power, specifically for small modular reactors (SMRs), has raised eyebrows and sparked debate.
The £8.3 billion capitalisation for GB Energy by 2030, now shared with Great British Energy – Nuclear, signals a strategic pivot. This move could accelerate the development of nuclear power, a low-carbon energy source with significant potential but also substantial challenges. The allocation of £2.5 billion to SMRs, via Great British Energy – Nuclear, is a bold step that could diversify the UK’s energy mix and enhance energy security. However, it also raises questions about the balance between different low-carbon technologies and the government’s commitment to a more decentralised, renewable-focused energy system.
The £500 million allocated to hydrogen infrastructure is another critical development. Hydrogen has the potential to decarbonise hard-to-abate sectors, such as heavy industry and long-haul transport. The UK’s first regional hydrogen transport and storage network could be a game-changer, connecting producers with end-users and fostering a hydrogen economy. However, the scale of investment pales in comparison to other areas, such as nuclear, and may not be enough to fully realise hydrogen’s potential.
The Warm Homes Plan, funded with £13.2 billion between 2025-26 and 2029-30, has been well-received. This funding is crucial for addressing fuel poverty and improving energy efficiency, but it also sends a strong signal about the government’s commitment to social justice and a just transition. The capital boost for the clean energy sector is a positive step, but the diversion of funds to nuclear power could limit the growth of other renewable technologies.
The spending review also highlights the government’s focus on transport decarbonisation. The £15.6 billion allocated to Transport for City Regions and the £2.6 billion for decarbonising transport are significant. However, the scrapping of the Rapid Charging Fund and the redistribution of its capital raise concerns about the government’s commitment to electric vehicle (EV) infrastructure. The £400 million for charging infrastructure is a start, but it may not be enough to meet the growing demand for EV charging, particularly for commercial vehicles.
The SR25 has set the stage for a dynamic and potentially disruptive period in the UK energy sector. The increased focus on nuclear power could accelerate the development of SMRs and enhance energy security. However, it also raises questions about the balance between different low-carbon technologies and the government’s commitment to a more decentralised, renewable-focused energy system. The funding for hydrogen infrastructure and the Warm Homes Plan are positive steps, but they may not be enough to fully realise the potential of these technologies. The spending review has sparked debate and will likely shape the development of the UK energy sector in the coming years. The government’s commitment to mobilising private investment will be crucial in determining the success of these initiatives and the overall direction of the energy sector.