Budget 2025: What it means for energy and utilities

The Budget delivers a £150 reduction in household energy bills from April 2026 through temporary Exchequer funding of the Renewables Obligation (RO) and the end of the Energy Company Obligation (ECO). 

The RO relief is temporary however, and expected increases in other non-commodity costs will continue to pressure bills in the medium term. Today’s announcement should therefore be seen as short-term relief.

A new mileage charge for EV drivers from 2028 begins transitioning motoring taxation to EVs. The detail of the Budget shows continued support for Clean Power 2030, but grid connections remain a constraint and rising intermittency will compress generator margins. Nuclear continues to receive clear policy commitment from government, though a new scrutiny framework is likely to constrain scope for future bill-funded interventions – instead favouring investments that can proceed without subsidy.
 

Consumer bills and taxation

The centrepiece of the Budget's energy package is a set of measures to reduce household energy bills by approximately £150 on average from April 2026. This will be achieved by government funding 75% of the domestic share of the legacy Renewables Obligation (RO) from taxation for three years from 2026. The Energy Company Obligation (ECO) scheme, currently funded through bills, will end.

The Warm Home Discount (WHD) has been expanded to reach 6m households this winter, providing £150 off energy bills for eligible recipients. Taken together, the announcements will enable Secretary of State Ed Miliband to claim he has honoured his election promise of reducing bills by £300 - though there will be a bill impact for non- eligible customers from the increased WHD funding that offset the benefits for some.

An additional £1.5bn in capital investment has been committed to the Warm Homes Plan, supplementing the £13.2bn already allocated at Spending Review 2025. The government has also indicated they will consider how to further target savings at electricity bills, including the savings that come from ending ECO. Furthermore, a new framework will subject any additional costs or levies to enhanced scrutiny to ensure affordability and value for money.

Support for new heat pumps through the Boiler Upgrade Scheme will continue at £450m per year, though the end of the ECO scheme creates a retrofit gap which could slow deployment and medium to long-term non-commodity cost increases will continue to pressure running costs compared to gas boilers in the medium-term.

So what?

The shift of RO costs to the Exchequer is welcome but temporary, with costs returning to bills from 2029-30. Total environmental levies are still forecast to rise from £14bn to £19bn by 2030-31, driven by CfD auctions, nuclear levies and capacity market payments. The £150 saving is therefore a partial offset against broader upward pressure on the non-commodity portion of bills.

The end of ECO (£6bn) removes an obligation but also a revenue stream for those delivering efficiency measures, creating a retrofit gap that the additional £1.5bn for Warm Homes does not fill. Overall funding for retrofit will shrink substantially this Parliament.

Electric vehicles and charging infrastructure

A new Electric Vehicle Excise Duty (eVED) mileage charge will apply to electric and plug- in hybrid cars from April 2028. This is important as the OBR forecasts fuel duty receipts will fall to around £12bn in real terms in the 2030s and approach zero by 2050.

The eVED rate for EVs will be approximately half the fuel duty rate paid by petrol and diesel drivers, with a reduced rate for plug-in hybrids. This will see an average EV driver pay around £240 per year or £20 per month. Interestingly, the proposal is for the charge to be self-reported with no requirement to install trackers or report journey details. A consultation will determine how mileage will be verified.

This is offset by the announcement of additional support. An additional £1.3bn has been announced to extend the Electric Car Grant to 2029-30 as well as an increase to the VED Expensive Car Supplement threshold from £40,000 to £50,000 for EVs. The 100% first- year allowances for zero emission cars and EV chargepoints has been extended to March 2027 and an additional £100m has been confirmed for EV charging infrastructure. This should accelerate chargepoint rollout, but investors should also note that reductions to the previously ringfenced Rapid Charge Fund could indicate some risk.

So what?

The eVED introduces a new variable cost, but at approximately half the fuel duty rate the economic advantage of EVs remains substantial. New mileage charging will act as a brake on demand with the OBR projecting 440k fewer EV sales across the forecast period, partially offset by extended grants.

For charging infrastructure investors, the review of public charging costs signals potential intervention if prices are deemed excessive. The mileage charge strengthens the case for smart charging and vehicle-to-grid propositions as owners will seek to offset the new cost through flexibility revenues.
 

Clean power

Grid connections remain a constraint on renewables deployment. The Budget confirms the government will use powers in the Planning and Infrastructure Bill to reallocate released capacity and reserve future capacity for strategic projects. Government say they will come forward with a plan to remove speculative data centre demand from the connection queue.

On nuclear the government has accepted the Fingleton report recommendations on regulatory reform, with full regulatory reform within two years. Nuclear has been added to the Green Financing Framework, opening access to green gilts and retail Green Savings Bonds.

So what?

Grid connection constraints remain a material barrier for project developers. The reforms to reallocate capacity and remove speculative demand could improve queue progression for credible projects. The Fingleton regulatory reforms signal acceleration of nuclear project delivery for developers planning future projects. The addition of nuclear to the Green Financing Framework opens new pools of capital, with S&P awarding the revised framework a dark green rating. For supply chain participants, this budget is a further clear commitment to new nuclear.

Industrial energy use

The British Industry Supercharger has been uplifted from 60% to 90% relief through the Network Charging Compensation Scheme. From 2027, the British Industrial Competitiveness Scheme aims to reduce electricity costs by £35-40/MWh for manufacturing and electricity-intensive industries including automotive, aerospace and chemicals.

A new framework will subject any additional levies to enhanced scrutiny on affordability and value for money. This signals a more rigorous approach to future obligations on bills. Constrained fiscal conditions limit scope for significant new spending, meaning energy transition investments that can proceed without subsidy will be better positioned for support.

So what?

For suppliers serving energy-intensive industrials, the Supercharger uplift and new Competitiveness Scheme change the competitive landscape from 2027, with an implication on pricing strategies for large industrial customers. The new scrutiny framework constrains scope for future bill-funded policy interventions, so business cases dependent on new subsidies will carry greater risk.

Conclusion and key takeaway

The headlines will be dominated by the removal of some energy policies from the bill. Whilst these will meaningfully reduce bills for many, there will remain an upward pressure over time from other non-commodity costs that remain on the bill. The end to ECO may be offset by the Warm Homes Plan but may be unwelcome news for some investors who developed retrofit business models around it. The introduction of road pricing for EV drivers is also likely to slow growth in demand.

That said, the commitment to clean energy remains resolute and in a political environment where consensus is fracturing and fiscal conditions remain tough, this Budget will be a relief for some. There is a clear focus on the affordability of subsidies moving forward, favouring technologies that require minimal subsidy, and perhaps the related focus on reducing the costs of electricity could be the most impactful demand- side measure for some time.