Biggest Winners of UK's Green Strategy

The UK unveiled its response to the US Inflation Reduction Act in supporting ESG, but the plan seems short on new spending as increased costs limit government action.

New Plan, Old Funds

Last week, the UK revealed its much-anticipated update to its roadmap to speed up renewable energy and carbon capture as part of the drive towards net zero. The new roadmap is 130 pages, compared to the 43 pages of the 2019 version it was updating. But it is seen as having little in the way of new spending, with roughly £50B in capital allocated. It's being billed as a response to the Inflation Reduction Act in the US, which has $370B in spending and compares to the €200B earmarked for the same projects by the European Union.

Chancellor Jeremy Hunt explained the rationale for the more modest proposal saying that the plan wasn't to engage in a global subsidy raise and to target public funding. More details on funding were left for the Autumn Budget, which will likely impact the market more. Key provisions of the plan include supporting nuclear, subsidies for heat pumps, and consultations on a carbon border tax. One of the more thorny issues, called "taxonomy", is how sustainable investments are classified and what fits under the ESG rubric. That will be subject to public consultation later in the year, after a pause to learn from the EU's issues in dealing with taxonomy.

The Market Reaction

The market was less than impressed with the new announcements, with hardly any moves in the indices. One of the firms directly impacted was Drax group, which lost out on its bid to include its proposed carbon capture and biomass project in the Track-1 list, resulting in a 12% drop in the company's share price.

BP's Teeside projects did make the list, but the comparable impact, given the size of the oil giant, was muted. Firms in the hydrogen space did get a more modest boost, as the plan could support the hydrogen supply chain. Ceres Power Holdings and ITM Power stand out in that space, but both firms have been underperforming in recent trading. Getech's H2 Green unit is also involved in the space. A further segment is nuclear, which intends to prioritise constructing new nuclear facilities, which will likely benefit firms like Rolls-Royce. However, the document wasn't explicit on how funding would be made available, assuming that more clarity could come in the autumn with the new budget.

FTSE 100 Continues Streak

UK" s 100 index continued to ascend unfettered despite news around UK's green strategy not triggering a big reaction, gaining for the 4th session in a raw after leaving behind what appears to be a flag pattern. 7850 is near-term resistance under the peak of 8050 in case bulls capture 7710. Conversely, sliding under the short-term support at 7585  might encourage additional short towards 7330 and perhaps lower. 

Source: Spreadex / UK100

Key Takeaways

The UK unveiled its response to the US Inflation Reduction Act in supporting ESG but fell short of the new spending it allocated, as it was roughly £50 billion. Provisions of the plan include supporting nuclear, subsidies for heat pumps, and consultations on a carbon border tax. Drax group lost out on its bid to include its proposed carbon capture and biomass project in the Track-1 list, resulting in a 12% drop in the company's share price. Firms in the hydrogen space did get a modest boost, with BP's Teeside projects making the list and Rolling Royce likely to benefit from the new nuclear facilities, though funding is yet to be made clear.