Power for the Future: the UK Government unveils its energy security strategy

• United Kingdom

• Energy and infrastructure - Clean energy
• Energy and infrastructure - Gas
• Energy and infrastructure - Hydrogen
• Energy and infrastructure - Nuclear

08-04-2022

“Energy security, and ensuring infrastructure is in place to deal with the proposed investment is critical.”

Stephen Hill, Partner, International Head of Clean Energy

The UK Government published its Energy Security Strategy (the “Strategy”) yesterday, setting out its ambitious plans to boost Britain’s energy security amidst a volatile and expensive energy market.  By focusing efforts on developing technologies and infrastructure to generate power through nuclear, hydrogen and renewables, the Government suggests that 95% of British electricity could be low-carbon by 2030, and claims the electricity system will be decarbonised by 2035 – but only if there is security of supply.

With the industry questioning whether the country can actually afford to meet the ambitious plans set out in the Strategy, it remains to be seen whether this Strategy can indeed deliver a “power supply that’s made in Britain, for Britain”. 

Jason Lovell, Partner, Global Energy Group, comments:

“Whilst there are clearly gaps and imperfections in both the history of the domestic energy industry and forward looking strategy of the Strategy, this should not detract from the fact that innovation in the energy industry both on and off these shores has developed further and faster in this space than in almost any other jurisdiction. Internationally we are looked upon as a leader in energy provision, with a broad range of international investors looking to deploy capital here.”

Key announcements from yesterday’s Strategy include:

Energy efficiency

Energy inefficient homes continue to require significant amounts of energy, resulting in high energy bills and a higher energy demand to be met.  The Government’s plans include the upgrading of around 700,000 homes by 2025 to make them more energy efficient, with all buildings being energy efficient, using low-carbon heating, by 2050.  Against the timetable for, and scale of, the Government’s otherwise ambitious plans, energy efficiency would appear to be disappointingly lagging behind.

Measures, such as minimum standards for product labelling and an energy advice line, will be introduced to help inform consumers to make more energy-efficient choices in the products and services they use. 

Moving towards a decreased reliance on gas, a £30 million investment is being made into the manufacture of heat pumps in Britain via a Heat Pump Investment Accelerator Competition, to be run during 2022. 

Those in the finance industry will be interested to note that the innovation funding for the development and piloting of new green finance products for consumers is being doubled to £20 million, and a new scheme will be introduced requiring lenders to work to improve the energy performance of the properties against which they lend. 

Removing barriers to the installation of energy efficient measures has to be a priority for the Government, who will be looking at reviewing the practical planning barriers by the end of 2022.

Renewable Energy

Renewable energy technologies have increasingly contributed to the UK’s energy mix and the Strategy supports the continued development of renewable energy, with a focus on offshore wind.

Offshore wind

The ambitious target set by the Government is that, by 2030, over half of Britain’s renewable generation capacity will be provided by wind, including the delivery of up to 50GW of offshore wind power by 2030.  Built into this target is the aim of having up to 5GW of innovative floating wind by 2030.  To meet this, the Strategy sets out the Government’s proposals for reducing the time it takes to develop and deploy offshore wind projects, including reducing consent time from four years to one (and establishing a fast track consenting route for priority cases where quality standards are met); implementing a new Offshore Wind Environmental Improvement Package, including developing standards to accelerate deployment at the same time as enhancing the marine environment; and working with the Offshore Wind Acceleration Task Force on ways to further cut down the timeline for these projects.

Onshore wind

The Strategy, as expected, does not offer any radical solutions with regard to onshore wind projects, instead choosing to focus on collaborative development with “a limited number of supportive communities”.  Later this year, the Government intends to consult on developing local partnerships with the view to communities hosting onshore wind infrastructure in return for benefits, including reduced energy bills. 

Solar

Consultations are being proposed for both ground-mounted and rooftop solar to address barriers posed by the existing planning and permitted development regimes.  No commitment has been made as to when these consultations will take place, so the solar industry is left waiting a bit longer for any further developments.

Hydrogen – at least half green

The Strategy sets out an ambition of up to 10GW of low carbon hydrogen production capacity by 2030, twice as much as was originally aimed for in the Hydrogen Strategy (August 2021), but subject to the ‘get-out’ clause of affordability and value for money.  Interestingly, the intention is that at least half of all hydrogen production is to come from electrolytic (green) hydrogen.  Alongside the proposal for annual allocation rounds for electrolytic hydrogen (moving to price competitive allocation by 2025), could this be a move by the Government away from its twin-track approach adopted in the Hydrogen Strategy?

For those generating, importing and exporting hydrogen, there will be a hydrogen certification scheme in place by 2025, demonstrating the high quality of British hydrogen for export and ensuring imported hydrogen meets the same quality standards. 

Jubilee Easo, Partner, Global Energy Group comments:

“However none of this is possible without the detailed legislative changes and government incentive support that is necessary to create the infrastructure and consumer demand for the hydrogen economy to prosper.”

New Nuclear

New nuclear development is back on the agenda in the UK as there is a growing realisation among senior politicians that nuclear is the only viable electricity source that is both low carbon and firm (non-intermittent).  Aiming to, once again, be market leaders in nuclear, the Strategy sets out the Government’s proposals to increase civil nuclear capacity to up to 24GW by 2050, representing around a quarter of the country’s anticipated energy demand.  Supporting existing projects and accelerating pipeline projects (both conventional and SMR) with increased investment and new funding models, this Parliament will see over £2 billion being committed to developing new nuclear.

A new nuclear body, Great British Nuclear, will be established immediately to help projects through the development phases, and the £120 million Future Nuclear Enabling Fund will be launched later this month to help bring forward new projects. 

These proposals follow energy security concerns amid the gas crisis, recent changes to the EU taxonomy and, as of 31 March 2022, the Nuclear Energy (Financing) Act receiving Royal Assent, enabling the use of the Regulated Asset Base (RAB) funding model for new nuclear projects.  The RAB model will afford developers a return on investment during the construction period of new projects (reducing the overall financing costs) while the Government takes some risk on ‘low probability, high impact’ events.

Oil and Gas – still in the game!

Despite a focus on increasing low carbon energy generation, it is recognised that oil and gas still have a part to play in the future of Britain’s energy mix to ensure security of supply - albeit at a much reduced volume, with the intention that gas consumption will have reduced by over 40% by 2030. 

The North Sea Transition Authority (the renamed Oil and Gas Authority) is planning to launch a licensing round during Autumn 2022 to get more domestic gas on the grid sooner.  Support for developing specific projects more quickly will also be available through the establishment of Gas and Oil New Project Regulatory Accelerators, with the aim of reducing development time by a number of years for the most complex projects.

Increasing the development of and investment in carbon capture, usage and storage (CCUS) remains a priority, with the anticipated publication during April 2022 of roadmaps for CCUS and hydrogen to encourage the industry to invest in these technologies.

For offshore oil and gas companies operating in the North Sea, they will no doubt be pleased that the Strategy makes no mention of a windfall tax to be levied on them in a bid to reduce household energy bills.

Supporting energy consumers

Recent action by the Government has resulted in limited relief for energy consumers from rising energy bills.  In addition to the steps that have already been taken, such as the Council Tax rebate, the £200 reduction in energy bills and the cut in fuel duty, the Strategy announces that the Government will invest a further £500 million in a Household Support Fund to enable local authorities to support the most vulnerable with food and utility bills. 

For industry, support will continue for energy intensive sectors via the Energy Intensive Industries (EII) Compensation Scheme for a further 3 years, with an increased budget.  The Government is also considering other measures to support businesses (such as increasing the renewable obligation exemption to 100%), however details of what this support may look like have not been included in the Strategy and businesses must continue to wait to find out what support they may receive for increasing energy bills. 

Delivering clean, affordable and secure energy supplies – domestically and internationally

Generating low-carbon, more efficient energy is only going to make a difference if the infrastructure is in place and is sufficiently flexible to move with an ever-changing innovative energy industry.  The Government claims that there will be a modern system, within the decade, that will reduce costs by anticipated need and accurately matching supply and demand (minimising the amount of energy that is wasted).  Accelerating the delivery of new and upgraded infrastructure has to be a priority, and the Government will work with Ofgem to publish a strategic framework for how networks will deliver net zero.  By the end of the year, the Holistic Network Design (HND) and Centralised Strategic Network Plan (CSNP) will be developed to ensure the infrastructure can deliver the energy volumes being aimed for.  This will also require an update to the planning system to reflect the strategic developments being made in progressing infrastructure projects, and Ofgem will be required to expedite its approval processes for building networks in anticipation of major new sources of generation and demand. 

Supply chain issues will also need to be addressed, through increased pipeline visibility and certainty, helping to accelerate procurement timelines – with the aim of halving them by the mid-2020s.  The Government will need to act quickly to deliver on such an ambitious target within that timeframe!

Working with international partners will continue to be a priority for the Government in maintaining stable energy markets and prices.  In line with the domestic approach, internationally the UK is working within the global energy market to reduce reliance on Russian fossil fuels, while at the same time continuing to push towards reliance on clean, affordable energy.  Recognising our position as a leading nation in the energy transition, the UK is leading the Clean Green Initiative (launched at COP26), committing to double our International Climate Finance to £11.6 billion over 5 years and collaborating with international partners to reduce reliance on fossil fuels.

Focus on the Strategy

In the coming weeks, members of our Global Energy Group will take a closer look at some of the key points raised in the Strategy in our upcoming “Focus on” series.