The UK Government yesterday published its plan to deliver “secure, clean and affordable British energy for the long term” following a series of frenetic discussions between No. 10, the Treasury and BEIS.
The strategy is designed to deliver 95 per cent of Britain’s electricity needs through low carbon generation by 2030. But does it stack up, and how should businesses seek to capitalise on the approach set out yesterday?
The Government’s ambition is to deliver a massive 50GW of offshore wind power by 2030. Of this, up to 10 per cent (5GW) will be generated via floating wind farms. The Times recently reported that the Prime Minister, with his penchant for eye-catching projects, has asked wind farm developers to consider how they might develop a “colossal” wind farm in the Irish Sea.
While offshore wind has the potential to power every home in Britain at peak capacity, getting thousands more turbines up and running will necessarily be time-consuming – so this will not fix the short-term energy issues facing the country now. Critical to the speedy delivery of new offshore wind farms will be a proposed shortening of the planning consent process, from four years down to one year.
The Government will also consult on changes to the 2024 Contracts for Difference (CfD) auction to better incentivise renewable providers to locate and operate in a cost-efficient manner.
A few weeks ago, there were signs that onshore wind would form the centrepiece of this strategy. Why? One obvious reason is that it is politically popular. Recent BEIS polling found that four in five people (80%) support onshore wind. In a separate poll, a surprisingly significant two-thirds of people said they would support an onshore wind farm being built near where they live. This is significantly higher than for nuclear power plants, a point made by one of the authors of the last Tory manifesto, Robert Colvile, Director of the Centre for Policy Studies.
A consultation will therefore be launched to consider how “a limited number of supportive communities who wish to host new onshore wind infrastructure” might make themselves known to Government in return for lower energy bills.
Ambitious targets pre-briefed to the media, including a doubling of capacity by 2030 and trebling by 2035, did not materialise – not least due to concerns among Conservative MPs. These are not confined to the backbenches: as recently as Sunday the Transport Secretary, Grant Shapps, described wind farms as “an eyesore”.
In the event, the Government’s commitment to an unprecedented expansion in nuclear power lay at the heart of the strategy. Eight new reactors will be built over the next decade, likely in the form of four new power stations, resulting in a trebling of capacity to 24GW by 2050. For the Prime Minister, nuclear is a fundamental component of our future energy strategy and served to escalate the growing tension between him and his Chancellor, Rishi Sunak.
Alongside this is the Government’s ongoing commitment to Hinkley Point, the largest construction site in Europe, and Sizewell C. The latter is the subject of an intense financing round as the Government seeks to find investors to replace the Chinese state-backed group CGN, amid a cooling of Sino-British relations.
It will take at least a decade for the UK’s turn to nuclear to bear fruit. But according to Clem Cowton, Director of External Affairs at Octopus Energy, that is not to diminish its significance. “Every home we convert to electric heat reduces its gas consumption by a whopping 80%. While controversial for cost reasons,” she said, “this should be understood as a strategic decision to electrify everything”.
Hydrogen, tidal and geothermal power
As the strategy points out, we have virtually no low carbon hydrogen in our system today. The Government is determined to change that with an ambition to produce up to 10GW of low carbon hydrogen capacity by 2030. Price competitive allocation rounds for electrolytic hydrogen will be established as soon as possible, while a hydrogen certification scheme will be established by 2025.
There is a further pledge to “aggressively explore” opportunities to harness tidal and geothermal power.
The Government has commissioned the British Geological Society to undertake an “impartial technical review” into shale gas but cautiously notes that the current pause will remain in place until further notice. As the Telegraph’s Ben Riley-Smith puts it, that is “as close to a no as you can get without saying it” and represents “a small bone [thrown] to those Tory MPs pushing hard to lift the ban”.
Future System Operator
An underreported but critically important aspect of the strategy is the establishment of a Future System Operator, as soon as practicable, to drive the UK’s overall transition and oversee the UK energy system.
A strategic framework will be published later this year, in conjunction with Ofgem, to set out how networks will deliver on the UK’s net zero ambition. Energy network companies are widely considered to have dragged their feet on this. This move is said to signal the Government’s determination to drive change.
It is also important to consider what this strategy is not: a support package for those struggling to meet rapidly rising energy bills.
As the Today Programme’s Nick Robinson put it to the Business Secretary, Kwasi Kwarteng, the impact of these measures will not be seen on monthly statements or felt in the pockets of consumers for years to come. Indeed, as the Sunday Times’ Associate Editor Oliver Shah wrote over the weekend, “we face at least five years of elevated gas prices – and no sign of the cavalry”.
Kwarteng’s response was clear: Rome wasn’t built in a day. His objective is to futureproof the UK against energy supply shocks and end our “dependence on foreign sources”, not to bring down bills tomorrow. That responsibility, he tacitly acknowledged, lies with the Chancellor.
Critics argue that a comprehensive energy security strategy also needs to find ways to reduce bills today. While the Government has few levers at its disposal, there is widespread agreement that energy efficiency measures such as home insulation are the fastest and cheapest way to deliver meaningful savings for householders. Yet there is nothing new here to incentivise domestic energy efficiency.
Instead, the strategy restated a series of existing commitments and once again extolled the virtues of the Heat and Buildings Strategy, which accounts for approximately two thirds of the funding committed to retrofitting in the Conservative general election manifesto of 2019. Sensing an opportunity to draw a clear dividing line between Labour and Conservative economic priorities, Sir Keir Starmer seized upon this point yesterday – claiming that insulating homes would save up to £400 on every householder’s bill, and describing the strategy overall as “too little, too late”.
What does it mean for business?
There is no business operating in the energy sector that is not affected by the announcements made this week. But the strategy indicates a direction of travel, an intended way forward, rather than an approach that is set in stone. As such, there will be opportunities to influence the development of the Government’s thinking – whether formally, by responding to consultations for instance, or informally, by making representations to decision-makers throughout Westminster and Whitehall.
If you would be interested in an initial discussion with our specialist energy practice, please email Andy Williams via email@example.com.