Energy security strategy – an opportunity missed?

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Published: 11th April 2022
Area: COP26

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A few thoughts on the government’s new energy security strategy, published on 7 April

First, it’s not really new.   The Energy White Paper back in December 2020, building on the Prime Minister’s ‘Ten Point Plan’, has already committed the UK to ambitious goals in areas such as offshore wind, nuclear power, low carbon heating and clean hydrogen. What the strategy does do, however, is raise the scale of ambition in some key areas.

Second, it’s really quite long term – so much of it is not going be deliverable for at least a decade.  And that’s notable considering this strategy was a reaction to the very immediate shock to the system in the form of sky high wholesale energy prices, exacerbated by the Ukraine crisis and the prospect of curtailment of Russian gas flows.

Third, it has a gaping hole in it, and that’s energy efficiency.  It is already being touted as an energy ‘supply’ strategy because it has so little to say about the demand side of energy.  And that’s disappointing, because helping GB consumers – domestic and business alike – to reduce their energy consumption is not only going to reduce the scale of the energy security challenge; it is also the surest way to help address the standard of living crisis which is not going to see energy prices reduce any time soon, and in a way which reduces carbon emissions.  Our homes are the worst insulated in Europe, and it is starting to feel like the government really doesn’t have any fresh ideas or appetite to sort this out.

Fourth, amidst all the fanfare of a shaky consensus at COP26 in Glasgow last year and the beginnings of a concerted global movement to tackle climate change, it does seem a backward step to be licensing more North Sea oil and gas, and giving an (admittedly) faint second chance to fracking.

That all said, there are some good things in the strategy.  Sharing centre stage are nuclear power and offshore wind.

On the first of these, the government aims to reverse the decline in UK nuclear by building 24 GW of new capacity by 2050, the equivalent of eight large nuclear power stations.   The government’s track record on delivering on new nuclear build projects has been poor, with just the eye-wateringly expensive Hinkley Point C to show for all the talk over many years, and so it therefore hashas some work to do to get private sector investment re-engaged, but of course it now has a ‘regulated asset base’ funding model designed to kick start projects, which will transfer construction risk to consumers.

However it has surely missed the boat if it wants to replace with new nuclear capacity our ageing existing nuclear power stations as they decommission over the coming years.

On offshore wind, the plan is to increase the previous target, 40GW by 2030, to 50GW, and crucially with a promise to reduce planning and consenting delays, and this will be welcomed by developers as these have been acting as a real barrier to new developments.

But both these technologies have long lead times, especially when compared with onshore wind, and are much more expensive.   So what about onshore wind and solar?

Onshore wind appeared to have suffered from a severe dose of nimbyism, with reluctance from within government to give it a real push.   This despite the fact apparently the majority of the public support it. And there were words of encouragement for solar, but no firm targets.

What is particularly good to see however is strengthened targets for production capacity of low carbon hydrogen (especially green hydrogen, from electrolysis), which surely has a pivotal role to play in the decarbonisation of both transport and heat. Crucial here will be funding models to get UK hydrogen production get to scale (for example contracts for differences, as used so effectively to support renewable energy production), and new business models for hydrogen transport and storage infrastructure.  Combined with the measures on nuclear and offshore wind, these important commitments on the ‘supply’ side reinforce the long term trajectory towards net zero.

But none of this will come cheap, and the short term issue right now is the cost of living crisis, with the average energy bills rising by 54% and set to increase again with a further rise of the energy price cap later in the year.  This strategy offers nothing in the short term beyond measures already announced.  And with so little to say on energy efficiency where there is the potential to make some of the biggest gains across energy security, decarbonisation and energy affordability - yet where so much of the heavy lifting is still needed - it is hard not to see it as an opportunity missed.

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Andrew is a specialist energy regulatory and contracts lawyer, who works with a range of utility and developer clients and funders to help them manage regulatory and legal risk in a fast moving and complex environment.

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