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From renewables to fossil fuels: Everything you need to know about the UK’s Energy Security Strategy

The new strategy focuses on energy deployment rather than security

The Energy Security Strategy was originally promised in mid-March but was finally published on Thursday (7 April). It is the first policy update of its kind in a decade and intends to deliver a response to the energy price crisis, which began last summer but has been exacerbated by Russia’s war in Ukraine.

Whether it provides any short-term relief for billpayers or truly builds in resilience in the long-term is a question that many in the sustainability space are questioning. While new targets on offshore wind, nuclear and green hydrogen have been broadly welcomed, the general consensus is that major opportunities were missed regarding energy efficiency, onshore wind and solar.

Questions were also raised about the fact that the Strategy, in the first instance, didn’t detail much in the way of additional funding. The lack of new grants, loans and subsidies did not go unnoticed, following reports that the Treasury was reluctant to provide new funding in a range of areas. However, the Government has today (8 April) announced a £375m package to support some of the less mature technologies detailed in the strategy – namely carbon capture, low-carbon hydrogen and next-gen nuclear.

In this article, we summarise the key changes set to come about under the Strategy and information about how these policy choices build on the measures already announced by the Conservative Government.

Wind

As expected, the Strategy goes furthest on offshore wind. The Strategy increases the UK’s 2030 target for installed offshore wind capacity from 40GW, an ambition first set in 2020, to 50GW. There is also an ambition for up to 5GW of capacity additions to come from floating wind. These levels of deployment should mean that half of the UK’s installed energy generation capacity in 2030 will be offshore wind.

To help deliver this accelerated rate of deployment, the Government will reduce the consent time for new wind farms from four years to one year. This timeline could be cut further with engagement with industry, National Grid and Ofgem, the Strategy speculates.

The Strategy is weaker on onshore wind. There is no target to increase capacity and no nationally applicable changes to planning rules. Despite the fact that Business and Energy Minister Kwasi Kwarteng reportedly pushed for a target to double the UK’s installed wind capacity by 2030 and treble it by 2035, he and Johnson reportedly faced fierce opposition from several other Cabinet Ministers.

This has disappointed many energy experts, who have pointed to the fact that the UK Government’s own figures prove that new onshore wind is currently the cheapest form of domestic energy generation. Moreover, polls by organisations including the Energy & Climate Intelligence Unit (ECIU) have proven that most people would not consider onshore wind farms in their community to be eyesores.

Instead, the Strategy promises that BEIS will “consult this year on developing local partnerships for a limited number of supportive communities who wish to host new onshore wind infrastructure in return for benefits, including lower energy bills”. It argues that offshore wind farms tend to have more public support than onshore ones.

Additionally promised is a consultation on potential changes to the 2024 Contracts for Difference (CfD) auction process. The CfD rounds will be annual, rather than bi-annual, from 2023, as had already been confirmed. Onshore wind was effectively excluded from the CfD process between 2015 and 2020, with some green campaigners arguing that its reintegration has been underwhelming.

Solar

As is the case with onshore wind, the Strategy stops short of introducing wholesale changes to current planning regulations, or providing any new funding. Instead, consultations are promised around amending planning rules, and slated to begin this year.

The Strategy also reiterates the removal of VAT for panels that will be installed on homes and other buildings, first announced at the Spring Statement in March. This move has long been campaigned for, but the point has been made that it is likely wealthy households and larger businesses that will be able to invest in onsite solar. There had been media reports that the Strategy could include other measures to increase small-scale generation, with a focus on reaching more deprived communities. Some cities including London have already made attempts to do this. However, it hasn’t made the cut.

Hydrogen

The Strategy increases the Government’s 2030 target for expanding green and blue hydrogen, first set at 5GW of capacity in 2021, to 10GW. It also confirms that the Government’s “twin-track” approach will mean equally supporting green and blue hydrogen this decade. Green hydrogen is made using renewable electricity while blue hydrogen is manufactured using natural gas, at sites with carbon capture facilities. Many in the green economy had hoped for less of a focus on blue hydrogen.

The Strategy confirms plans to hold annual allocation rounds for green hydrogen, using a process similar to the CfD. There is an aim to ensure that up to 1GW of green hydrogen production capacity is in construction or operational by 2025. Scaling green hydrogen production, which is non-existent in the UK at present, will help reduce costs. Additionally, to support the generation of low-carbon hydrogen, the £375m support package confirmed by BEIS on Friday includes £240m for a Net Zero Hydrogen Fund, to be awarded to innovative production projects from the last quarter of 2022.

Also reiterated are the Hydrogen Strategy’s commitments to launch new business models for hydrogen storage and transportation by 2025, and to develop a hydrogen certification scheme within the same timeframe. This will be used to ensure producers’ low-carbon claims are up to standard and will prevent the UK from relying on imported hydrogen produced to weaker environmental standards. And, on the end-use of hydrogen, the Strategy highlights the £26m Industrial Hydrogen Accelerator, aimed at helping sectors like manufacturing to demonstrate hydrogen use to power their operations.

Looking to the future, the Strategy states that, in the longer term, the Government may seek to scale the production of ‘pink’ hydrogen, which is made using nuclear electricity.

Other renewables

The Strategy includes no new targets, consultations or funding for a range of clean energies, including tidal, geothermal and bioenergy.

Nuclear power

Nuclear is one of the major focus points of the Strategy. There is a headline commitment for the UK to host 24GW of installed capacity by 2050, meaning that nuclear supply will meet 25% of the UK’s electricity demands by mid-century. This will represent a tripling of installed capacity on current levels. The Government will support both large nuclear power plants and Small Modular Reactors (SMRs).

The Strategy states that the Government will support the delivery of up to eight large plants and this decade. One project should reach a final investment decision this Parliament and at least two should in the next Parliament. This week, the Nuclear Energy (Financing) Bill received royal assent. Its aim is to cut the cost of new large power stations. The UK’s eight designated sites for large-scale nuclear are Hinkley, Sizewell, Heysham, Hartlepool, Bradwell, Wylfa, Oldbury and Moorside.

There is not much in the way of new information on SMRs. The Government is already providing Rolls-Royce with £210m of funding for its SMRs and is going through the approval process with regulators. There is, however, a new £2.5 million competition for bidders seeking to develop a UK Advanced Modular Reactor (AMR), and £830,000 of funding for nuclear regulators to help being UK AMRs online commercially.

While some green economy figures welcome the heavy focus on nuclear as a means to maintain energy security while weaning off fossil fuels, others are pointing out that large plants remain expensive to deliver, with long lead-times. As such, these commitments are not going to reduce energy bills in the short-term. In the long-term, the focus on nuclear may prove more expensive than a more renewable-led approach also including energy storage.

Energy efficiency

Some commentators have said the Strategy would be better defined by ‘energy supply’ rather than ‘energy security’, as very little is said on reducing energy demand across the UK.

The absence of new ambitions and funding here has been a leading reason for disappointment, as improving energy efficiency is the quickest way to cut energy bills. Moreover, the UK Government has repeatedly been accused of having a bad track record here, and of being off-track to deliver the Conservative Party’s 2019 General Election pledge of £9bn of spending.

The Strategy maintains that 700,000 homes will be upgraded by 2025 without further policy action. It includes no new commitments beyond what has already been detailed in the Heat and Buildings Strategy and the Spring Statement. Many had been hoping for a new national retrofit scheme for homes, to replace the failed Green Homes Grant.

There are a few minor updates, though. For example, the Strategy confirms that the Government will outline plans to shift the additional costs placed on energy bills away from electricity this year. Such a move should incentivize the uptake of technologies like heat pumps and electric vehicles.

Fossil fuels

The Strategy acknowledges that the price we pay for gas is set internationally, meaning increased domestic production will not have a dramatic impact on bills. Nonetheless, the Government has stood behind its decision to support increased North Sea oil and gas production in the short-term.

It states: “Even as we reduce imports, we will continue to need gas to heat our homes and oil to fill up our tanks for many years to come – so the cleanest and most secure way to do this is to source more of it domestically with a second lease of life for our North Sea. Net-zero is a smooth transition, not an immediate extinction, for oil and gas.” It adds that the UK Government believes the UK will still use around 25% of the gas it used annually in 2019, in 2050, in a net-zero scenario. Gas is described as an “important transition fuel”. This seems to contradict recent advice from the Climate Change Committee (CCC).

The Strategy confirms plans for another licensing round for new oil and gas fields, to commence this Autumn. One project – Abigail – has already been approved this year. A further six approvals are now likely. Changes will likely not be made to the climate compatibility checkpoint, as the CCC has recommended. A new system will be set up to accelerate the delivery of new projects in the future.

Also mentioned in the Strategy is fracking. The Government may end a moratorium on fracking in England, first introduced in 2019, if the British Geographical Survey can provide scientific evidence that fracking with less tremor risk is possible. BEIS is expecting evidence by the end of June.

The Government has not clarified how this approach is compatible with the net-zero scenario set out by the International Energy Agency (IEA). The inclusion of additional fossil fuel production is also being increasingly questioned in the wake of the latest Intergovernmental Panel on Climate Change (IPCC) report, which concludes that the global development pipeline for fossil fuels must be drastically scaled back to meet the Paris Agreement.

Carbon capture

The Strategy appears to place much importance on carbon capture, usage and storage (CCUS) as a means to continue North Sea fossil fuel extraction. It touts the expansion of these technologies, which do not yet exist at scale in the UK, as a means to give “a new lease of life” to the North Sea energy industry.

A new delivery roadmap for scaling carbon capture, usage and storage will be published this month, the Strategy confirms. This is unlikely to include accelerated delivery commitments, beyond the four clusters promised by 2030. Instead, it will outline the timelines for cluster delivery and the results of inquiries about CCUS at dispersed sites. Financial projections will also be included, as will information about the intersections of CCUS and hydrogen production.

The Strategy allocates an additional £5m of Government funding for the  ACT 3 scheme – a collaboration between the UK and 13 other countries on research, development and innovation. ACT 3, BEIS has stated, is an important part of the Government’s plans to commercialise CCUS in the UK.

The UK’s progress to scale CCUS in the past has been slow. The Government axed a previous £1bn support package for the sector in 2015 and did not reestablish a fund of the same size until 2021.

© Faversham House Ltd 2022 edie news articles may be copied or forwarded for individual use only. No other reproduction or distribution is permitted without prior written consent.

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