Insulation schemes and carbon borders: UK Government unveils updated Energy Security Plan

The Pulse also found that decarbonisation technologies are dominating the interests of decision-makers

We have known for some time that March 2023 was likely to be a big month for climate-related policy in the UK, with the Government promising to publish “the next steps in our plans to boost the UK’s energy security and independence, and to help bring down wholesale electricity prices in this country to amongst the lowest in Europe” in what many have referred to as Green Day.

The Government has today (30 March) published a new Energy Security Plan, as well as a response to the Net Zero Review by Chris Skidmore MP.

Kickstarting the flurry of expected green policy announcements is Grant Shapps’ vision for “Powering Up Britain”, with an updated Energy Security Plan, following uproar from green groups over the previous Energy Security Strategy’s lack of targets and ambition.

Commenting on the launch of the Strategy, Prime Minister Rishi Sunak said that measures introduced today would help respond to “soaring” household energy bills.

“We have stepped in to shield people from its worst impacts by helping to pay around half the typical energy bill,” Sunak said. “But we are also stepping up to power Britain and ensure our energy security in the long term with more affordable, clean energy from Britain, so we can drive down energy prices and grow our economy.

“That’s why we’re driving forward plans to boost renewables, revive nuclear and build new thriving industries like carbon capture, which will in turn create good jobs across the country, provide new opportunities for British businesses at home and abroad, and maintain our world-leading action to reach net-zero.”

The Government argues that the Strategy will deliver an “energy revolution” but what, exactly, does it include?

Great British Insulation Scheme

Last week, the Government confirmed how it would allocate almost £2bn of funding to improve the energy efficiency of more than 115,000 homes and public sector buildings like schools and hospitals.

The funding forms part of the latest phase of the Home Upgrade Grant (HUG), which applies to privately owned properties, and the Social Housing Decarbonisation Fund, for homes owned by local authorities and other social housing providers. The level of funding itself was first confirmed last September.

Across both schemes, the Government is allocating £1.4bn – around £630m for the HUG and £780m for the Social Housing Decarbonisation Fund. The Government has also confirmed an additional £1.1bn of match funding from local authorities, social housing providers and charities for the latter scheme.

For the last 12 months, rumours have swelled that the Government would introduce a new £1bn scheme to insulate low-income households this winter, using funding raided from other low-carbon energy initiatives.

Reports suggested that funding could potentially be raised through an extension to the existing ECO levy scheme. The scheme launched in 2013 and requires energy suppliers to provide energy efficiency support to vulnerable consumer groups.

An ECO extension has been advocated by groups including the Sustainable Energy Association, Construction Leadership Council, National Insulation Association and EDF. However, to date, the Government has kicked the metaphorical can down the road on extending ECO. The current scheme ran out at the end of March 2022 and its next phase, due to run through to 2026, is yet to be finalised.

Shapps has confirmed the creation of the Great British Insulation Scheme, which will see the ECO extension rebranded. The Government has stated that the Scheme will upgrade 300,000 of the country’s least energy-efficient homes.

The Government claims that up to 80% of homes in council tax bands A-D will qualify for support under the revamped ECO+ scheme, and could save around £300-400 annually on average. It contributes to the Government’s target to reduce energy demand by 15% by 2030.

The Government has also unveiled a new £30m million Heat Pump Investment Accelerator. The plan will aim to leverage £270m in private investment to boost UK manufacturing of the technology. The Government has additionally confirmed that the Boiler Upgrade Scheme, which offers a £5,000 grant to anyone buying a heat pump, will be extended to 2028.

Carbon capture technologies

One of the headline announcements in the new Strategy is that the Government has unvelied the first projects eligible for funding in order to create “carbon capture clusters” in key industrial locations. A full list can be found here.

Drax has confirmed that it has entered into discussions with the Government to re-start its £2bn bioenergy and carbon capture scheme in Selby, after pausing investment earlier this month. The Government has not included Drax on its list of approved projects but has opened consultations on a new business model to support the kind of project Drax is carrying out.

The project announcements will form part of the £20bn that Chancellor Jeremy Hunt ringfenced for CCUS technologies at this month’s Budget.

The Climate Change Committee (CCC) has recommended that the UK aims to host at least 22 million tonnes of annual carbon capture and storage (CCS) capacity online this decade, in order to support its legally binding 2050 net-zero target. But previous reports from other bodies have warned that, at present, the UK is primed to bring less than half of this capacity to fruition. The CCC has also warned that this level of growth is not guaranteed without smart policy interventions.

Floating offshore wind and other renewables

Floating offshore wind was eligible for the Contract for Difference (CfD) auctions for the first time last July and support was allocated to projects covering 32MW of capacity. The Crown Estate claims there is scope for up to 24GW of floating offshore wind capacity in the Celtic Sea alone.

On CfD, Shapps has confirmed that the auction system, which is now being held annually, will build on the £80bn of UK levy-funded support for renewable power since 2010 with a previously announced £205m allocation for clean energy.

In a surprise announcement, the UK Government has taken onboard the Mission Zero report’s recommendation for the UK to set a time-bound target for increasing solar capacity. It will establish a new solar industry taskforce to develop plans for the UK to host 70GW of solar by 2035.

To help deliver this targets, existed permitted development rights for rooftop and ground-mounted solar at domestic and non-domestic buildings will be reviewed. There will also be a review of permitted development rights for solar canopies on non-domestic car parks.

Nuclear

At the most recent Budget, the Chancellor confirmed that nuclear would officially be considered as an “environmentally sustainable” investment and will be updated in the green finance taxonomy.

The UK is aiming to host 24GW of installed capacity by 2050, meaning that nuclear supply will meet 25% of the UK’s electricity demands by mid-century.

The Government has confirmed official formation of the independent body overseeing the nuclear industry. Great British Nuclear will initially be led by Simon Bowen as interim Chair and Gwen Parry-Jones OBE as interim chief executive. The body will launch the innovation fund competition for Small Modular Reactors (SMRs). It is worth pointing out that the Conservatives first confirmed a funding competition for SMRs back in 2015, but has remained undefined ever since.

Hydrogen

Last summer, the UK Government opened its first major funding rounds for green hydrogen production, as it eyes at least 5GW of installed capacity by 2030.

The Fund, first confirmed earlier that year, provides up to £240m of grant funding from Government coffers to projects developing and building low-carbon hydrogen production projects. The first tranche of funding will go to green hydrogen production, which involves splitting water in electrolysers powered by renewable energy, while later rounds may go towards other production methods like blue (natural gas with carbon capture) or pink (electrolysers powered by nuclear electricity).

The Government has unveiled the first set of green hydrogen projects to be supported by the fund.

Anything else?

The Government has also today confirmed that it would reform the planning process to speed up energy infrastructure development. This will cover solar power and offshore wind.

UK Export Finance will also be given an extra £10bn to boost exports, with a focus on clean growth sectors.

Additionally, the 2023 Green Finance Strategy will also be published today.

Energy Secretary Grant Shapps also announced that the Government would consult on the introduction of “carbon border taxes” for manufacturers and carbon-intensive industries. It is hoped any carbon levy would mirror a similar plan being implemented by the European Union, the carbon border adjustment mechanism (CBAM).

The Government had vowed to run a consultation on a UK version of CBAM last year, in response to a report first published by the Environmental Audit Committee (EAC) of cross-party MPs in April 2022. That report from the EAC recommended that the UK Government should “immediately” work to develop and launch a unilateral CBAM.

CBAMs require organisations in the private and public sectors to pay for the carbon generated in the manufacture of products, to or above the level that they would have if they produced the goods in the UK. CBAMs are often touted as a way to stop businesses from “offshoring” their emissions.

Without a CBAM, the UK has signed a number of notable post-Brexit trade deals with big emitters including Australia.

Finally, the UK Infrastructure Bank (UKIB) has announced it will appoint managers for equity funds covering both short and long-duration electricity storage. This will see up to £200m invested into the energy storage sector.

All of this ties into a new Net-Zero Growth Plan, intended to act as the response to the l last summer and requested an update within nine months. The Government will reportedly publish an updated strategy alongside a full response to the Net-Zero Review from Chris Skidmore MP and to serve as the court-mandated update to the Net-Zero Strategy.

Beyond these legal requirements, response packages to the climate crisis have become key to financial competitiveness across major economies. The EU unveiled its highly anticipated proposals for a Net-Zero Industry Act earlier this month, created to rival the US’s Inflation Reduction Act (IRA). The IRA allocates a total of $369bn to climate action. It is hoped that the changes resulting from the Act will enable the US to reduce its annual domestic emissions by at least 40% by 2030, against a 2005 baseline.

In contrast, early drafts of the Net Zero Industry Act set out new targets of at least 40% of clean energy technologies to be manufactured in the EU by 2030, which has been adopted in the current proposals.

What’s not included

It was originally reported that the UK Government would issue its own package response to the IRA. However, Jeremy Hunt ha confirmed that the UK’s response to these flagship acts will now be revealed “in the Autumn” and is not part of this week’s announcements. Hunt claimed the Government was doing “a lot of very detailed work” in this area.

It was also reported that the UK Government may use the Energy Security Plan to approve the controversial Rosebank oil field and other oil and gas projects. But this has not yet happened.

Rosebank is the largest undeveloped oil field in the North Sea. Located west of Shetland, it is more than twice the size of the controversial Cambo oil field. Equinor’s proposals to drill the field would result in the extraction of more than 300 million barrels of oil. Carbon Brief research warns that burning those 300 million barrels would be equivalent to the annual emissions of more than 90 countries and 400 million people.

Another key omission from the Plan are any new measures to support the growth of onshore wind. The Plan acknowledges that onshore wind is a cheap and quick-to-install generation option, but states that development will only be permitted in areas with strong local support. Onshore wind is included in the CfD auction process, but there is no word on additional funding for onshore wind farms through this process.