Energy White Paper - What does it mean for 2021?

United Kingdom

The much-anticipated Energy White Paper was published by the Department for Business, Energy and Industrial Strategy (“BEIS”) on 14 December 2020, setting out its strategy for the UK’s energy transition over the next decade. The Energy White Paper focuses on strategy in six key areas: consumers, power, the energy system, buildings, industrial energy and oil & gas.

Much of what has been set out in the Energy White Paper is not new. For one, the Energy White Paper builds on the UK government’s Ten Point Plan for a Green Industrial Revolution (the “Ten Point Plan”). However, committing this strategy to a White Paper brings the proposals set out by BEIS one step closer to future legislation.

This bulletin will take a look at some of the new, key announcements and what is yet to come.

Power

Nuclear

The Energy White Paper makes clear the UK government’s commitment to nuclear as it aims to bring at least one large-scale nuclear project to Final Investment Decision (“FID”) within its tenure, before the end of 2024. It is likely that the new nuclear project will be supported using the Regulated Asset Base (“RAB”) model – in a similar way that Hinckley Point C, currently under development, receives government support through the Contracts for Difference (“CfD”) mechanism. Alongside the Energy White Paper, BEIS published its response to the consultation on a RAB model for new nuclear projects which indicates RAB could be a credible mechanism for funding large-scale nuclear projects.

Consenting

Another key announcement from the Energy White Paper is the review of the current National Policy Statements (“NPS”) governing new energy infrastructure projects and the applications for development consent. Beginning immediately, the review aims to implement updates to the NPS by the end of 2021 that will evolve into a framework fit to support the development of new infrastructure needed for the energy transition. 

The Energy System

Several key commitments have been made in the Energy White Paper in relation to the UK’s future energy system, perhaps most notably in relation to developing a flexible grid through energy storage solutions. Due in spring 2021, a Smart Systems Plan will build on the 2017 Smart Systems and Flexibility Plan to provide a framework that monitors flexibility across the electricity markets. What’s more, as part of the £100 million investment made under the Net Zero Innovation Portfolio, financial support will be made available for new energy storage technologies, particularly those focusing on long-duration storage, in an extension of the government’s Energy Innovation Programme.

Central to these commitments will be the introduction of new and amended legislation, including:

  • energy storage will be defined in law; and

  • the government will legislate to introduce a competitive tendering process for the building, owning and operating of onshore electricity network assets.

Moreover, upcoming consultations will be issued to consider the fitness for purpose of existing legislation (for example, the Gas Act 1986) and how the role and organisational functions of Ofgem and the gas and electricity system operators will underpin the future energy system.

While decarbonising the energy system is essential to meeting the UK’s net zero targets, the Energy White Paper correctly identifies the continuing role that natural gas will play in powering and heating homes and workplaces in the short to medium term, albeit in a low-carbon form such as a hydrogen-natural gas blend. Further, by bringing industry codes and the roles of the network and system operators up to date, this will support the move to a flexible and more efficient system. A Strategy and Policy Statement, due in 2021, will also set out the government’s vision for Ofgem, as regulator, so that it carries out its functions to assist in delivering a net zero energy system.

Industrial Energy

The decarbonisation of industry – which makes up around 16% of the UK’s total greenhouse gas emissions - will be key to the UK reaching its net-zero goals. The Energy White Paper states that BEIS will be publishing an Industrial Decarbonisation Strategy, in spring 2021, to outline its long-term vision for a low-carbon industrial sector. In addition to the Industrial Decarbonisation Strategy, and subsequent to the UK government’s consultation response, details of a revenue mechanism to incentivise private investment into industrial CCUS and hydrogen projects will also be announced in 2021.

Perhaps the most major commitment for industrial energy is the decision to introduce a UK Emissions Trading Scheme (“ETS”). A UK ETS, rather than a carbon tax, will replace the EU ETS following Britain’s departure from the EU. Initially applying to energy-intensive industries, electricity generation and aviation, the UK ETS aims to provide some continuity for UK industry to offset carbon emissions following Brexit. However, as the branding of “the world’s first net zero carbon cap and trade market” suggests further consultations and development of the UK ETS will be needed in future to assist the UK in meeting its net zero commitments.

Still to come

Alongside the Energy White Paper, BEIS has also published several connected reports and consultations, the outcome and implementation of which can be expected in the new year. These include:

  • Its response to the consultation on a RAB model for new nuclear projects;

  • A call for evidence on how the current CfD mechanism could evolve beyond the next allocation round;

  • A consultation on the early phase-out of unabated coal generation in GB; and

  • Modelling 2050: an analysis of the electricity system in 2050 to understand the potential impact of decarbonisation on system costs.

Additionally, the Energy White Paper commits to vast amount of strategy and guidance being published in 2021, ahead of the UK hosting the (delayed) UN Climate Chance Conference of the Parties (“COP26”) in Glasgow, in November:

Q1

  • Consulting on a framework to introduce opt-in switching for energy consumers;
  • Consulting on reforms to energy consumers current auto-renewal and roll-over tariff arrangements;
  • Consulting on a reduction/removal of the 300MW threshold for new thermal plants;
  • Consultation on a Strategy and Policy Statement for Ofgem;
  • Publication of Heat and Buildings Strategy;
  • Consulting on the appropriateness of ending gas grid connections to new homes; and
  • Publication of a dedicated Hydrogen Strategy.

 

Q2

  • Consulting on whether third parties, e.g. energy brokers or price comparison websites, should be regulated;
  • Publication of new Smart Systems Plan;
  • Publication of an Energy Data Strategy to show how better use of data can realise the UK’s objective of a fully digital and clean energy system;
  • Publication of Transport Decarbonisation Plan;
  • Consulting on “hydrogen ready” appliances;
  • Publication of an Industrial Decarbonisation Strategy; and
  • Agreement on a North Sea Transition Deal with oil & gas industry.

 

End of 2021

  • Updated NPS to be designated before the end of 2021;
  • Consultations and workshops on the future of natural gas, a clean energy system and updates to the Gas Act 1986 will run throughout 2021;
  • Consultations on the institutional arrangements and functions of bodies operating and coordinating the gas transmission and distribution networks will run throughout 2021; and
  • Consultation on a preferred model to support clean hydrogen technologies will run in 2021.

The Energy White Paper does just enough to build on the Ten Point Plan without giving away too much detail. At the same time, in committing its proposals to a White Paper, the UK government is able to assure any industry sceptics that it is taking steps to deliver its net-zero goals. We, the energy industry and wider stakeholders eagerly await these new developments over the coming months.