Energy Security Strategy – an answer to the UK’s energy trilemma?

On 7 April 2022, the UK government published its energy security strategy (the “Strategy”) aimed at increasing domestic supplies of energy in the wake of rising global energy prices and volatility in international markets exacerbated by Russia’s invasion of Ukraine.

The Strategy builds on some of the key commitments under the Energy White Paper published in December 2020, such as accelerating deployment of offshore wind, nuclear and hydrogen, and implements a return to licensing rounds for North Sea oil and gas projects (see our previous Law-Now on the Energy White Paper here).

However, industry reception of the Strategy has been lukewarm, with the Strategy raising more questions than it answers. Significant gaps, particularly relating to onshore technologies, energy efficiency and shorter-term measures to tackle affordability, appear to be a missed opportunity from the government to take bolder action to tackle dependency on fossil fuel imports, exponential rises to energy bills and deliver on net-zero commitments.

In this article, we outline the key takeaways of the Strategy and what these may mean for the future of the UK energy system.

Key takeaways

• Electricity: 95% to be low carbon by 2030.
• Nuclear power generation: 24GW of nuclear capacity by 2050 and increased government funding for projects.
• Oil and gas extraction: increased domestic production via North Sea licensing rounds.
• Hydrogen production: 10GW of low carbon production capacity by 2030, of which 5GW to be from electrolytic processes.
• Energy efficiency and onshore wind: lacking meaningful new targets.

Nuclear

Nuclear power generation is a key feature of the Strategy, with UK government emphasising the benefits of nuclear as a key source of low-carbon, reliable and domestic energy generation. Key commitments under the Strategy include:

• Delivering 24GW of nuclear by 2050 (a threefold increase in current installed capacity which would cover 25% of the UK’s expected electricity demand);
• Depending on pipeline and size of projects, this could see eight more nuclear reactors come into fruition;
• Plans to take one nuclear project to final investment decision (“FID”) this Parliament[1] and two projects to FID in the next Parliament[2] (including small modular reactors);
• Launching the £120 million Future Nuclear Enabling Fund this month; and
• Setting up the Great British Nuclear Vehicle this year, tasked with helping projects through the development process and developing a resilient pipeline of new projects.

These plans follow on from the government announcement in October 2021 of a new financing model (the Regulated Asset Base) to fund new nuclear projects, which will see consumers contribute to the cost of projects during the construction phase and eventually benefit from cheaper electricity further down the line.

Government’s renewed commitment to nuclear power has been largely well-received as a means of delivering greater energy independence for the UK. However, the scale of these ambitions should not be underestimated, and indeed the Strategy notes that certain commitments are subject to value for money and approvals. The UK has a mixed track record in delivery of new nuclear projects, with the latter not only being a highly expensive source of low-carbon generation, but with projects failing to be delivered on time and to budget.

Increased deployment of new nuclear is a longer-term solution to the energy trilemma of delivering secure, clean and affordable energy, though at a higher cost than renewable alternatives. In the short term, the long delivery time of projects is unhelpful in bringing greater volumes of low-carbon electricity online at the speed needed to increase the UK’s energy security and meet climate targets.

Hydrogen

Key commitments under the Strategy include:

• Doubling existing low-carbon hydrogen production targets up to 10 GW by 2030. Half of this is expected to come from electrolytic hydrogen, both green (using water for electrolysis) and pink (using energy from nuclear power plants), with the other half coming from blue hydrogen, produced from natural gas with carbon capture technology;
• Running annual allocation rounds for electrolytic hydrogen CfD contracts, with a view to making 1GW of electrolytic hydrogen operational or under construction by 2025;
• Designing new business models for hydrogen transport and storage infrastructure by 2025; and
• Setting up a hydrogen certification scheme by 2025.

The UK now has one of the largest low-carbon hydrogen production targets in Europe but has virtually no low-carbon hydrogen in its system at present. The Strategy provides the sector with the momentum to call on government to provide greater clarity on the regulatory framework for hydrogen and the role of hydrogen in the grid system. Despite promising trial results, the role of blending hydrogen into the gas grid or its use for domestic heating are not addressed in the Strategy. Some details immediately followed with the publication of the Hydrogen Investor Roadmap as well as updates on the Hydrogen Business Model; Net Zero Hydrogen Fund; and Low Carbon Hydrogen Standard on 8 April.

Offshore wind

Key commitments under the Strategy include:

• Increasing the offshore wind capacity target to deliver up to 50GW by 2030, including up to 5GW of floating offshore wind;
• Further supporting offshore wind by planned government investment of up to £160 million in offshore wind ports and supply chains, and £31 million in research and development;
• Reducing consent time from approximately four years down to one year;
• Making environmental considerations at a more strategic level, and establishing a fast-track consenting route for priority cases where quality standards are met;
• Amending the Planning Act 2008, providing for shorter examination timescales; and
• Launching an Offshore Coordination Support Scheme to reduce the risks in delivery of offshore wind projects.

Offshore wind has long been a feature of UK net-zero policy, with the UK being a world leader in the sector. The Strategy rightly recognises that a key barrier to offshore wind projects is the lengthy consenting process and the streamlining of this will be welcomed by developers. Nonetheless, a whole system approach will be needed to deliver on these targets, and particular attention will now be on government’s Offshore Transmission Network Review (“OTNR”) workstream and how this will deliver the holistic network infrastructure to support the increased pipeline of projects (see our Law-Now on the OTNR here).

Oil and gas

Key commitments under the Strategy include:

• Launching a licensing round for new North Sea oil and gas projects in Autumn 2022;
• Establishing Gas and Oil New Project Regulatory Accelerators to facilitate the development of projects;
• Driving industry investment in electrifying offshore production to reduce emissions further; and
• Commissioning a review on shale gas by the British Geological Society.

While these measures will strengthen UK energy security by increasing domestic energy production, they are not conducive to achieving climate change targets. The Intergovernmental Panel on Climate Change (“IPCC”) report, published in April 2022, urged key policy decisions to be made this year to prevent global temperatures rising by more than 1.5°C above pre-industrial averages. In allowing new oil and gas projects and remaining “open-minded” to fracking, the Strategy risks the UK’s compliance with its net-zero targets.

Onshore wind

The Strategy recognises that onshore wind is one of the cheapest forms of renewable power available, however, limited commitments are made in this space, noting that “our plans will prioritise putting local communities in control” and government intends to consult on developing partnerships with a ‘limited’ number of supportive communities who wish to host new onshore wind infrastructure in return for guaranteed lower energy bills. It will also look at arrangements to support the repowering of existing onshore wind sites.

Government’s approach to onshore wind has been largely criticised as a missed opportunity to deliver quicker and more affordable clean energy. The Strategy confirms that government will not introduce wholesale changes to current planning regulations for onshore wind, which has effectively blocked new onshore projects since 2015. This is despite the Business Secretary previously stating that the UK needs an acceleration in onshore wind and that it was “the quickest, cheapest and easiest way” of improving the UK’s energy security going forwards.

Solar

Key commitments under the Strategy include:

• Increasing the UK’s current 14GW of solar capacity to 70GW by 2035;
• Reviewing planning laws to promote the development of new ground-mounted solar on non-protected land[3];
• Continuing to include solar in future CfD auction rounds; and
• Simplifying the planning process for rooftop solar to make it easier to put solar panels on rooftops, including on public buildings.

A five-fold increase in solar capacity and reforms to the planning process will be welcomed by the sector, as only two solar ‘nationally significant infrastructure projects’ have received development consent since May 2020. However, the manner of reform and how quickly this can be implemented remains to be seen.

Energy efficiency

The government will run a Heat Pump Investment Accelerator Competition in 2022 to start manufacturing British heat pumps. This will be worth up to £30 million, and help Britain reduce its demand for gas. However, no additional funding for consumers wanting to switch to heat pumps was included in the Strategy, and the government has not offered new policies on saving energy by investing in building insulation.

There is wide-spread agreement that increasing energy efficiency of UK homes by investing in home insulation is one of the key steps towards achieving net zero. The Strategy generally lacks demand-side focus, and by overlooking energy efficiency support it misses one of the most important opportunities to reduce gas consumption in a short period of time.

Networks, storage and flexibility

To deliver on the Strategy, the government emphasises the importance of modernising the network system. It has identified two key features it will need to perform: (1) anticipating demand to reduce public disruption; and (2) offering flexibility in matching supply and demand to ensure minimal energy is wasted.

In this regard, the government will transfer the functions of the Electricity System Operator (“ESO”) and some of the functions of the gas system operator to a ‘Future System Operator’ (“FSO”) (see our Law-Now on the FSO consultation here and the government and Ofgem’s response to the consultation here).

Comment

The Strategy places an emphasis on energy generation that is expensive and will take a long time to deliver. It is not clear how the UK government intends to address the short to medium term energy affordability issues, deal with concerns about UK’s energy system resilience or get the UK on track to reduce its greenhouse gas emissions. In its report on climate change, the IPCC warned that emissions must peak by 2025 for the world to stand a chance of meeting the Paris goals. The Strategy does not offer any immediate solutions that would meet the IPCC’s timetable.

Overall, the Strategy is set to grow domestic energy generation in the 2030s and 2040s and thus contribute to UK’s energy independence. However, it lacks a sense of urgency and does not provide a solution to the short-term woes of businesses and consumers in terms of cost, decarbonisation or energy security.

[1] By approximately May 2024.

[2] From approximately June 2024 - May 2029.

[3] Land that is not in a conservation area or land that is not designated as a World Heritage Site or scheduled monument.