The Energy Security Strategy is a very political document that raises as many questions as it answers. There are clear favourites and as much can be read in to what is in the Strategy as what is not. 15 months on from the Powering Our Net Zero Future White Paper, the Strategy’s strong pushes for offshore wind, nuclear power and both green and blue hydrogen show a much stronger commitment to making the UK more energy self-sufficient, while continuing the Paper’s path to net zero.
But the Strategy struggles to address what many will see as the two immediate challenges: reducing energy dependence on fossil fuel imports and helping consumers deal with sky-rocketing energy bills. Furthermore, it is unclear what the balance for consumers will really be once all costs, investments and returns from initiatives begun today are properly assessed. In an environment of higher costs in the next few years anyway, that near-term cost uncertainty is concerning.
The government’s shift in focus towards more ambitious nuclear plans were well trailed. Many in the energy industry have long called for a greater commitment to nuclear power. However, the scale and speed assumed for negotiating terms, raising finance – taking three projects to final investment decision in this Parliament and the next – are very ambitious, and it is notable that they remain qualified by reference to value for money. Similar caveats are slotted in around hydrogen too.
The acceleration of build out for nuclear are also very ambitious. Given history, there is scepticism that projects just won’t be delivered to time and budget. The new financing mechanism, the Regulated Asset Base model RAB, sees those risks shared with consumers. This important change should be analysed and transparently debated so consumers get a better sense of the possible range of bill impacts.”
Meanwhile, the roles for onshore wind and solar seem to be pared back from earlier indications. Onshore wind gets very little look in, although the intention to look at arrangements for repowering sites is over-due and could help lift both capacity and efficiency if got right. The detail however is lacking.
The language on solar is seemingly bold – an expectation of a five-fold increase by 2035 – but the government is banking on cost reduction delivering this through merchant investment and sees its role as removing friction in planning and only in specified settings. The strategy also lacks the “hard targets” seen in other parts of the plan. And on solar and onshore wind collectively, many will feel that party politics may have trumped economics given the bets being made on other technologies which deliver over a longer time horizon and at higher cost.”
The strategy increases the already ambitious offshore wind targets, taking the UK from the White Paper’s 40GW to 50GW by 2030. Given the increase in power consumption expected over the next few years and our need to stabilise the country from future external energy supply shocks, the emphasis on large scale indigenous low carbon power is understandable. Offshore wind is a UK success story and has a lot more to offer. But this ambition will involve a significant ramp up in the supply-chain, consenting and approval process compared to what has ever delivered before. In addition, network investment and planning, market reform as well as expansion of energy storage will all be required. All of that enabling infrastructure and catalysts will take mobilisation.”
In fact, the Energy Security Strategy highlights that much needs to change. Helpfully for low carbon power there will be a Contract for Difference (CfD) round a year earlier in March 2023. The government also signals it will be consulting on changes to the 2024 CfD auction, Allocation Round 6, so that it incentivises renewables to locate and operate in a way that minimises overall system costs. What this means is very unclear, but there is an implied recognition of the issue of whole system impacts here. This really needs to be analysed properly before we can determine whether it leads to better consumer outcomes.
Further, the networks and markets section of the plan has a series of actions around preparing or reviewing institutional and governance arrangements, and further blue-printing before serious on-the-ground impacts will be felt. We may well ultimately see faster and more pre-emptive investment to enable connections, or integrated approaches to encouraging flexibility. These actions could well accelerate delivery. But an awful lot is being condensed into 2022, and there is no indication of the price tag or investment required once such plans have been laid in the release today. The track record of delivery on the 2020 White Paper is not good and much will be needed to inspire confidence.
Generally, therefore, there are sound reasons to believe that there could be additional costs and complexities attached to today’s plan in the near term that are yet to be fully exposed and cannot be adequately unpacked.”
The strategy is also marred by stark omissions. The security of our energy system is more than purely supply and it is disappointing attempts to reduce energy consumption do not feature in any meaningful way. The absence of any measures on energy efficiency such as housing insultation are a missed opportunity, they are no more costly than other plans that have been announced and, in many cases, less so. We would urge a rethink of the exclusion of demand side energy policy.
Despite being one of the most spoken about areas of the energy crisis, the strategy does little to address the current energy cost concerns of domestic and business consumers. Our forecasts suggest bills are rising and there are no guarantees prices will fall anytime soon. While the strategy may have a positive impact on energy prices years down the line, this will be of little consolation to the many businesses facing real pressure due to ever increasing energy prices, or the households having to make the difficult and unenviable choice between eating and heating.
Ultimately, this strategy could be construed as one that delivers qualified long-term solutions to near-term and unequivocal problems. While it is clear that moves towards low-carbon energy sources and a focus on net zero should be paramount, that was the case before war in Ukraine. Many of the levers the strategy looks to pull are the same as previous policy documents, just with a different ambition and timetable, and -like previous policy documents – almost all having an effect well into the 2030s.
Many had expected something new that would bring forward less energy dependence on imported fossil fuels, as well as address the cost arising in the market for bill payers today. By announcing a strategy that doesn’t really deliver against these outcomes, which indulges in future-gazing, and which shuts out some fairly obvious levers that could make a positive impact, the danger is that in the coming cost of living and possible energy supply squeeze people will lose confidence in the adequacy of government policy to deliver secure and low carbon energy in an affordable way.
We thought before the strategy that come winter more may have to be done by government on this agenda. We still think that’s the case.