The British Energy Security Strategy: geopolitics, net zero, and missed opportunities

In the wake of the horrific events in Ukraine, the UK Government has recognised the volatility in depending on Russian oil and gas. In response, the UK Government issued its “British Energy Security Strategy” (the “Strategy”) on 7 April 2022, which looks to secure clean and affordable British energy for the long-term. Below, we examine some of the key takeaways from the Strategy.

What's new?

The direction of the Strategy is similar to the other strategies, policies, and plans announced since the Government's Ten Point Plan in November 2020 - the emphasis is on producing low carbon solutions and delivering net zero by 2050. The Strategy is similarly ambitious to those recent strategies (and those familiar with these will recognise the broad and somewhat vague nature of promises in the Strategy) but there are a handful of new considerations:

• Nuclear: the proposed overhaul of UK nuclear strategy is probably the starkest change from previous publications. Noting the current aged stock of nuclear power plants, the Government intends to deploy up to 24GW of new civil nuclear by 2050. This could lead to 8 more nuclear reactors at a rate of one per year (rather than per decade). To facilitate this, the Government is launching an “enabling fund”, the “Great British Nuclear Vehicle” to help projects throughout the project lifecycle, and also engaging with regulators to streamline some of the existing bureaucracy.
• Oil and gas: the Government's plans to reduce (and ultimately stop) importing Russian fossil fuels by the end of this year make it unsurprising that the Strategy seeks to boost production in the North Sea (at least in the short-term) to plug the small gap currently made from Russian imports. Simply “turning off the taps” for fossil fuels is not yet a viable solution for reaching net zero, despite the protestations of environmentalists, who will also view the “open minded” approach to “safe” fracking cautiously. Further streamlining of the regulatory process is envisaged, with new accelerators for facilitating rapid development of offshore projects.
• Offshore wind: the Strategy re-confirms the Government's preference for offshore wind, increasing its ambition by 10GW to deliver 50GW of offshore wind projects by 2030. To achieve this, the attention is on cutting the development and deployment timeline by more than 50%. This also includes further streamlining of regulations, aiming to reduce consent times to 1 year (from 4), introducing strategic compensation environmental measures to offset environmental effects and reduce delays, and amending the planning regime to allow a fast track consenting route.
• Hydrogen: the previous target of 5GW of low carbon hydrogen production capacity by 2030 has been doubled. There is also nuance in the proposed changes, with a move away from references to “low carbon” (green or blue hydrogen) to “electrolytic” hydrogen (green or pink (i.e. nuclear) hydrogen), with at least half of the new 10GW target from electrolytic hydrogen. This suggests some movement in the Government to focus less on producing blue hydrogen via steam methane reformation with CCUS. This may be borne out of the findings of a number of hydrogen consultations, many of which were published shortly after the Strategy.

What's missing?

As well as new policies and targets, the Strategy was notable for its absences, including:

• Onshore wind: perhaps the part of the Strategy that got the most political coverage prior to its release was the Prime Minister's desire to relax planning rules for onshore wind developments (many of which had lost traction due to “nimbyism”). The proposed wholesale changes have not been promised, replaced instead by a tepid commitment to consult on developing local partnerships for a “limited number of supportive communities”. It would be unsurprising if this commitment is shelved whilst the Prime Minister continues to lack party support for onshore wind.
• Energy efficiency: the decarbonisation of heat is one of the biggest pieces of the net zero puzzle. There are two ways to solve this - use a low carbon heat source, and/or increase the energy efficiency of buildings. Many expected the Strategy to put in place significant new goals for energy efficiency, but the Strategy is lacklustre on this issue. The zero-rating of VAT on installing energy saving measures for the next five years, and the launch of a £450m Boiler Upgrade Scheme to reduce the costs of installing low carbon heat alternatives will be useful, but do not scratch the surface of what is required and do little to assist families struggling with spiralling energy costs and the wider cost of living crisis.
• Funding: the road to net zero is long and expensive. For all the ambition being shown by the Government, there is not significant clarity on how the energy transition will be funded. Combined with the significant financial outlay during the height of the COVID-19 pandemic, and reports of tensions between the Prime Minister's office and the Treasury prior to the release of the Strategy, there are increasing concerns at how the significant cost of recovering from the pandemic and targeting net zero will be achieved together without further increasing financial pressure on the most vulnerable.

Conclusions

The Strategy mostly expands on previous net zero policies, focussing on long-term ambition rather than short-term needs, which has garnered an underwhelming reaction. However, the Strategy should be placed in the context of the conflict in Ukraine and the sheer scale of change required to reach net zero:

• the Ukraine conflict and the Government's reaction to it means that we need replacement fossil fuels in the short-term, hence the confirmation of a new offshore licencing round this year. There is also recognition that to become a net zero nation and achieve energy independence, current regulatory processes need improvement. Almost all aspects of the energy system mentioned in the Strategy mention streamlining regulatory process (either as a commitment or a part of consultations) to ensure the delivery of the stated targets. There is an obvious tension between shortening regulatory processes and providing high quality projects without detriment to the environment, which will surely be tested.
• in the context of reaching net zero, the 2050 target has been chosen for a reason - every facet of our energy system must adapt and evolve, which cannot happen overnight. Significant amounts of planning and consultation need to happen in the 2020s, so that the solutions can be successfully deployed in the 2030s and 2040s. This is why the policies being outlined are ambitious and long-term, rather than specific and immediate, in particular around developing a network capable of handling increased intermittent generation. The hope is that as more information becomes available in the coming years, these policies lead to more certainty.

Ultimately, the Strategy tries to balance long-term ambition with the political reality of the conflict in Ukraine; viewing it as an energy strategy, rather than one of geopolitics, misses the drivers for the Strategy. However, it seems to be a missed opportunity, particularly considering the impact of domestic crises in the retail energy sector, domestic energy prices, and the overall cost of living.

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