Energy strategy misses small steps in favour of giant leaps

The government’s energy security strategy contained bold new targets on nuclear and offshore wind but critics argue it does little to address immediate concerns. Experts tell David Blackman there are question marks about how the headline targets will be achieved and dismay at opportunities wasted in areas such as onshore wind and energy efficiency.

April 7 2022 provided a fleeting glimpse of the UK’s low-carbon generation future. As the country was buffeted by strong winds, while bathing in spring sunshine, the contribution of solar and wind power to the generation mix climbed to 53% at lunchtime.

It was also the day the government unveiled the British Energy Security Strategy, which is designed to wean the UK off dependence on gas generation, an issue brought into such sharp focus by Russia’s invasion of Ukraine.

The strategy has made big bets on offshore wind, nuclear and solar.

One of “the best things” about the strategy is that the government hasn’t given up on net zero, says Josh Buckland, a former special advisor within government on energy issues. The months running up to the strategy’s publication had seen mounting political pressure on the government to water down its 2050 target.

Mike Thompson, director of analysis at the Climate Change Committee (CCC), points out that ministers have not only “stuck to their guns on net zero”, but have gone beyond on his own body’s advice on targets for nuclear and wind power.

The flipside though is that the strategy has stopped short of an anticipated doubling of onshore wind capacity, while largely ignoring energy efficiency.

Daniel Newport, head of net zero at the Tony Blair Institute and until recently the government’s head of heat and buildings strategy, believes that despite the ambition in some areas, the strategy isn’t an adequate response to the scale of the  looming energy security crisis faced by the UK.

He says: “This isn’t a reaction to the crisis that prompted the promise of an energy security strategy, which was supposed to help consumers in one of the worst price crises we have ever faced. It doesn’t do any of these things partly because policy decisions are to back big expensive risky steps as opposed to quick wins.”

So how does the government’s strategy measure up?

Nuclear

The big winner from last week’s announcement is nuclear power. After decades of false starts, prime minister Boris Johnson has committed to build eight new large nuclear power plants by 2050. These new mega-plants will be supplemented by small modular reactors, which are claimed to be cheaper to build and can be deployed in more places across the country.

Adam Bell, the Department for Business, Energy and Industrial Strategy (BEIS) former head of energy strategy, hails the strategy as a “revolutionary” day for nuclear developers, providing them with a pipeline stretching over several decades.

The government’s ambitious headline 24GW target, together with steps like the establishment of a dedicated new delivery body, will help to kickstart projects at the very early stage of the development process, says Buckland

“The sense of drive and ambition matters when investors are making decisions. The ambition is much clearer than it has been for a decade,” he says, while adding the caveat that the strategy’s nuclear section lacks sufficient detail on delivery.

While the strategy supplies some of the building blocks for getting nuclear projects off the ground, delivering the prime minister’s ambitions will mean keeping the Treasury on board, says Howard.

Another big problem with nuclear remains the shortage of reliable suppliers able to deliver what are often technically complex and hugely expensive mega projects.

The government is clearly keen to encourage developers, like Hitachi, which withdrew from the North Wales Wylfa project after baulking at the financial risks.

Recently passed legislation to allow the regulated asset base (RAB) model to finance nuclear projects may help here too, Bell says: “It might be enough to tempt Hitachi back in – but for a while, it will just be Westinghouse and EDF in the game.”

Pointing out that the market cap of the French company is not much more than the projected cost of delivering Hinckley Point C alone, Howard says: “You can’t expect EDF to shoulder all of this itself.”

With just the Somerset plant likely to be delivered this decade and Sizewell in the 2030s, Bell reckons that “three or four” new large nuclear plants are a more realistic ambition than the PM’s eight.

The Tony Blair Institute’s Newport sees the far-off nature of the government’s targets as a “distraction” from the more pressing energy security issues that the strategy was meant to address.

While building 24GW by 2050 may be a valuable contribution in the long term, he describes it as “irrelevant to the problems we are seeking to solve.

“Nobody will hold you accountable for whether are delivering because it’s ten to 20 years hence. Choosing nuclear is choosing the thing that you can’t be held accountable for.”

Offshore wind

The second major winner from the security strategy government was offshore wind as the government added another 10GW onto its already ambitious target to deliver 40GW.

Kwasi Kwarteng insisted that the raised target is “stretching but doable” in an interview with Aurora managing director Dan Monzani following the strategy’s publication.

The CCC’s Thompson agrees with the business and energy secretary based on feedback from the offshore wind industry.

Alongside the new headline target, the strategy outlines a series of steps which are designed to accelerate the delivery of the offshore wind rollout.

“The government’s pledge to halve the time for offshore wind farms to secure planning consent is probably more important” than the target itself,” says Bell.

Others are not so sure about the feasibility of the government’s ambitions though.

Aurora’s Howard was already sceptical about the 40GW target, reckoning that 30 to 35GW is a more “plausible, high end” figure.

“It is hard to believe that we will get there in that time frame,” he says, adding that going beyond this will require a “significant” acceleration of the planning process and “very quick” decisions on the future shape of the grid infrastructure.

Once stretches of the UK’s seabed have been auctioned off by the Crown Estate, a lot of preparatory work must take place, such as environment assessments and geo-technical analysis, Howard says: “There is a limit to how quickly you can do these things unless the developer is going to take a really massive risk. It’s hard to see how you manage to deliver at a low cost of capital if you are taking a significant risk.”

Howard also questions whether the supply chain can deliver on the scale that the government wants, pointing out that the UK’s maximum deployment offshore wind deployment has historically been 1 to 2GW per annum.

“30GW in five years is at least three times faster than we have ever built offshore wind before,” he says.

This increased pressure to deliver, combined with escalating costs of materials like steel, means the government can no longer bank on a continuing fall in offshore wind costs, says Bell: “The supply chain was already struggling to keep up with demand: the next auction rounds may see costs start to level off if not reverse.”

While the strategy shows the grid upgrades required to deliver the government’s offshore wind ambitions are clearly being thought about, ministers need to get a move on, says Howard: “Even if you believe the numbers, we need urgent investment in storage and flexibility to have a system that works.”

Onshore wind

One of the big disappointments for many is the absence of a concrete target for onshore wind in the security strategy.

The BEIS department is understood to have pressed for 30GW of onshore wind. Instead the strategy stated that the government would support a “limited” number of onshore projects that could demonstrate strong community support, while ruling out a wholesale review of the planning rules for the technology.

Setting a target could have provided a “quick win”, particularly because wind farms can be built more rapidly onshore, Howard says: “It’s one of the tools in the kit that we are using less than we could.”

The slight softening of the English planning regime doesn’t necessarily mean projects will get built because they will be competing for Contracts for Difference (CfD) and merchant power contracts with Scottish projects, which are which are also likely to be more lucrative, he says: “It may still be too high a bar for developers to clear: if its costs millions to bring onshore projects through the process, you will still go for the Scottish site.

“You can still build in Scotland where the best resource is by some margin.”

This is because the UK’s richest onshore wind resources are in Scotland where there is more land and wind speeds tend to be higher, while the planning rules are more relaxed than in England, says the CCC’s Thompson.

What has been holding back consented projects has been the recently relaxed exclusion of onshore wind from the CfD auction process.

Ed Birkett, head of energy & climate at thinktank Onward, says: “The immediate opportunity to accelerate deployment is projects in the existing pipeline that have planning permission and they are not onshore wind projects in England.

“Even if you liberalise planning laws in England, it would still take a while to do land deals and get grid connections. Where you can accelerate the most is probably wind in Scotland and Wales and solar.”

Bell, who is now director of policy at consultancy Stonehaven, says it may be possible to secure an additional 5-10 GW of onshore wind generation in Scotland.

However any hopes of achieving 30GW of onshore wind by 2030 have disappeared, he says: “Those numbers are off the cards for the next decade.”

Even if onshore wind had been given an easier ride in England, the grid may not be able to cope with the additional low carbon generation it delivered, says Thompson.

However, greater reliance on Scottish and offshore wind resources will increase the pressure to build additional grid infrastructure, Bell says: “Given that onshore wind would be generated closer to points of demand, it is more likely to push system costs up.

“The grid is already constrained by the lack of connections between England and Scotland, which will only be exacerbated by this.”

Networks

The increasingly lopsided nature of the grid as Scottish wind power provides a growing share of UK generation is already causing problems, says Howard: “Investment in the grid between England and Scotland has lagged behind capacity, which has led to lot of curtailment of renewable power and will only get worse if we add tens of GWs to the system at the same time.”

The good and perhaps unexpected news is that many see the strongest section of the 12-page document as that on networks.

Buckland sees this section contains the strategy’s “most significant policy shift”.

Onward’s Birkett hails the strategy for “really” grappling with the UK’s network challenges, highlighting the “substantial moves” trailed in the document on encouraging investment ahead of need.

Buckland, who is now a director at public affairs company Flint Global, believes this “slight shift away from competition at all costs” will mean a focus on delivering network infrastructure will be prioritised.

While welcome though, the proposals on networks in the strategy remain a list of bullet points that need fleshing out, he says “For developers, it’s really good but we need to see the next layer of detail.”

Energy efficiency

However, while much of the strategy gets mixed reviews, the biggest blot is the near absence of any steps to boost energy efficiency

The CCC’s Thompson describes the gap on energy efficiency as “glaring”.

“If this strategy was about incentivising energy security and reducing energy bills isn’t energy efficiency the single best way to address that?” asks Howard.

“Given the UK’s relatively poor housing, there is still so much low-hanging fruit.”

Other European countries have given energy efficiency a “far more prominent” role in their responses to the security crisis,” he adds.

More than midway through the current Parliament, the government has only allocated £6.6 billion of the £9.2 billion promised for energy efficiency in the last Conservative manifesto, says Newport: “The Treasury are a big block because they’re not even coming good even on promises they have made, let alone going further because of the crisis.”

The case for investment in energy efficiency has become “more acute” as a result of the Ukraine war’s impact on gas prices, he says, arguing that energy efficiency should now be seen as one of the “economic costs of war”.

“The normal response to the costs of warfare is to socialise them: the Treasury could be a lot more creative in its response.

“In that context, it’s very narrow-minded to say this is not a problem for the taxpayer to have a role in, it doesn’t match the new reality.”

Energy efficiency is a spend to save measure that will benefit the economy in the long run, says Newport.

And many individuals have sufficient DIY skills to lag their own lofts, particularly if they are offered the insulation rolls for free.

“It’s not beyond the wit of industry with the right incentives and signals to get a few million extra lofts lagged immediately. That kind of creativity is sorely lacking.”

The CCC has calculated that around two thirds of UK households require less than £1,000 worth of work to get their homes up to the EPC band C rating

Howard calculates that the total cost of this work comes to around £20 billion, which is less than it costs to deliver a single nuclear power station, like Hinckley,

“We’ve learnt from 20 years of energy efficiency policy is that there is a lot of low hanging fruit with putting insulation in loft or cavity walls.”

“We can’t fix every home this winter, but we can make a big dent over the next two to three years,” says Newport, adding that this timeframe is three times quicker than any chance of Sizewell coming on stream.

However, delaying a decision on support for energy efficiency is “really short sighted” and makes it unlikely that the supply chain will gear up in time to deliver benefits by next winter, he says: “Not doing now you are probably losing a year.”

The former civil servant understands why politicians, mindful of some of the misguided advice recently issued by suppliers, don’t want to be seen lecturing households about their energy use.

However, particularly in the context of the current crisis, it should be feasible to craft a message about why saving energy makes sense in terms of national security as well as bills.

Turning down thermostats by a degree could save 10% of domestic gas use, which nearly equates to the UK’s imports of the fuel from Russia, he says: “It is such a simplicity of message that strikes me as a complete lack of imagination and faith in the British public to pull together in a crisis.

“It is a very strange, missed opportunity to not even try and give that message.”