Hands-off approach to energy transition is ‘unrealistic’

The government can no longer maintain a “hands-off” market-led approach to the energy transition amid growing international competition for investment from more interventionist and planned economies, the head of Energy UK has warned.

Chief executive Emma Pinchbeck made the comments during the launch event for the latest iteration of the Future Energy Scenarios published each year by the Electricity System Operator (ESO).

As part of the report, National Grid ESO called on the government to provide more certainty over the support that will be available for the development of key technologies including long-duration energy storage, hydrogen and carbon capture and storage (CCS). “What we want to see is a clear plan for hydrogen and CCS projects beyond the delivery of those first industrial clusters,” said ESO energy analysis senior manager Lauren Stuchfield.

The ESO also urged the government to bring forward its strategic decision on the future role of hydrogen in residential heating, which is currently scheduled to take place in 2026.

Giving her thoughts on the report’s recommendations, Pinchbeck said the gas crisis and the resulting global response has “totally shifted” energy and capital markets. She noted comments by JP Morgan chief executive Jamie Dimon who said the Inflation Reduction Act had caused the biggest shift in capital markets during the entirety of his career.

“That’s bigger than the 2008 financial crash; that’s bigger than the pandemic,” emphasised Pinchbeck. “I don’t think you should underestimate the scale of what we’re seeing in sector for where the money is moving.”

The landmark legislation was signed into law last summer by US president Joe Biden and will provide hundreds of billions of dollars of tax breaks, subsidies and grants to green technologies over the next decade.

Pinchbeck said the UK’s “two biggest competitors” for international investment in infrastructure are now “a very planned economy in the US, because the Inflation Reduction Act is highly interventionist, and an actual planned economy in China”.

She added: “I don’t know what that means for government but I suspect a hands-off approach to the market, or a sense that the market on its own will deliver this, is unrealistic.”

She additionally raised concerns over the slow progress of the Energy Bill, which she said had just been delayed again: “That’s because attention has shifted to the next government, the next parliament, but that’s always a worry with the scale of work we’ve got to do and the ticking clock for climate change.

“What we do about that I don’t know. If there any policymakers in the room, come and talk to me about how we get more stuff in the Energy Bill and get it back to the top of the government’s agenda.”