How can the UK government respond to the energy crisis?

In recent weeks, energy security and the rising cost of living have become increasingly urgent issues as Russia’s invasion of Ukraine and subsequent knock-on impacts has put pressure on supply lines, pushed prices up and forced many countries to rethink their energy strategies.

In response, the UK government has indicated it will soon publish an ‘Energy Security Strategy’ setting out short, medium and long-term measures to meet the UK’s future energy needs.

In doing so, it will need to balance multiple desirable outcomes: ensuring the long-term security of supply, protecting consumers by keeping costs down, and of course mitigating climate change by meeting the commitment to achieve net zero greenhouse gas emission by 2050.

Renewables show the way to energy security

Not surprisingly given the complex landscape, there are a range of competing views on how the UK should move forward.

The government may look to import more oil and gas from existing or new suppliers to meet some of its short-term energy requirements.

However, the current crisis underlines the dangers of relying on imported energy. Achieving long-term energy security is likely to require, to a great extent, achieving energy independence.

Added to these pressures is the fact that as we transition to more electric vehicles and heat pumps for heating, the UK will require more electricity, not less – so investment in electricity generation must keep pace with rising demand.

The situation has prompted some calls for a return to measures such as fracking in the UK, but this carries safety concerns and would be at odds with the UK’s environmental commitments.

Indeed, a far more preferable option would be to unleash a greater push towards renewables and low carbon energy sources, not least given their falling costs in recent years.

Advocates of this approach are calling for more investment and planning reforms to accelerate growth in sectors like domestic offshore and onshore wind and solar power.

The Climate Change Committee has also noted that, if oil and gas prices remain as high as they currently are, the transition to a net zero energy system will ultimately result in a significant national cost saving.

What steps could the government take?

Perhaps the greatest risk to supply security as we transition to net zero would be overinvestment in any single source of low carbon energy generation.

In short, the UK needs a blended approach to decarbonised generation combined with a massive increase in energy generation capacity, a significant contribution from nuclear and offshore wind, as well as smaller contributions from other sources.

Nor can the government rely on the privatised energy market to build and pay for the required infrastructure.

The UK should pursue a flexible strategy that is owned and executed by the central government and supported by numerous stakeholders, rather than a fully market-led approach.

To that end, there are a number of measures the government could pursue as part of the new strategy:

• While our current pathway to net zero is becoming de facto electric, there is an important case for giving hydrogen a chance in areas where it's likely to have a natural advantage, such as in harder to abate sectors. The government could seek to offer additional support and financial incentives to develop the requisite technologies and unlock the market above those already available.
• While nuclear will need to be a significant component of the UK’s future energy mix, new generation capacity will take years to come on stream and the current level of funding is low. The UK will have to generate greater investment. The government could look at how best to support this.
• Solar generation can be integrated quickly into the grid; therefore, the government could explore options to incentivise new investment. The rules on solar panel installation have not changed for a significant period and could also be reviewed.
• Hydro generation could also play a useful role. However, the Environment Agency’s plan to raise the licence fee in England for small-scale hydro schemes, from £1,500 to as much as £13,392, may discourage potential community projects. Notably, the equivalent agencies in Scotland and Wales have not raised their fees.
• Tidal appears to be a forgotten sector of the net-zero transition and government and industry may want to re-examine the benefits of this type of low-carbon energy generation.

Several mechanisms already exist to help unlock blockers in the UK’s renewable and low carbon energy sector.

Contracts for Difference have had a successful impact on the renewable energy market. Auctions are now due to be held annually and the model could be beneficial for stimulating other emerging technologies and nascent markets.

The Nuclear Energy (Financing) Bill currently before Parliament will embed the Regulated Asset Base (RAB) model for nuclear in legislation, and it’s possible that the RAB model could be utilised for other technology.

Getting the public on board

Beyond the questions around future energy mix and investment, any future energy strategy will need the public’s support, not least given concerns about rising costs and questions about new technologies and initiatives.

The government will need to be transparent and manage expectations, but developing a compelling narrative that highlights the wider economic and social benefits of the net zero infrastructure transition will help build and maintain public support.

Developing an energy strategy that maintains both short-term supply and achieves long-term independence and security, keeps the UK on the pathway to net zero, and is affordable for consumers will not be easy.

However, there are a range of renewable and low-carbon options available to the government, which can help satisfy these complex demands.

• Meeting the UK’s future energy needs is a key focus of the National Infrastructure Commission’s work. Read ICE’s blog about its recent Annual Monitoring Report and our submission on the second National Infrastructure Assessment baseline report.