The run-up to Christmas has painted a generally positive picture for energy policy in Britain. After months of political volatility during a challenging time for the country, it is welcome to see the implementation of several common sense measures that will help the United Kingdom (UK) and its citizens regain control over their energy bills and supply – not least lifting the ban on onshore wind and investing more resources into insulating homes. His Majesty’s (HM) Government is also making welcome steps abroad, forging new energy partnerships with allies and partners and putting energy and climate resilience at the centre of its foreign policy. With the British grid facing strain as gas supplies remain constricted and temperatures drop, the case for the clean energy transition has never been clearer. Yet, there is still much to be done in the coming months to facilitate the move to a cleaner, flexible, more secure energy system for the UK.
Beginning with the good news. New energy partnerships have been struck up with South Africa and the United States (US). The former focuses on clean energy technologies and minerals, including three on the UK’s ‘high criticality’ list (platinum, palladium, vanadium) and two on the ‘watchlist’ (iridium and manganese). The latter sets up a new high-level bilateral US-UK group that will seek to speed up the clean energy transition, with collaboration on efficiency, renewables, and nuclear fuels, while doubling the flow of American liquefied natural gas into the UK over the next year to tie Britain over. The UK will also partake in the second Just Energy Transition Partnership, this time for Indonesia, which was announced at the G20 Summit last month in Bali. More partnerships could be on the way following Anne-Marie Trevelyan’s, the Indo-Pacific Minister, speech in Australia, which set out defence, energy, and climate resilience as the priorities for Britain in the region.
Domestically, just this week HM Government announced it will lift the de facto ban on the development of new onshore wind farms. If the consent mechanism is designed correctly, it will allow energy companies to compete in offering the best deal to communities and bill payers for their energy. Octopus’ Fan Club tariff, for example, offers those nearby up to 50% off the unit rate when the wind is blowing. Thérèse Coffey, the environment secretary, also confirmed that she will not go ahead with her predecessor’s proposed de facto ban on solar farms, which provide the cheapest electricity available to humans. These are two common sense moves that make the clean energy transition easier.
Meanwhile, earlier in November, the Autumn Statement saw HM Government begin to fill the gaping hole in its Energy Security Strategy: how to reduce energy waste and consumption. Jeremy Hunt, the chancellor, confirmed that the new ECO+ scheme, which will prioritise low-cost, high-saving insulation measures, will be rolled out from April. Hunt also confirmed that a new taskforce will oversee £6 billion more in funding for insulation in the next Parliament. Grant Shapps, the business secretary, has also begun an energy saving advice campaign, providing simple tips for people to reduce their consumption without sacrificing comfort.
The taskforce should also consider financing mechanisms and incentives aimed at owner-occupiers and landlords to leverage the finance required to upgrade Britain’s some 19 million inefficient homes. It could consider a salary sacrifice scheme, for example, where people can spread the costs of upgrades over affordable, tax-free, monthly instalments. The UK Infrastructure Bank could be used to provide low-interest loans for larger upgrades or even whole neighbourhoods to unlock economies of scale. And an energy saving stamp duty could be introduced to incentivise buyers and sellers to upgrade their homes to reduce tax paid on the sale. This would have the bonus of incentivising building societies and banks to provide green mortgage products.
A more concerning aspect of the Autumn Statement, however, was on the energy supply side. HM Government will use the extraordinary powers it took in the Energy Prices Act to implement a windfall tax on electricity generators. While politics made it difficult not to do it – some companies took advantage of the Contracts for Difference scheme to make extraordinary profits due to the high wholesale gas price, which sets the price of power – this has sent the wrong signal to investors and might even threaten the viability of projects in the next renewables auction round. Generators will not benefit from an investment allowance as oil and gas producers do, although even this has been cut from 80% to 29% after just a few months.
The UK should move from an old system based on polluting, expensive, centralised fossil fuel power plants which are fueled by imports, to a flexible, clean, secure system of clean energy that is produced here in the UK.
HM Government should end the volatility in the fiscal regime and relinquish the extraordinary powers it has taken through the Energy Prices Act in the upcoming legislation which will implement the Energy Generators Levy. It should also consider extending the investment allowance for oil and gas producers, who are often in both the oil and gas and renewable game, to renewable investment, or apply a similar allowance to the electricity generator’s revenue cap. Longer term, if the revenue cap remains, the revenue should be used to pay for legacy renewables support to keep the relatively small but politically controversial ‘green levies’ off energy bills, which would also hasten the heating transition from gas boilers to heat pumps.
The big barrier to Britain’s clean energy transition is the energy grid itself, which is next on the list for the Business Department. While the review of electricity market arrangements is underway, renewable capacity targets have been set, and HM Government has agreed to a £700 million stake in 3.2 gigawatt (GW) Sizewell C nuclear power station (which can be unfavourably compared to the £295 million for the latest auction round for 12 gigawatts of renewables, which will come online in a fraction of the time), the fact is that Britain needs to build much more grid to get the power to buildings and charging stations. Unfortunately, the UK’s woefully inadequate planning process erects far too many barriers to development.
As Sam Dumitriu, from the new campaign ‘Britain Remade’, has argued, three key things should happen as soon as possible. First, the business secretary should publish a new strategic policy statement to reduce contradictions and confusion in the planning process for investors, regulators, and planning agencies (the latter of which also need more resources). Second, the Office of Gas and Electricity Markets’ (Ofgem) statutory advice should be updated in the Energy Security Bill, which the Business Department has confirmed the return of, to enable more of the required ahead-of-need investment in the grid for a more efficient clean energy transition. Finally, environmental impact assessments should be streamlined and reformed to be more outcome- rather than process-driven: in return for simplicity, investors would have to actively invest in protections for nature as part of their projects. On top of these three recommendations, the new Future Systems Operator should be set up as quickly as possible to reform the National Grid Electricity System Operator’s (ESO) connections process.
With the return of political stability, HM Government needs to continue to implement the short-, medium-, and long-term solutions required to reduce the UK’s dependence on international gas markets. A loud minority will continue to doubt the transition away from fossil fuels and invent spurious arguments for slowing it down. But listening to those voices in the past has caused financial pain today: the onshore wind ban alone will leave bill payers £800 million poorer this winter. The UK should move from an old system based on polluting, expensive, centralised fossil fuel power plants which are fueled by imports, to a flexible, clean, secure system of clean energy that is produced here in the UK. A lot needs to be done in 2023, but Britain is moving firmly in the right direction.
Jack Richardson is James Blyth Early Career Associate Fellow at the Council on Geostrategy. He is also Climate Programmes Manager at the Conservative Environment Network.
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