The UK’s decarbonisation programme has accelerated significantly over the last decade, but this sharpening of focus has little to do with Brexit. Indeed, the think-tank UK in a Changing Europe has found that the vast majority of UK/EU divergence in the energy sector has been driven by advances in EU regulation, rather than a great leap forward by the bloc’s newly independent island neighbour. While a record amount of UK energy was generated from renewable sources in 2022 – researchers at Imperial College London found that 40.2 percent of electricity was made up of solar, wind, biomass and hydropower last year – the UK remains reliant on imported fuel, and gas in particular.

It took Russia’s invasion of Ukraine just over 12 months ago to spark a long overdue analysis of which renewable energy technologies should be prioritised by UK policymakers to meet two overarching objectives: reducing the UK’s dependence on mainland Europe for much of its energy supply, and kickstarting a revolution in domestic energy efficiency. Having arguably fallen behind in the race for renewable innovation, the UK is now determined to turbo charge its investment in green technologies.

British Energy Security Strategy: a new blueprint

This new approach was set out in the British Energy Security Strategy of April 2022. In his foreword to the document, thenPrime Minister Boris Johnson spoke of a need to “exploit the potential of all renewable technologies” and set a headline target that 95% of all electricity generation should be derived from renewable sources by 2030. Specifically, the Strategy upped the ante on offshore wind and the deployment of green hydrogen, while an eye-catching pledge to build eight nuclear reactors by the end of the decade was characterised as a decision to “reverse decades of myopia”. The independent Climate Change Committee responded that, “for perhaps the first time, the Government has made commitments that clearly go beyond CCC proposals in key low-carbon technologies”. The Strategy was broadly welcomed as a reasonably ambitious roadmap towards substantially increasing investment in renewable technologies.

However, it met with disappointment among stakeholders, including business leaders, who felt measures on energy efficiency and the decarbonisation of heat were all but ignored. Heat pumps have been “in vogue” among UK policymakers in recent years and were held up in some quarters as a catch-all solution to off-grid decarbonisation. Their installation will be zero VAT rated until 2026, and it is projected that 600,000 will be installed every year until 2028. Critics claim this will barely scratch the surface of what is required to deliver a “retrofit revolution”. It certainly does not compare favourably with the EU Renovation Wave, through which the bloc intends to double the rate at which existing housing stock is retrofitted.

Two prime ministers later - the Energy Bill

Responsibility for implementing the Strategy ultimately lies with Rishi Sunak after Johnson was deposed last summer and his successor, Liz Truss, was dramatically forced from office inside 50 days. It is worth reflecting that Sunak, a Stanford graduate, is a fervent believer in the potential of technology and innovation to solve complex policy challenges. He notably used his time as Chancellor of the Exchequer to introduce tax incentives to boost R&D spending. His team is known to be receptive to the introduction of positive financial incentives to turbocharge investment in, and the production of, green technologies. Turbulence at Westminster caused the resulting Energy Security Bill to be placed on hold last summer, before undergoing a thorough Whitehall review. It re-emerged in December 2022 as the Energy Bill, which is currently making its way through the House of Lords. The Bill is due to enter report stage soon, with a date to be announced before it heads to the House of Commons for what is likely to be a lengthy period of scrutiny by MPs. The Government is hoping to see the Bill through to completion by the time Parliament rises for recess in July 2023.

How will the UK Energy Bill deliver investment in renewable technologies?

The Energy Bill is the Government’s flagship legislative vehicle for driving the development of “a cleaner, more affordable and more secure energy system for the longterm”. Its current iteration would introduce 26 separate measures structured around three key pillars, one of which is “leveraging investment in clean technologies”. The Government claims it will drive £100 billion of private sector investment by 2030.

How will the UK Energy Bill deliver investment in renewable technologies?

  • Green hydrogen – the Government will support industry to undertake two trials designed to investigate the use of hydrogen for heating. The intention is to provide evidence to inform strategic decision-making on the future role of low carbon hydrogen in heat decarbonisation from 2026 onwards.
  • Carbon capture usage and storage (CCUS) – the Bill will hand the Secretary of State powers to provide capital investment for CO2 transport and storage networks, and establish an economic regulation model led by Ofgem. However, Ofgem is thought to have limited capacity to take on any further regulatory powers.
  • Green hydrogen and CCUS business models – the Bill will introduce “state-of-theart” business models to support an ambition for up to 10GW of low carbon hydrogen production capacity by 2030, and to capture and store 20-30MtCO₂ per year by the end of the decade. It will provide long-term financial assistance to support the establishment of CCUS and low carbon hydrogen production, encouraging investors to scale up deployment. The Industrial Carbon Capture (ICC) business model will incentivise the deployment of technology in industries that are hard to decarbonise.
  • Low Carbon Heat Scheme – a new scheme will support businesses to invest in emerging supply chains, including for low emissions vehicles and renewable electricity generation. It will also place an obligation on manufacturers of fossil fuel heating appliances to meet a rising standard for low carbon heat pump sales as a proportion of their total sales. The intention is to lower the cost of electric heat pumps through economies of scale and innovation.
  • Heat network zoning – the Bill introduces a regulatory framework for district heating. Ofgem will be tasked with granting licences to heat network developers, as is the case with other utilities.
  • Fusion power – the UK is widely recognised as a world leader in fast-evolving fusion technologies. This Bill will remove the requirement for those developing fusion power to secure nuclear site licences - a clear point of divergence from EU regulation.
  • Nuclear – the Bill will enhance the UK’s nuclear third-party liability regime in another clear point of divergence. The previous commitment to build eight new reactors by 2030 has been dropped, despite a majority of UK voters backing nuclear.

Review of Energy Market Arrangements (REMA)

The Bill also ties in closely with the Review of Energy Market Arrangements, the most significant overhaul of the energy market in a generation. Like other aspects of the Bill, its progress has been stifled by political uncertainty, but the Government is now pressing ahead with measures to decouple global wholesale gas prices from UK wholesale electricity prices. An independent Future System Operator, with responsibilities in both the electricity and gas systems, will be set up to ensure efficient energy planning and promote innovation. Obstacles to the development of innovative batteries and pumped hydro storage will be removed. As mentioned, there will be a focus on kick-starting the development of heat networks across England. And critically, the Contracts for Difference (CfD) auction scheme for low carbon electricity generators will be overhauled.

Focus on Implementation

Four months into his tenure, the Prime Minister Rishi Sunak has taken decisive action by creating a brand-new Whitehall department specifically designed to deliver on the UK’s net zero ambitions. The Department for Energy Security and Net Zero – tentatively known as ‘DESNZ’ – has a mandate to secure the UK’s energy supply, encourage greater energy efficiency, and perhaps most pertinently, to “seize the opportunities of net zero to lead the world in new green industries”.

Passing the Energy Bill is one of six stated DESNZ priorities for 2023. The Department will also focus on expediting the development of network infrastructure, while REMA – previously spearheaded by the defunct Department for Business, Energy and Industrial Strategy – will also fall within DESNZ’s remit.

UK Future Direction of Travel

The UK Government is due to publish a series of strategies and consultation responses in the coming months that will inform further policymaking. The low carbon fuels strategy was due to be published by the end of 2022 but has yet to materialise. We are also awaiting publication of the biomass strategy, which will build on the Biomass Policy Statement published in November 2021. In the spring, DESNZ will respond to the Chris Skidmore MP’s report Mission Zero: independent review of net zero. The review, commissioned by Liz Truss to map out a “progrowth, pro-business” pathway to decarbonisation, made a series of punchy recommendations including the development of a ‘net zero technology roadmap’. This would identify the key decision points that must be made to ensure priority technologies deliver on the UK’s net zero and growth ambitions, and assess the R&D required to enable them. Skidmore argued that this would give far greater confidence to innovators and investors. It will be interesting to see which, if any, of his proposals are adopted. Time is of the essence if Rishi Sunak’s Government is to make significant progress on the net zero agenda. A general election must be held within the next two years and an Autumn 2024 election is most likely. Once an election is called, policy decisions with major spending implications will be put on hold. 2023 will therefore be a crucial year for UK investment in green technologies.

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