As the immediate energy crisis begins to abate, policymakers are focusing on how to avoid the next one. Rishi Sunak’s Government is focused on achieving energy independence by the 2040s – with a new Department for Energy Security and Net Zero set to lead the charge. Flint’s energy team looks at whether energy independence is achievable, or even desirable, and what this could mean for the development of the UK’s clean energy system.
The political fallout from the current energy crisis
A lot can change in a couple of months, especially in a crisis. In early December, many were worried about the risk of rolling blackouts as the winter months closed in. There were significant fears of further wholesale price surges. Government announcements focused on helping consumers and businesses pay their bills while taxing those who were seen as profiteering from high prices.
Things feel very different now, at least on the surface. Fortunately, forecasts of a milder-than-average winter have been borne out so far, which combined with softening economic expectations on rising demand – especially in China – means that wholesale prices have fallen considerably. We are not out of the woods yet, with prices forecast to remain roughly double those of the pre-pandemic era for the time being (a particular challenge for small non-domestic energy users like pubs and care homes). However, the political pressure to do more on domestic bills this year has reduced, with the focus increasingly on the fair treatment of customers by suppliers, and Ofgem’s record on enforcing market rules.
The new Department for Energy Security and Net Zero has been tasked with ensuring security of energy supply as one of its top priorities. So while prices could rise again for a multitude of reasons, the Government’s attention is clearly shifting onto how to avoid the next crisis, as opposed to just dealing with this one.
The concept of energy independence
The many column inches written around the causes of the latest energy crisis have focused mainly on one issue – the UK’s reliance on energy imports and subsequent exposure to global supply shocks. Gas supply is the main concern due to our reliance on it for heat and power generation, with many focusing in particular on the lack of gas storage.
Despite the political upheaval of the last six months, a consistent message from the UK Government, and from the Labour Party, has been the need to get more of the country’s energy from homegrown sources. Rishi Sunak has said the UK should aim to be energy independent, and his creation of a stand-alone Government department with a headline priority to deliver energy security underlines this intent. The Government is now actively looking at how deliverable energy independence is in policy terms. The political rationale is obvious and reflects a broader push to re-shore critical supply chains of goods and key commodities in the face of a more uncertain world. The UK is not unique in this push – we have seen similar calls in Europe and the US.
What it could mean in practice
Energy independence could mean many things. An extreme definition would mean sourcing virtually all of our energy needs – electricity, oil, gas, and transport fuels – from within UK shores. But unless we can find another North Sea or frack all our green and pleasant land, full independence is impossible. We currently get over 60% of our gas from abroad, as well as more than 50% of our oil and petroleum.
The UK simply does not have sufficient indigenous supplies of fossil fuels to meet demand (even in the decades to come as the economy decarbonises). Supplies from the rest of the world are required to fill the gap, and the war in Ukraine has demonstrated all of Europe’s reliance on access to sea-borne imports. For the short term at least, our reliance on fossil fuels means we are also reliant on the international energy market.
Incorporating reliable imports into our vision of energy independence also applies to renewables. The transition to clean energy does create significant opportunities to produce more power at home and cut imports. But the UK cannot rely on renewables for 100% of its electricity needs every day of the year without a significant, and costly, overbuild to cover the most extreme weather scenarios. Interconnection with trusted neighbours can overcome these problems, and enable the UK to quickly build a predominantly renewable-based electricity system. So even with the transition away from fossil fuels, a more nuanced approach to energy independence is needed that includes energy links with other countries.
How to make it achievable
The reality of becoming energy independent is evidently more complex than it appears on the surface. As it mulls the right approach in the coming months, there are five key questions that the Government must come up with clear answers to:
Achieving full energy independence from other countries across all fuels is clearly a pipe dream. However, defining it as independence from countries that are politically unreliable, or targeting specific domestic energy supplies would be an achievable aim that has the added benefit of giving business certainty on what is and isn’t a viable long-term investment. This could include setting specific Government targets on the minimum levels of domestic production of certain fuel types, such as electricity and hydrogen. And there could be opportunities to go even further on electricity, given our heavily renewable-based future electricity system will at times create over-supply, making the UK effectively a net exporter of electricity. This inevitable shift to exporter status would give Ministers the political justification to continue reliance to some degree on energy imports (particularly fossil fuels) and argue that “net” energy independence – electricity exports offsetting other energy imports – has been achieved, even if the security benefits of that are, in practice, limited.
If energy independence is to mean, at least in part, a sizeable increase in domestic electricity supply the goal is consistent with achieving net zero. Investment in a range of low-carbon technologies will be key, not just renewables, but also flexible low-carbon supplies like hydrogen-fuelled gas turbine generators, deep geothermal and pumped hydro, as well as potentially a wider variety of nuclear designs.
But if we are to avoid a growing reliance on imported fossil fuels out to 2050 and beyond, Government will need to square allowing additional domestic oil and gas licences with the net zero target. Stringent targets for decarbonising oil and gas production – such as through electrification – is part of the answer, but the Government will also need to accelerate deployment of carbon capture and storage, and negative emissions solutions (both nature-based and engineered), which are all needed to achieve net zero. Linking the approval of new oil and gas production to these engineered carbon removal options could be one solution to accelerate progress. New clean technologies will also help reduce oil and gas demand. Green hydrogen (which relies on a major build-out of renewables) and waste-derived fuels could both play a role in reducing emissions and increasing domestically sourced energy supplies.
Energy efficiency has to play a central role. Government has already set a target to reduce energy demand by 15% by 2030 and set the new energy department a specific priority to deliver this. Given the reliance on imports is far higher for gas-dominated heating, the focus of any demand-side support must be a mixture of energy efficiency and smarter usage to drive down heating demand. There are co-benefits to this, such as improved health outcomes for people living in cold and damp accommodation. Stricter standards for existing buildings are a potentially useful long-term tool but come with difficult political obstacles to navigate. Meanwhile, the persistence of stubbornly high energy prices will act as in incentive for the able-to-pay market to invest in energy efficiency upgrades and demand reduction technology.
A truly secure energy system needs a geographically diverse range of energy sources – especially in a world where more of our energy is reliant on weather patterns that can affect the whole of the UK and countries around us. Government will therefore need to look to strengthen partnerships with a more reliable set of energy partners if it wants to justify limiting supply from elsewhere. Front of the queue should obviously be the EU, US and other strategic partners in the Gulf. Interconnection with our European neighbours will have to grow as we export more and more excess wind power, but some risks are posed by emergency restrictions on cross-border flows.
There are many security-related risks that matter just as much as the GWs of homegrown energy sources. For example, the dislocation of global supply chains risks the delivery of key commodities, such as critical mineral imports for key battery technologies. If Government is to make the UK more energy resilient, it will have to come up with a clearer integrated view of the cross-economy challenges that risk undermining the security of domestic energy supply and use.
It is more complicated than it might appear
The goal of making the UK energy independent may on the surface look appealing. But in practice there are reasons to doubt its effectiveness in making the UK more resilient, as well as any Government’s ability to actually deliver it. That said, a concerted approach to increase homegrown energy supply should go some way to reducing the impact of future energy crises on the UK, and could also support our long-term climate ambitions. The challenge for Government now is not to fixate on the political promise, but to work through the complexity of making a practical version of that promise a reality.
*Graphs use data from National Grid's 'System Transformation' scenario, which delivers net zero by 2050 with limited reliance on societal behaviour change. In all National Grid's Future Energy Scenarios that achieve net zero by 2050, the UK becomes an electricity importer. Future gas demand is more variable depending on the future of hydrogen and how this is sourced, but in all cases, the majority of gas demand is met via imports.
Josh Buckland, Partner leads Flint’s work on energy, sustainability and environmental issues. Prior to joining Flint, Josh was Energy Adviser to the Secretary of State for Business, Energy and Industrial Strategy. Flint Director James Diggle advises clients on energy and climate issues and previously led the energy and climate team at the CBI. Flint has significant experience advising clients on all aspects of the energy market and net zero transition. To find out more about how Flint can help you navigate the risks and opportunities of these developments, get in touch.