For the UK’s Labour government, which won power in July, green growth is at the heart of its plan for a ‘growth society.’ The new government describes itself as ‘mission led’, and one of its main missions is to become a ‘green energy superpower.’
The new government immediately made some high-profile decisions to signal it meant business. It lifted a de facto ban on onshore wind imposed by the previous government (which had placed onerous conditions on new projects, making them non-viable) and it increased the budget available for a scheduled auction for new renewable energy projects (see more below). It also swiftly gave consent for several new transmission lines.
But more broadly, the new government sees green energy as an opportunity both to meet the UK’s Net Zero target and to become a ‘market leader’ in the green transition. It plans to remodel the governance, and in some cases delivery, of the UK’s energy infrastructure.
Two key figures take on that responsibility.
Ed Miliband is Secretary of State in the Department for Energy Security and Net Zero (DESNZ) and has been a prime mover in the energy transition. It was Miliband who, in 2008, as Secretary of State in the newly created Department for Energy and Climate Change (a precurser of DESNZ), set the UK’s first target to reduce carbon emissions by 80 per cent by 2050. He also announced that new coal-fired plants would have to progressively capture carbon emissions to eventually reach zero; GB’s last coal-fired station is due to retire before the winter.
The other key figure is Chris Stark, who will be chief executive of a new ‘Mission Control’ for the green energy mission, being set up in Aberdeen (until now the centre of the UK’s oil and gas industry).
Stark was previously chief executive of the Climate Change Committee, whose role is both to provide advice to government on its route to Net Zero, via five-year national ‘carbon budgets’, and to assess progress towards that target. As leader of ‘Mission Control’ Stark will have responsibility for “accelerating the transition away from volatile fossil fuel markets to clean, homegrown power, to boost Britain’s energy independence and cut bills for the British people,” according to government statements on the body. It will bring together “a top team of industry experts and officials to troubleshoot, negotiate and clear the way for energy projects”.
Winning the race
The ‘green energy superpower’ plan has won support. Consultancy E3G said “spurring investment in green prosperity must be a central pillar of any credible plan to fix the foundations of Britain’s economic decline,” noting that, “the green economy is already a major source of growth and innovation.”
The new government wants to learn from neighbouring countries, which it believes have gained more from their energy resources and investment than the UK. For example, it has seen state-owned companies like Ørsted invest in renewable energy for the national benefit. A similar body in the UK, it believes, will be one way of speeding up UK investment in UK infrastructure and incidentally give UK consumers a stake in the green economy.
So a new company, Great British Energy (GB Energy), will be set up under new legislation which was set in motion just 20 days after the 4 July election. It will be a publicly-owned and operationally independent energy company.
Its chair will be Juergen Maier, previously with Siemens, who said, “With a publicly-owned company working in lockstep with industry, we can help drive the innovation and investment required to transform our power system and decarbonise the grid by 2030, creating good jobs and generating wealth for Britain.” He said the company could “help clear a path for those emerging technologies which could revolutionise the entire sector” such as floating offshore wind, tidal, hydrogen generation and storage, and carbon capture.”
The legislation made GB Energy’s roles clearer and gave it an initial investment budget of around £8 billion. It will have five roles:
- Project investment and ownership – investing alongside the private sector.
- Project development – speeding up delivery, whilst “capturing more value for the British public.” This includes a partnership with another public body, The Crown Estate, which owns land such as the seabed and has benefitted from leasing it for energy projects and has provided enabling facilities such as seabed surveys. Working in partnership the two aim to deliver up to 30 GW of extra offshore wind seabed leases to the market by 2030, stimulate new technology in areas such as floating wind, hydrogen, carbon capture and tidal energy, and invest in enabling infrastructure such as ports to “unlock strategic bottlenecks.”
- Local power – partnering with and providing funding and support to local authorities and community energy groups. The Local Power Plan will be allocated £3 billion of GB Energy’s funding, to roll out up to 8 GW of small and medium-scale renewable energy projects.
- Supply chains – building supply chains across the UK, and creating jobs.
- Great British Nuclear – exploring how Great British Energy and Great British Nuclear (set up under the previous government) will work together.
Delivering power to the consumer
If GB Energy’s role is in boosting power generation, an equally important part of the green energy mission will be to transport it to the user – ie, to build new power lines and substations. The network will have to be larger than the existing network to accommodate electrification of new sectors (such as transport) and will have to serve areas (such as bringing power onshore) that previously were little served.
The network has already been a bottleneck in the building of new power generation assets and in making full use of those that have been built. Now changes in and around the electricity industry should attack two longstanding problems. First, they are designed to allow new users to connect much faster to the electricity network and second, they will allow the network itself to be expanded much faster.
The process for making new connections to the electricity network was set up decades ago, at a time when electricity use was fairly stable. It worked on a very simple ‘first come first served’ basis, connecting a few large power stations, which recouped the cost of any reinforcement through bills. That has changed. Thousands of new power projects want to connect and there is now a long connections ‘queue’ – which often leaves the best projects waiting behind others that may never be built. Recently, network companies and the regulator have been working to change the longstanding rules so that the projects that can be implemented fastest will take priority.
The second change is in the area of strategic planning. It has been clear for years that GB’s ad-hoc approach to installing energy networks is no longer appropriate and nor is its determination never to build ‘ahead of need.’ As a result another state-owned body, the National Energy System Operator (NESO) is being spun out of National Grid (which will continue to own and operate networks).
In electricity, NESO will have responsibility for real-time balancing, directing network owners to build new infrastructure and long-term strategic planning. It will also have strategic and medium term planning responsibility for the gas network and, uniquely, for optimising these energy networks as a ‘whole system.’
In a consultation on its roles DESNZ and Ofgem said, “the introduction of NESO is of fundamental importance to government’s wider energy system policy objectives” and “there are substantial benefits from facilitating this at the earliest and most appropriate opportunity.”
In the next five years network companies will be expected to make ten times the investment in new network that they made in the corresponding period in the last decade – and install the new transmission lines faster. NESO will be the face of this ‘Great Grid Upgrade’ aimed at rolling out the necessary transmission and distribution networks, but regulator Ofgem has also responded to it.
Instead of caution about being ‘ahead of need’, the regulator has decided the key should be delivery. So, for example, instead of rewarding or penalising network companies on managing cost alone, it will incentivise companies to deliver on time, or even ahead of time. Ofgem will also soften its opposition to network owners working together. That is because network companies’ supply chain partners and equipment suppliers are already working at full stretch – and not just in the UK. Other countries are investing just as much in network expansion and the UK has to look like an attractive customer. So the regulator will now allow networks to jointly invest in the supply chain, for example to train specialist workers, and networks may also be able to work together on long term contracts for the components needed without attracting concerns over anti-competitive behaviour.
What will the outcome be?
It is too early to say whether this wholesale change will be able to deliver the green transition quickly, but the industry had good news in September with a successful ‘allocation round’ of contracts for difference for renewable energy projects. The annual auction secured 9.6 GW of new renewable energy capacity, enabling commentators to refer to last year’s allocation round, which brought forward no new offshore wind projects, as an aberration and laud a return to investor confidence.
The 131 successful projects include nine offshore wind farms, totalling 4.9 GW, Green Volt, a 400 MW floating wind offshore scheme, as well as six tidal stream projects totalling 28 MW. Onshore, successful bidders included 22 wind projects (totalling 990 MW) and 93 ground based PV installations (some 3.3 GW in total).
For two of the offshore wind farms, Hornsea 4 and East Anglia 2, the strike price (2012 prices) was 58.87 GBP/MWh, and 54.23 GBP/MWh for the other seven. The strike price for PV was 50.07 GBP/MWh, for onshore wind 50.9 GBP/ MWh, for Green Volt floating wind 139 GBP/ MWh, and for tidal stream 172 GBP/MWh.
Despite its success, the allocation round still leaves the UK short of the renewable energy it needs to meet its goals. Next year’s allocation round may show whether the new-look UK energy industry has successfully set it on the path to both its ‘green powerhouse’ role and its Net Zero target.
