Christian M. 8 min read

Powering Up Britain: Success or failure?

In case you missed it, the UK government was legally required by the High Court to clarify its net-zero by 2050 strategy by the 31st of March 2023.

In response, on March 30th, the UK published a series of documents that give a clearer insight into how this will work and how it will affect the UK energy sector.

In this article, we give you a brief summary of what the UK strategy is and how it has changed with this latest release.

Let’s dive in

Contents

Background
Electricity production
Heavy industry
Heating and insulation
Transport
Oil & Gas production
Conclusion
External Resources

Background

Countries that adhere to international climate agreements have set clear strategies that must be followed to reduce carbon emissions to net zero by 2050 in order to keep climate change at a ‘manageable’ level. The UK is one of these countries and one that is leading in many aspects of its climate change policy. It made net zero by 2050 a legally binding requirement, which means that the government can be taken to court if its emissions reduction milestones are not met.

The UK has specific carbon budgets set to periods of every four years, with 2023 being the start of the 4th carbon budget, which sets a legally binding limit of 1,95 billion tonnes of CO2 ending in 2027.

So far, the UK has achieved its first two carbon budgets, and its performance over the 3rd budget ending 2022 is under evaluation, with many experts saying it has been met. This success can be attributed to the rapid phasing out of coal power over the last two decades, which was down to 2% of the total electricity produced in 2022.

However, the High Court deemed the government’s strategic plan insufficient to meet future carbon budgets, which are much tougher as much of the ‘low-hanging fruit’ emissions reductions have already been met.

For this reason, the UK frantically assembled the civil service to deliver an updated strategy, which was finalised one day before the deadline, on what the government called ‘Energy Security Day’.

The centrepiece of the update is ‘Powering Up Britain’, which, amongst some other supporting documents, we unpack right here!

Electricity production

The documents provide much clarity over how the UK will be able to produce 99% of electricity from low-carbon sources by 2035 while achieving some of the “cheapest wholesale electricity prices in Europe”.

Wind power

Offshore wind energy capacity is due to increase five-fold by 2030, but the biggest news is the launch of a £160m competition to roll out a new type of technology: floating offshore wind turbines that are not fixed to the seafloor but can be towed to different locations.

The bad news is that there were no updates as to the de-facto ban on onshore UK wind farms, despite this being widely considered the cheapest form of renewables in the UK.

There is also no mention of how the national grid will accelerate grid connections or much detail about the roll-out of international interconnectors to sell some of these excess renewables abroad at a premium.

Nuclear power

To those fans of nuclear energy, the documents ratify nuclear as a “vital component” of the energy transition and give a clear preference to modular nuclear reactors by launching a multi-million-pound competition for SMRs.

Wholesale electricity prices

There has been frustration from experts (including ourselves) to the lack of initiative in changing the pricing of wholesale electricity so that it stops being heavily influenced by natural gas (which is expected to remain expensive), and not cheap renewable business energy.

This netted energy companies astronomical profits last year, and the government is taking its time and will only publish a review as late as autumn 2023.

Biomass power

Whilst the UK had previously backed Drax as a central piece of its net-zero strategy, the new documents suggest the government may be about to U-turn. We speculate that this is due to a global questioning of the carbon neutrality of biomass energy.

Drax is the largest biomass power station in the world that is planning to use CCUS technology to become a ‘carbon negative’ operation that absorbs more carbon than what it emits (although many accuse this of being a greenwashing ruse).

However, Drax’s ambitious CCUS project was not included in the government’s latest funding shortlist, sending Drax shares plunging in the stock market as doubts were cast over government support.

This may be good news for those with strong opposition to Drax’s plans.

Heavy industry

The UK’s heavy industry has been in decline for many decades but still accounts for almost 11% of national emissions.

The latest documents confirmed a multi-million-pound boost for its industry transformation fund that seeks to invest in energy efficiency, green hydrogen and alternative fuels, CCUS technology, and addressing carbon leakage.

These investments are being funnelled into a number of UK industrial clusters (e.g. Teeside) where half of the emissions from heavy industry come from.

A number of projects were shortlisted for funding, particularly carbon intensive industries like cement-making and steel. As mentioned earlier, Drax CCS was not included in this shortlist.

Regarding international carbon outsourcing, critics are happy to see the latest consultation on carbon leakage, which is the practice of outsourcing more carbon-intensive processes abroad to countries with more relaxed regulations, thus offsetting carbon by outsourcing it and not actually reducing emissions.

This is particularly promising because the UK is behind other blocks like the EU, which will roll out its own carbon leakage policies as early as October this year.

Heating and insulation

Many believe a faster adoption of heat pumps could make a large difference (Credit: resi.co.uk)

Many were expecting some big updates on the government strategy regarding building efficiency, given that gas boilers are the second-largest source of carbon emissions in the UK due to their reliance on natural gas.

However, no significant changes were announced regarding insulation and heat pumps, which are seen by many as the ‘lowest-hanging fruit’ for UK decarbonisation (at the expense of the energy industry in the UK).

Using the ETS to drive change

One exciting development was that the government is considering using the UK ETS to rebalance business electricity prices and commercial gas rates, which is something the EU has already started doing.

More accurate carbon calculations for gas boilers in the UK’s carbon budgets would reduce the cost of heat pumps that have a significantly smaller carbon footprint than boilers, especially considering how fast electricity production is decarbonising in the UK.

Heat Pumps

There was some good news regarding the roll-out of heat pumps, with the government confirming a three-year extension for the “boiler upgrade scheme”, which offers a £5,000 business energy grant to help property owners install a heat pump.

This is important, considering that the government has committed to installing 600,000 heat pumps a year by 2028 (including new properties, not only gas boiler replacements).

However, there was little detail as to how this would be achieved, especially considering only 50,000 heat pumps were installed in 2022.

Home Insulation

The UK has some of the least energy-efficient buildings in Europe. In response, the UK announced a billion-pound scheme called ECO+ (now rebranded as the “Great British Insulation Scheme”), prioritising improving insulation for 300,000 of the worst-performing homes.

The documents state that these homes could save £300-£400 per year by March 2026 under the renamed government scheme.

However, many still see this as insufficient, especially considering the difference this could make.

Transport

The UK’s net-zero policy on transportation has so far received mixed reviews. On the one hand, the rapid rollout of EVs and its relevant infrastructure in the UK is considered sufficient by the CCC, but the government’s heavy support on yet unproven technologies like hydrogen and SAFs can be regarded as too speculative.

It’s not an easy thing to clarify though, with alternative fuels like green hydrogen still being pretty much in their infancy.

Road transportation

So far, the UK has delivered EVs at a rate comparable to similar economies like France and Germany, with EVs consisting of >2% of all cars in use in 2021.

The latest documents reaffirm the ZEV Mandate, which will begin in 2024 and aims to ban the sales of new gasoline and petrol cars and vans as early as 2030.

Also, a £300m+ fund was launched to accelerate the rollout of local EV infrastructure across England, something that many experts considered lacking.

Aviation and Shipping

The government’s “jet zero” strategy aims to completely decarbonise aviation by 2050 by relying heavily on “SAFs” or Sustainable Aviation Fuels and using carbon credits to make up for the unavoidable emissions.

SAFs are biofuels extracted from waste oils and fats, agricultural residues and energy crops, which can emit nearly 80% less carbon than traditional jet fuel considering its entire life cycle.

The goal is to have 10% of UK jet fuel composed of SAFs by 2030, which is ambitious, considering that SAFs are expensive to scale and rely on yet unproven tech. There has been frustration as the new documents don’t clarify how these challenges will be faced.

Experts expect that achieving the SAF goals will dramatically increase airfares over the next couple of years.

SAFs are also expected to be used in the shipping industry, and the government has promised to publish a coherent strategy this year.

Oil & Gas Production

And last but not least, the most controversial takeaway from the documents is the UK’s commitment to expanding fossil fuel production despite it going against meeting its future carbon budgets.

The latest licensing round for new oil and gas projects has received 115 bids, a move welcomed by the energy sector.

Perhaps there would be less of a ruse if the new documents explained how doing so is compatible with the UK’s net-zero strategy, with prominent scientists and environmentalists questioning the plausibility of this from a technical standpoint.

A total of 700 UK academics signed a letter urging PM Rishi Sunak to stop issuing new licences.

Also, the government has refused to end routine flaring, which is the practice of burning off excess gas during oil well extraction and a large source of emissions that countries like Norway have banned since the 1970s.

On the plus side, the government did not announce a plan to end the windfall tax charged to oil and gas companies for achieving record profits during the ongoing energy crisis.

Conclusion

The release of documents that clarify the UK’s net-zero strategy has been met with mixed feelings.

The way we see its wins include the renewed support for EVs, wind and nuclear power, overhauling wholesale electricity prices and a plan to address a secret issue: carbon leakage.

We also like seeing initiatives to introduce green hydrogen production, which is key to decarbonising steel-making and cement, and we hope that the government’s keen use of free-market economics could one day see the use of blockchain to create a transparent carbon market.

However, we do regret the relative neglect of heat pumps and insulation, no mention of grid connections, as well as the continued production of oil & gas production in the long term.

At the end of the day, climate change is one of the most important challenges currently facing humanity and acting to mitigate and adapt to is of net benefit to all of us.