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Government Energy Security Strategy - PwC's EUR team comments

07 Apr 2022

PwC UK’s Energy, Utilities and Resources specialists comment on the UK Government’s Energy Security Strategy which was released today (7/4/22)

Drew Stevenson, PwC’s Leader of Industry for Energy Utilities and Resources, said:

“The ambition and direction of the UK government’s energy strategy is to be applauded. The investment required is huge and there will be technical and planning challenges, so to deliver in the timescales, execution needs to move at pace and the pieces of the jigsaw need to fit together at the right times. There will need to be government - both central, and local - as well as regulator, industry and investor cooperation in a way we have rarely seen.

“The key factor here is scale, in particular the scale of investment that will be required to deliver a changed energy landscape over the rest of the decade. Energy strategy is often presented as a choice between one or other source of energy. The recent high gas prices and the shock of the impact of the Russian invasion has shown this is a false choice.

“Simply put, to manage Net Zero ambitions alongside energy security, the UK needs a major increase in the total supply of electricity, not a switch from one source to another: this will require a massive push into renewable generation, while also delivering baseload through nuclear, while also maintaining supply from current home-grown sources.”

Renewables and North Sea resources

Drew Stevenson continues: “In terms of UK renewables - on and offshore wind and solar projects - the objective around reducing planning consent process timeframes is critical. It can more than triple the concept to delivery timeline for a project. Of the current UK renewables pipeline, totalling around 138GW, only about 20GW is in planning with a further 81GW still at the pre-planning phase.

“Delivering ambitions for onshore wind and solar PV (photovoltaics) build out targets will depend on streamlining this, aligning with grid reinforcement where required, and further development of Power Purchasing Agreement structures to enable funding of unsubsidised projects. This is a critical and complex process.

“In addition, it will be critical that the supply chain - from design and engineering capacity, to steel, ports and wider infrastructure - is able to grow in step with the investment ambition. This is a great opportunity for the UK to take leadership in these sectors.

“It’s clear that security of supply concern is adding a layer of complexity to UK Net Zero ambitions. The government’s decision to support investment in the UK North Sea will be critical to enabling domestic gas and oil production and thereby address energy security. While the end goal is Net Zero, there is a recognition that hydrocarbons still have a role to play in the energy mix. The oil and gas industry will need to deliver these hydrocarbons while reducing emissions.”

Alternative energy sources - Nuclear and Hydrogen

Will Harrison-Cripps, Director in PwC’s Corporate Finance team, comments on the nuclear equation outlined in the strategy: “If the Government is to achieve its plan to deploy 24GW of nuclear power by 2050, pace and coordination must equal its scale of ambition when it comes to releasing appropriate development sites, supporting lead times for site specific design and securing regulatory and planning approvals. Assuming it is appropriately resourced, the Great British Nuclear development vehicle has the potential to unlock this alongside partner organisations.

“Deployment of small modular reactors remains core to the strategy but if private investment is to play a key role in driving this, the Government needs to be a proactive sponsor, both as an investor and in creating the right frameworks for private capital. With the Government’s commitment to the £120 million Future Nuclear Enabling Fund (FNEF), which is already supporting some exciting design development, the UK has the potential to become a world leader in developing and deploying this technology.

“This modular approach also has the potential to power industry hubs across the country and enable businesses to accelerate their Net Zero transition.”

Will Harrison-Cripps also reflects on the ambitious hydrogen targets: “It’s clear in this Energy Strategy that the UK Government is moving at pace to provide clarity on revenue support models for hydrogen.

“The hydrogen sector has been clamouring for more ambitious targets since the publication of the 10 Point Plan in 2020 and today’s ambitious 10GW target will push the UK ahead of many other European countries.

“Industrial clusters will be central to delivering success, integrating with CCUS projects and their ability to generate blue and green hydrogen to meet nascent demand in multiple end sectors from industrial process power generation feedstocks to transportation fuels. A crucial next step will be for the Government to prioritise the finalisation of the revenue support framework and enabling legislation for hydrogen, and provide long term certainty on associated incentives such as the Renewable Transport Fuel Obligation (RTFO), to unlock production and demand side investment.

“While there is significant emphasis on the supply side of the equation, on the energy demand side, improved energy efficiency, such as home insulation for example, will also be critical to reducing overall emissions.”

Energy crunch

Ronan O’Regan, director in PwC’s Energy, Utilities and Resources team comments: “The strategy gives a vision for the shape of the future energy system in the 2030s and 2040s. Alongside this strategy, we can also expect to see more discussion on how to help UK households to tackle the more immediate challenges, specifically dealing with the recent 54% increase in the energy bills, and the further increases to come in October this year.

“There are two areas where more immediate action would help. Most important for the long term will be measures to further boost the energy efficiency of the UK housing stock, one of the least efficient in Europe. The second area might be to scale up rooftop solar for domestic properties, while continuing to incentivise the heat pump sector. The energy strategy is looking to address this through easing planning restrictions on rooftop solar, although the timing to implement these changes remains unclear.”

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Lynn Hunter

Lynn Hunter

Manager, media relations, PwC United Kingdom

Tel: +44 (0)7825910063

Diana Yeboah

Manager, media relations, PwC United Kingdom

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