Home Investing Strategy Why UK Energy needs an ‘everything’ strategy after Russia war

Why UK Energy needs an ‘everything’ strategy after Russia war

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Why UK Energy needs an 'everything' strategy after Russia war

Call it all strategy. Driven by Russia’s invasion of Ukraine and soaring oil and gas prices, Britain is working on a new energy plan that seems likely to include just about everything.

This is not a bad thing. Even among believers, the discussion of energy and the net-zero transition is worrying: attempts to mediate between the evangelists of hydrogen and heat pumps.

But the topic is reaching culture-war status in British discourse, especially as sceptics of Britain’s net-zero goal struggle to maintain its zeitgeist relevance in a post-Brexit world.

There should be some sensible middle ground. Some people think we need a lot of natural gas, especially for decades, and we now care about where it comes from. Some argue that the best investments in our future energy security are cheaper renewable energy and energy efficiency. Both are correct.

There is dirty work to be done. That could mean extending the life of coal-fired power plants due to closures, just to get through next winter. There has also been a change in attitude towards the North Sea, where investment in 2020 has fallen to its lowest real level in nearly 50 years. However, the new license will not have an immediate effect. Limited near-term growth: Norway plans this year to boost output from existing fields to 1% of annual output. But industry body OEUK said last year that less than a third of potential investment in projects planned for 2021-25 was fully committed by companies, funds that could be released due to a changing political climate.

It’s not just about replacing Russian gas, which currently accounts for 4% of UK demand. (Or actually lower prices, which are set in international markets).

This is to address the growing reliance on imports, which has made the UK increasingly dependent on the expensive spot LNG market. Energy analyst Peter Atherton noted that the various net-zero scenarios for National Grid assume natural gas is used for power generation for most of this decade and heating for the next century.

The thing that generates the most heat in the debate is unlikely to generate much in the home: fracking. The government is not inclined to lift the ban. But throwing bones at research advocates is irrelevant. Bullish forecasts are often based on outdated geological surveys: 2019 estimates for natural gas in the Bowland-Hodder area reduced previous figures by 90 percent. Public opposition to fracking: Opponents outnumbered supporters 2.5 to 1 in a government survey. Crucially, so did many members of Congress.

Political capital can be better deployed elsewhere. To avoid a clear regress of the statutory net-zero target, the green aspect of the strategy needs to be all-encompassing.

The UK has a tortuous history with new nuclear energy, which is often seen as expensive, risky but necessary. The existing 40GW offshore wind target could be raised, but is ambitious and will require an overhaul of the planning and approval process.

The quicker wins have come from two areas: solar and onshore wind, which has been frozen in England for years, and energy efficiency, which has seen repeated policy failures over the past decade.

Carbon Brief’s Simon Evans said the government could lift the cap on 5GW of solar and onshore wind in the next round of auctions, with more than 600 projects currently in the pipeline with planning permission. After the wilderness years, a contentious push for planning permission is still needed to address local objections to mega-projects – such as Matt Hancock’s bizarre suggestion that the West Suffolk solar farm would be “drawn out” than it is Save more carbon.

Efficiency is no longer a bad relationship. First, high prices increase the economics of work (or household savings). According to Energy and Climate Intelligence, improving the energy efficiency of 1 million households each year could reduce the UK’s gas demand by 0.45% per year, a very achievable target. More than 10 years of gas savings equivalent to a quarter of current household needs and a tenth of overall UK use, according to government plans to increase heat pump installations.

All strategies present a challenge to the Treasury, particularly the need for funding to properly improve efficiency and (inevitably) provide more help to low-income households squeezed by higher energy bills. But it’s the best hope for a consensus across security, climate and affordability concerns.

[email protected]@helentbiz

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