The clean power shift: The future of the UK energy sector post-general election

Following their recent success in the general election, the Labour Party has been handed the responsibility of tackling the continuing challenges faced by the UK clean energy sector. The global target to reach net zero emissions by 2050 under the Paris Agreement is fast approaching and there appears to be a strong commitment by the Labour Party to meet this challenge. Labour's manifesto includes a pledge to "Make Britain a clean energy super power" and this is reinforced by an ambitious target of achieving clean power in the UK by 2030.

Some corners have challenged whether this target is achievable in the current state of the energy sector and whether Labour’s roadmap for change is the best and most appropriate route to reach these goals. In particular, their manifesto is light on detail as to how this change will be achieved. We take a deeper look at the key pledges of Labour’s climate strategy and the potential impacts on the energy sector.

Clean power by 2030

One of the more ambitious promises made by Labour has been to decarbonise the grid by 2030, a deadline which is five years earlier than that promised by the previous government. To achieve fully ‘clean’ energy by 2030, the new government plans to:

• Double onshore wind capacity to 35GW.
• Triple the UK’s solar power to 50GW.
• Quadruple offshore wind with an ambition of 55GW.

In pursuit of the 2030 target, it is not unreasonable to expect that Labour will look at lifting the de-facto planning ban on onshore wind and stop new oil and gas licences from being issued. Despite Labour’s ambition, a number of issues currently pervading the energy sector are likely to significantly challenge how they can successfully reach those targets.

The National Grid estimates that government will need to build over five times more new pylons and transmissions lines by 2030 than have been built in last 30 years The delays in upgrading the grid are having a knock-on effect on the pipeline of renewable projects stuck in the queue and unable to reach connectivity. This is a key barrier that the government will have to address. The Government has pledged to “rewire Britain” and upgrade the national transmission infrastructure which, as noted, will be an ambitious but necessary feat.

Additionally, in the pursuit for a decarbonised UK energy sector, a key concern is that energy security may be at risk and additional measures may be necessary to secure consistent energy supply when lulls in wind and solar production fail to meet demand. While some feel that oil and gas offer such certainty of supply, with the phase out of fossil fuels, there is a need to adopt an innovative and dynamic approach to ensure a diverse energy mix which is reliably capable of meeting demand. Carbon capture and storage, and battery storage technologies will be key in the UK achieving not only a decarbonised grid but also net zero. Nevertheless, the government’s plans are light on details, meaning we are yet to see how these technologies will be utilised to provide clean flexibility.

Great British Energy

Great British Energy (GBE) was announced by the government during its election campaign as a publicly owned company which aims to co-invest in and scale new nuclear, floating offshore wind, tidal, and solar power projects. In the long term, the government hopes that GBE will cut energy bills, boost energy security, back British workers, and support local jobs and supply chains with its publicly owned profits. Labour plans to fund the £8.3 billion cost of GBE by closing loopholes on oil and gas windfall taxes. GBE will be headquartered in Scotland, where the oil and gas industry is largely concentrated. Plans to house the GBE hub in Scotland appear to be a direct response to backlash from the Conservative party criticising Labour for potentially "shutting down" the North Sea and risking 200,000 jobs in Scotland.

GBE has three initial priorities:

• Co-investing in new technologies like FLOW, tidal power and hydrogen.
• Scaling and accelerating mature technologies such as wind, solar, and nuclear.
• Developing organisational capability to reduce project and construction risk in energy megaprojects like nuclear.

Locally, GBE aims to focus on scaling up municipal and community energy, with goals to develop 8GW of small- and medium-scale community energy projects which return profits to local communities to cut high-energy bills.

As it currently stands, it is unclear how GBE will impact stakeholders in the energy market in the long term, but some are apprehensive that GBE may receive special treatment in state auctions. In terms of the nuclear market, GBE will absorb Great British Nuclear (GBN), a company established by Rishi Sunak’s government to revive Britain’s nuclear power fleet.

However, Labour's manifesto remained silent on how this will work in practice and whether nuclear development will receive the same priority under GBE. Finally, for stakeholders interested in the investment opportunities, the terms of such agreements are yet to be materialised but could include majority stake in favour of GBE in some cases.

Our comment

With any incoming government that has not seen power in over a decade, there is a sense that big change is on the horizon. But as we discussed in our pre-election article, the extent to which the new government’s plans will revolutionise the sector compared to the outgoing government remains to be seen. There is cautious optimism that the new government will bring a renewed sense of ambition to the clean energy space, but this ambition will need to be met with long-term investment (fiscal and otherwise) to ensure a clean, secure and diverse energy landscape beyond 2030.

The Labour party's pre-election manifesto was undoubtedly big on ambition but light on detail and if its proposed "Net Zero 2030" ambitions are to be realised we will need to see:

• Accelerated renewables build-out – to reach 118GW by 2030.
• Significant grid updates and build-out to match.
• Active measures to remove unabated gas and removal of Combined Heat and Power plants.

Whilst there is a clear emphasis on further government support through the GBE, there is, as always, an important role that the private sector can play in assisting the government to realise its ambitions.

The Grid Connection Reform is currently underway and is intended to shake up the manner in which projects (not just energy projects) get connected to the grid (at both transmission and distribution level), but the outcome of such reform will not be known for another few months (January 2025 at the earliest). This, coupled with the Review of the Electricity Market Arrangements (REMA), which is also ongoing, will create some uncertainty for both developers and investors in the short to medium-term. Strong and consistent messaging from the new government as regards the UK's commitment to the energy sector could go some way to counteract this.

The private sector could also support the government realising its plans to upskill the workforce. One of the key barriers in delivering energy projects is the skills gap that exists, particularly in nascent industries such as hydrogen. Project developers are able to partner with educational institutions to offer bespoke courses intended to develop any necessary skills and could offer interested parties a route to market following qualification.

Developing a 'home-grown' supply chain would also be key in delivering the scale of Labour's ambition. The vast majority of equipment used for the development of clean energy projects, such as solar panels, inverters and wind-turbine blades, is imported from outside the UK. There are of course UK companies that are trying to compete in the same space, but further support is required to create appropriate opportunities.

The government has undoubtedly got a difficult job ahead of it, not least because it will, inevitably have to make trade-offs along the way. It will have to work within a finite budget, find appropriate Parliamentary time to pass new legislation, and hope that its plans are not disrupted by other external influences and unprecedent events such as the ones we have seen in the past few years. At a time when the cost of living is at an all time high, Labour will have to make some tough decisions about how its net zero ambitions are progressed alongside other pressures faced by the public.

Our Clean Energy team monitors matters closely and is always happy to discuss matters in further detail, so please get in touch.