Oil, wind and fission: government strives for energy security

The government is seeking to bolster Britain’s domestic energy supply, in a strategy that encompasses everything from offshore wind farms to more drilling in the North Sea. 

As part of his ‘Energy Security Strategy’, minister for business, energy and industrial strategy Kwasi Kwarteng has pledged to accelerate projects involving wind, solar, hydrogen and heat pumps. Offshore wind farms will produce up to 50 gigawatts (GW) by 2030 under the plan, aided by a reduction in approval times for new offshore wind farms from four years to one year. 

Jon Wallace, fund manager at Jupiter Green Investment Trust (JGC), described this goal as “realistic” and a “reminder of what is achievable when innovation is scaled up”. 

North Sea services companies across both the renewables and oil and gas sectors, such as Wood Group (WG.) and Petrofac (PFC), will see opportunities from the plan, given the uptick in offshore activity it will encourage. Hydrogen capacity – like that provided by ITM Power (ITM) – will also get a boost. The government wants the UK to produce up to 10GW of low-carbon hydrogen by 2030, which could be used for power, transport and potentially heat. This new goal will allow industry to unleash investment,” said Clare Jackson, chief executive of lobby group Hydrogen UK.

A heat pump investment scheme worth up to £30mn is also in the pipeline, and the government intends to increase the UK’s current 14GW of solar capacity. Kate Eliot, head of ethical, sustainable and impact research at Rathbone Greenbank,  said these schemes would “do little to encourage improvements at scale”. 

Many energy companies have praised the strategy. Chris O’Shea, chief executive of Centrica (CNA), said the plan would “help us reduce our dependency on foreign gas and, done properly, could help make us a net exporter of energy, and boost our economy”. Ørsted (DN:ORSTED) and Neptune Energy also voiced their support. 

Questions remain, therefore, over whether Kwarteng’s promises will be backed up by the necessary funding. 

Environmentalists have been angered by plans to run a new licensing round for new North Sea oil and gas projects in the autumn, arguing that they fly in the face of net-zero targets. Drilling projects are designed to improve Britain’s security of supply and assist the energy transition. The development of oil and gas fields is a slow process, however, and the licensing round is not due to start for another six months. Any impact on supply or prices, therefore, is several years away. 

The licensing round – combined with high commodity prices – could prompt a new wave of drilling in the North Sea, which has seen investment and production dwindle in recent years. But even without new permits, companies are looking more bullish on new local production. Shell (SHEL) has resubmitted plans for approval of a large North Sea gas field off the Aberdeen coast, after the regulator said last year the “atmospheric emissions” associated with Jackdaw were grounds enough for its development to be blocked.

The future of the Cambo project – which 30 per cent owner Shell said in December was not worth developing – is now open again as well after Ithaca Energy agreed to buy majority owner Siccar Point for $1.5bn (£1.15bn). “We are excited to become the stewards of these assets and continue developing them in a sustainable way to support our strategy, the UK economy, and the UK’s domestic energy security,” said Ithaca executive chair Gilad Myerson.

While similarly time-consuming, the adoption of nuclear power is likely to have a more dramatic effect on the energy market. A new government body called Great British Nuclear has been established and up to eight reactors are planned by 2030. Small modular reactors will form a key part of the nuclear project pipeline, with Rolls-Royce (RR) a likely key contributor. 

Assuming these projects go ahead as planned, around a quarter of Britain’s projected electricity demand would come from nuclear by 2050. Simon Virley, head of energy and natural resources at KPMG, said there could be a gap in generating capacity within just a few years under the scheme, however. 

“Any new nuclear power stations beyond Hinkley Point C are likely to be more than 10 years away from generating any power,” he said, pointing out that the retirement of old nuclear plants and the end of government subsidies for biomass plants in 2027 could see demand spike again for gas, “pushing up the carbon intensity of our power system just at the time the government is encouraging people to buy electric vehicles and heat pumps”