The Russian invasion of Ukraine has impacted energy markets around the world and, as winter in Europe approaches, unprecedently high costs threaten to make energy unaffordable for both large portions of society and many businesses in the UK.
One of the first actions of incoming UK Prime Minister Liz Truss has been to announce significant help for domestic consumers for the next two winters and a proposed cap to the amount that consumers pay for the energy they use while a similar approach is proposed for businesses but only for six months. This package is going to be expensive. The Institute for Fiscal Studies suggests the domestic cap alone will cost more than £100 billion just for one year and both schemes will ultimately be funded by the taxpayer. This is in contrast to the EU approach, which is covering some of the costs from non-fossil fuel power generators and other energy companies making excessive profits from the high prices, and goes against calls from the UN Secretary-General for ‘all developed economies to tax the windfall profits of fossil fuel companies.’
The UK government has also made clear its intention to seek to reduce dependency on energy imports. It has set a target that the UK should become a net energy exporter by 2040 and has established a new Energy Supply Taskforce. This is a momentous challenge as, in 2020, 28 per cent of its energy was imported. It also raises an important question about what energy will be exported – electricity or fossil fuels – and how it may relate to the UK and the EU’s target of being net-zero by 2050.
Truss has suggested that new supply can be obtained by the additional exploitation of oil and gas reserves in the North Sea and from non-conventional gas from ‘fracking’. Indeed, the UK government has said that it will award up to 100 new licences for offshore drilling and that ‘we will end the moratorium on extracting our huge reserves of shale which could get gas flowing in as soon as six months where there is local support’. However, even if local support was forthcoming, which it hasn’t been to date, the timetable is unrealistic.
Greg Hands, UK minister for energy, clean growth and climate change, said in March that ‘shale gas is not the solution to near-term issues. It would take years of exploration and development before commercial quantities of shale gas could be produced.’ The policy on shale gas is being used, in a similar way to the policy of sending asylum seekers to Rwanda, to demonstrate to potential voters that the UK government is willing to take unpopular decisions. From the outset, it is clear that both the timetables and objectives are unrealistic, yet it is likely that any delays or failures will be blamed on third parties rather than on the approach that the government is taking.
New supply is also expected from additional nuclear power plants and offshore wind although the cheaper and more rapid to build onshore renewables, such as solar and wind, are not prioritized which is surprising from an energy security perspective. However, in the Growth Plan published by the treasury, onshore wind was given a boost with the lifting on planning restrictions.
Equally absent, is any significant support for demand side action to help consumers reduce their consumption and change behaviour. This absence is key as it can crucially help with affordability and would also bring significant wider economic benefits by using local workers – for tasks such as insulation – to reduce the balance of payment deficits.