The UK's much delayed Energy White Paper, first announced two years ago, was finally published on 14 December 2020. A lot has happened in those two years, and it is clear that, for the reasons discussed below, the vision for a new, greener energy future for the UK, as outlined in the Energy White Paper, is a lot more ambitious than that originally conceived. In this briefing, we set out an overview of the key elements of the Energy White Paper in the context of other recent developments. It is intended that this short "at a glance" summary will be followed by closer analysis of some of the key elements.
What you need to know
- The Energy White Paper sets out the policies for the UK's "net zero future", building on the plans and commitments set out in the earlier Ten Point Plan and National Infrastructure Strategy.
- Some of the "headliner" policies include: confirmation that the UK will proceed with a UK ETS; commitments to take forward CCUS, clean hydrogen and new build nuclear; a key role for offshore wind as well as onshore wind and solar PV; competitive tendering in onshore electricity distribution and transmission; decarbonisation of buildings and transport; and a "transition deal" for the upstream oil and gas industry.
- The Energy White Paper represents a roadmap for future government policy: the detail will follow as concrete policies and regulatory frameworks are developed.
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Background
The UK's slow but steady journey towards decarbonisation has accelerated. In June 2019 the Government adopted a new legally binding target to reduce carbon emissions to net zero by 2050, and with this came recognition that a much broader and more comprehensive policy framework would be required to reduce carbon emissions across all industry sectors. While the COVID-19 pandemic may have delayed some of that policy development, as the Government has grappled with the human health and economic crisis that has ensued, the pandemic has also played a role in shaping the energy agenda, with the Government stating that large-scale investment in new decarbonisation technologies and infrastructure will form a key part of the UK's recovery from the economic crisis.
In November 2020, the Government published its "Ten Point Plan for a Green Industrial Revolution" setting the scene for the Energy White Paper. As the name suggests, the Ten Point Plan sets out the ten key areas that the Government intends to focus on as part of the UK's decarbonisation pathway and where there is to be greatest investment, by both the Government and the private sector. The ten key areas comprise offshore wind, clean hydrogen, carbon capture, usage and storage (CCUS), new build nuclear, electric vehicles, decarbonised public transport, decarbonised air and maritime transport, "greener" buildings, protection of the natural environment, and green finance. Furthermore, the Government also published the National Infrastructure Strategy, which sets out in more detail how the Government intends to deliver its Ten Point Plan. This has now been further augmented by the Energy White Paper, which deals with some of the matters addressed in the Ten Point Plan and the National Infrastructure Strategy in more detail and providing more clarity on other energy policy matters. A number of consultation documents were also published alongside the Energy White Paper, with more consultations and strategy documents to follow. So what are the most crucial points to distil, at this point in time, from this plethora of policy documents?
Key announcements
Offshore wind and other renewables
It is intended that 40GW of offshore wind, including 1GW floating wind, will be procured by 2030. Onshore wind and solar PV are also now back in favour, identified as being "key building blocks of the future generation mix". The Government will also "consider the role of wave and tidal energy". The Contracts of Difference (CfD) regime, which supports investment in these technologies, is being reviewed and subject to a call for evidence published alongside the Energy White Paper. The call for evidence seeks views on how the CfD regime can achieve the ambitious rate of deployment of renewables and specific issues such as the impact of greater deployment of low-marginal cost generation and the "price cannibalisation" this causes.
The Government has also confirmed its intention to hold the next CfD allocation round in 2021, with further rounds to take place every two years.
CCUS: decarbonising power and industry
CCUS is intended to play a key role in decarbonising both the power sector and industry.
It is intended that at least one CCUS power plant will be operational by 2030. This CCUS power plant will be supported using a business model based on the CfD regime.
The Government will publish an Industrial Decarbonisation Strategy in spring 2021 to set out the details of how the Government will support the decarbonisation of manufacturing industry. Four low-carbon "clusters" will be developed by 2030, where decarbonising technologies such as clean hydrogen and CCUS can be deployed. The Government will invest £1 billion up to 2025 to facilitate the deployment of CCUS in two industrial clusters by the mid-2020s, and a further two clusters by 2030.
The Government has confirmed that, to enable industry to invest in CCUS as a means of decarbonisation, it is designing and implementing a business model to provide revenue support for such investment, with the intention that the new commercial framework will be finalised by 2022.
Low-carbon hydrogen
The aim is to develop 5GW of low-carbon hydrogen production capacity by 2030. A Hydrogen Strategy will be published in 2021, as well as a revenue model for low-carbon hydrogen. See also our earlier update on the UK's approach to hydrogen here.
New build nuclear
The Government is intending to jump-start the new build nuclear deployment programme, with the intention that at least one large-scale nuclear project will reach the point of Final Investment Decision by the end of this Parliament. The Energy White Paper confirms that the Government will continue to explore the Regulated Asset Base (RAB) model for new build nuclear, alongside a range of financing options, with the developer of the next large-scale project in the pipeline and other relevant stakeholders, including other nuclear developers. In particular, the Government will examine the potential role of government finance during construction "provided there is clear value for money for consumers and taxpayers".
Electricity storage
In partnership with Ofgem, the Government will publish a new Smart Systems Plan in spring 2021, which will include a new framework for monitoring flexibility across electricity markets. The Energy White Paper notes that the Government will look to Distribution Network Operators (DNOs) to further develop flexibility products, which are key to the deployment of storage, but that it "will keep open the option of legislating in support of local flexibility markets, should DNOs fail to make sufficient progress". See also our recent update on other regulatory changes relating to battery storage here.
Decarbonisation of the transport sector
In November 2020 the Government announced a new, more ambitious plan for the phasing out on conventional vehicles, involving the phase-out date for the sale of new petrol and diesel cars and vans being brought forward to 2030, and all new cars and vans be "fully zero emission at the tailpipe from 2035". The Energy White Paper states that the Government will bring forward a delivery plan in 2021 to realise the new phase out dates. The Government will also bring forward regulations in 2021, using powers under the Automated and Electric Vehicles Act 2018, to mandate that private EV charge points must be "smart".
For other transport sectors, the Government is preparing the Transport Decarbonisation Plan, which will also cover the maritime sector. See also our recent update on EV charging infrastructure here.
Buildings
Various energy efficiency and low-carbon heat measures are contemplated to decarbonise buildings. Biomethane and clean hydrogen are both expected to play a role in heating. Significantly, the Government will also legislate to regulate heat networks.
In what is a very significant development, the Government is consulting on whether it might be appropriate to end gas connections to new homes from 2025, in favour of other low-carbon options.
Biomass
The Government intends to shortly launch a call for evidence on the role of biomass in reaching net zero emissions.
Competition in onshore electricity distribution and transmission
While previously little progress was made to implement competition in onshore transmission, and replicate the success of the competitive tendering regime for offshore transmission, the Government has now promised that it will legislate "when Parliamentary time allows" to enable competitive tendering in the building, ownership and operation of onshore electricity distribution and transmission assets.
The role of natural gas
The Energy White Paper acknowledges that natural gas will continue to play a role in meeting the UK's energy needs "for some years" but that the gas market and networks need to evolve in a way which "enables continued investment and ensure secure supplies but also promotes the use of low-carbon options". The Gas Act 1986 will therefore be subject to a review, to enable these objectives to be implemented.
Upstream oil and gas
The Energy White Paper recognises the upstream oil and gas industry's contribution to the economy and energy security and brings it within the decarbonisation strategy for the UK. The Government intends that upstream operations are decarbonised so that the UK Continental Shelf becomes a "net zero basin" by 2050. The Government has also committed to further develop its policy in relation to the re-use of assets, such as pipelines, for decarbonisation technologies – CCUS in particular. The Energy White Paper states that the Government will work with industry and regulators to provide regulatory clarity in this context.
Significantly, the Government has also committed to agreeing a "transformational" North Sea Transition Deal with the industry during the first half of 2021, which is expected to cover areas such as the involvement of the industry in clean hydrogen production and CCUS.
In a regulatory update, the MER UK Strategy, which was the subject of consultation by the Oil and Gas Authority (OGA) to re-name and revise it, has now been published in final form. The new OGA Strategy requires the oil and gas industry to "secure that the maximum value of economically recoverable petroleum is recovered" and in doing so "take appropriate steps to assist the Secretary of State in meeting the net zero target". The Government's review of the licensing regime is continuing.
Review of planning framework
The Government intends to review existing energy National Policy Statements (NPS), with the aim of designating updated NPS by the end of 2021.
Coal
The Government had previously committed to ending all unabated coal-fired generation by 2025, but now the Government is consulting on bringing this forward to 2024.
Carbon pricing: UK Emissions Trading Scheme
The Government has finally formally confirmed that from 2021 the UK will operate a UK Emissions Trading Scheme (UK ETS). For more detail on the UK ETS, please see our earlier update here. It is intended that in the future the UK ETS will be expanded to cover carbon emissions currently not covered by the scheme.
Retail energy markets: a focus on innovation and fairness
The Energy White Paper discusses the fact that the decarbonisation of energy will have a marked impact on the elements that make up the cost of energy, and therefore the Government will publish a call for evidence in April 2021 on issues such as how those costs should be apportioned between different categories of consumers. A number of other retail market reforms are also in the pipeline, including a consultation planned for March 2021 on "opt-in" switching, to increase the number of consumers switching their suppliers, to drive competition in the retail energy market.
The Government is also looking at regulating retail energy market participants previously not subject to regulation, such as energy brokers and price comparison websites.
Concluding thoughts
The above is only a brief snapshot of the myriad of policies being brought forward to implement the UK's "green revolution". What is important to bear in mind is that while the Energy White Paper sets the policy agenda, there are countless numbers of consultations, policy papers and statutory instruments that will be needed to bring about the scale of change contemplated, as well as a buy-in from industry and investors.
Author: Justyna Bremen, Senior Expertise Lawyer
