UK renewable energy little-served by govt report: experts

“We are not going toe-to-toe with our friends and allies in some distortive global subsidy race,” said the UK Chancellor of the Exchequer, Jeremy Hunt late last month. Hunt was of course was referring to the Inflation Reduction Act (IRA), a USD$400 billion green investment package, which some experts fear could harm the UK’s low carbon economy,

According to the Confederation of British Industry (CBI), the UK’s low carbon economy is worth £71 billion and has generated 840,000 jobs. Put into context, it is now four times larger than the UK manufacturing industry.

A few days later, speaking from a WW2 bunker, UK Energy Secretary Grant Shapps gave Britain’s response to the IRA, by launching the ‘Powering Up Britain’ report.

In short, the report pledged to deliver half a million jobs in green energy in the next six years and to transform the green economy by ratcheting-up renewable energy projects and providing more funding for climate technologies. The report promises to allocate £240 million to hydrogen projects, £160 million to floating offshore wind initiatives and a whopping £20 billion pounds to Carbon Capture and Storage projects.

However, Shapps might as well have stayed in the disused military installation as the report, which contained 44 documents and 2,840 pages, failed to capture the imagination of energy experts.

Take Renewable UK, the trade body for wind power, for instance. Ana Musat, Renewable UK’s Executive Director of Policy, described the report as “underwhelming” and noted that it “did not provide an adequate response to the Inflation Reduction Act and the signals needed to make the UK an internationally competitive investment destination.”

Powering Up Britain report “underwhelming”

The Energy Industries Council (EIC), the world’s leading energy industry trade association, also called the report “underwhelming.”

Neil Golding, the EIC’s Head of Market Intelligence, said, “Our impression is that this is underwhelming In terms of scale and clarity and does not appear to add anything new… (This is) more a rebadging of previous announcements…”

It is a view shared by Musat, who says that the measures announced do not amount to a package that can turn the UK into a clean energy superpower.

“The government wants to see UK wind farms deliver 50GW of capacity by 2030. Currently, the combined capacity of wind farms in the UK is 14.5GW. That means that the UK would need to nearly quadruple capacity in just six years. While the report is more of an overarching package of measures and targets, which is subject to consultation, judging from what I have read, the government will struggle to reach its target.”

Infrastructure investment

Musat believes that if the UK government is to make good on its promise to transform the green economy, it needs to invest heavily in what the government calls, ‘critical national priority infrastructure.’

She explains, “The green economy cannot function without electricity transmission infrastructure in place. The UK needs more electricity networks and grids – both onshore and offshore. It also needs to speed up the planning process and reduce the timelines it takes to roll it out.

While the government has promised to overhaul electricity transmission in two recent national policy statements, Musat says she will reserve judgment until the planning consultation period closes in late May^.

However, she adds that the electricity networks are not the only area of critical infrastructure that need urgent investment. The ‘Powering Up Britain’ report, she says, “has assigned around £160 million” to port development.

Says Musat, “This investment is vital as the UK cannot hope to build the floating offshore wind structures without first upgrading its port infrastructure. However, our research suggests that around UK£4 billion of funding by the end of the decade would be required to carry out the necessary improvements. So, the £160m it has pledged is a good start, but simply not enough.”

Supply chains

Musat notes that if a post-Brexit Britain, which is directly competing with the U.S. and the European Union, is to create a world-class green economy, it needs to focus on “its supply chain and skilling-up the UK employment capability.”

“Most of all,” Musat says, “the UK needs to implement “a joined-up and over-arching strategy as to how it intends to reach its targets, while identifying the key barriers and having a concrete plan as to how to resolve them. If it doesn’t do so, it will lose ground to the U.S., the European Union and other nations.”

Musat and Golding are particularly concerned about the impact that the Inflation Reduction Act could have on the UK’s green energy economy. Collectively, the IRA is offering around USD$500 billion to climate technology companies in subsidies and tax breaks, and according to Credit Suisse, the IRA could attract around USD$1.7 trillion dollars in clean energy investment.

Golding says, “Some of our members are UK-based technology providers, who have a crucial role to play in the Carbon capture and storage (CCS) and hydrogen sectors, have told us that if the UK does not move quick enough, they will go to the U.S. within six months because they see a very clear pathway to support and investment there.”

Golding adds that those EIC members, who are heavily invested in hydrogen projects, have also identified the Saudi Arabian market “as one that is surging ahead of others in terms of growth.”

Conversely, Golding says that EIC members operating in the UK cite “a lack of clarity around financial incentives to help deliver projects” and “a paucity of support for the supply chain,” which he says is “hampering the scale-up of green initiatives.”

Green economy brain drain?

So, is the UK in danger of being left behind? “Yes”, says Musat, “There is a significant risk of a brain drain in the UK in the low-carbon sector. In the U.S., under the terms of the IRA, some of the tax breaks that UK-based companies can apply for are essentially uncapped. When you also factor in that the IRA has created a regulatory climate that is easy to navigate and understand, I think quite a few companies could find it more attractive.”

It is something that the UK government has recognised too. Last week, the UK government announced that it was considering collaborating with the EU on a new carbon border levy, which would place a tax on any carbon-based goods arriving in the UK and the EU. But, as a response to the IRA, just how effective a step would this be?

Daniel Liu, Wood Mackenzie’s Head of Asset Performance, is unsure how much such a tax will help the EU and the UK. He says that the IRA “will incentivise U.S. demand for U.S. produced equipment, but it will not necessarily create an export oriented manufacturing industry simply due to costs.”

If anything, he says, “the EU and UK need to focus instead on providing a stable investment environment for EU manufacturing.”

This, he adds, could be achieved “by improving the permitting process for manufacturing capacity expansion, helping reduce the high manufacturing costs due to power and prices.”

Why compete with the U.S.?

The UK will announce how it intends to respond to the IRA in the autumn, but there is a school of thought that says that the UK shouldn’t try to compete with the U.S. in terms of investment, but focus on what it does best.

Rebecca Groundwater, the EIC’s Head of External Affairs, says, “Why do we need to counteract the IRA? If we are genuinely engaging in a global net zero conversation and we recognise that different countries have different capabilities and strengths, then why not let nations develop that knowledge and expertise in those areas?”

Groundwater says that, as far as UK supply chains are concerned, the UK needs to understand its manufacturing capability and then collaborate with other nations to fill the gaps.

She concludes, “If the world doesn’t work in partnership with other countries, we are simply pitting the world’s supply chains against each other. That helps no one and will only stymie the journey to net zero.”

However, whether the UK government listens and acts to address the concerns of UK supply chains in the autumn is another question entirely.