The Energy White Paper—powering our net zero future

The Energy White Paper—powering our net zero future

Energy Law analysis: On 14 December 2020, the Department for Business, Energy and Industrial Strategy (BEIS) published the long awaited Energy White Paper. The White Paper seeks to build on existing policy commitments set out in the Prime Minister’s ten-point plan for a Green Industrial Revolution and the National Infrastructure Strategy and presents a vision of how the UK intends to make the transition to net zero by 2050. BEIS estimates that the measures in the White Paper could reduce emissions across power, industry and buildings by up to 230MtCO2e in the period to 2032 and support up to 220,000 jobs per year by 2030. In this analysis, Michelle Davies, Jean Pascal Boutin and Simon Davies of Eversheds Sutherland consider some of the key measures announced in the White Paper and their expected impact on the energy sector.

What were the key measures announced?

Set within the context of three distinct themes, Energy Transition, Green Recovery from Coronavirus (COVID-19) and Consumer Protection, the Energy White Paper contains a wide raft of proposals and commitments, which are at various stages of development and implementation. Furthermore, a number of these measures are subject to separate consultations/industry calls for evidence or reiterate commitments that had already been announced publicly. Set out below are a selection of the key measures announced, each of which are expected to have a significant impact on the energy sector:

  • renewable power generation: BEIS is targeting 40GW of offshore wind by 2030, including 1GW floating wind, alongside the expansion of other low-cost renewables technologies. This ambitious target is a fourfold increase on 2020 capacity and set to be further supported by the Contract for Difference (CfD) scheme. This reiterates the strategic importance of offshore wind as a renewable technology which can drive deep reductions in carbon emissions at a low cost, although the government is also re-opening the CfD scheme to onshore wind and solar PV generation projects for the next CfD allocation round (AR4) in 2021. The White Paper announces the establishment of a new Ministerial Delivery Group, which brings together the relevant government departments to oversee the expansion of renewable power in the UK

  • diversity: While there is no commitment to a specific energy mix, the government acknowledges that intermittent renewables need to be complemented by technologies which provide power, or reduce demand, when the wind is not blowing, or the sun does not shine, in order to ensure security of supply and manage the challenges and costs of balancing supply and demand of electricity in real time. Therefore, several measures are included which seek to incentivise other forms of low-carbon generation capacity which will be needed as part of an energy mix which has high levels of renewables, including:
    • nuclear and fusion: The White Paper outlines an ambition to bring at least one largescale nuclear project to the point of Final Investment Decision by the end of this Parliament, subject to clear value for money and all relevant approvals. It was announced on the day of publication of the White Paper that government has begun talks with EDF about the construction of a new £20bn nuclear power plant in Suffolk. Also on the same day, the government response to a consultation on a Regulated Asset Base (RAB) model for private investment in new nuclear generation was published, which indicates that a RAB model remains credible for funding large-scale nuclear projects (see LNB News 15/12/2020 34). The White Paper also includes a commitment towards innovation in the nuclear sector and a desire to leverage and expand UK expertise in this area, by committing to an Advanced Nuclear Fund of up to £385m to support the development of Small Modular Reactors and Advanced Nuclear Reactors. There is also a nod to the development of fusion power plants, as the government plans to build a commercially viable fusion plant by 2040 and to invest in facilities and infrastructure to make the UK a global fusion industry hub. While the commercial development of fusion power plants remains some way off, their inclusion in this Paper is a good indication of the breadth of ambition
    • carbon capture utilisation and storage (CCUS): BEIS is supporting the deployment of CCUS in four industrial clusters (i.e. the UK’s major manufacturing and refining areas) including at least one power CCUS project to be operational by 2030. For such purposes, the government will invest up to £1bn as part of a carbon capture and storage (CCS) Infrastructure Fund, to facilitate the deployment of CCUS in two industrial clusters by the mid-2020s, and a further two clusters by 2030
    • hydrogen: To accelerate the commercial deployment of hydrogen production, BEIS has committed to publish a dedicated Hydrogen Strategy in early 2021, which will set out further details of its aim to work with industry to develop 5GW of low-carbon hydrogen production capacity by 2030 and create a Net Zero Hydrogen Fund to support low-carbon hydrogen production, providing £240m of capital co-investment out to 2024/25. A commercial framework is to be developed to support this fund, to enable projects to finance their projects—a consultation on this is expected in 2021 for implementation in 2022

  • UK Emissions Trading Scheme (ETS): The government will establish an ETS to replace the UK’s participation in the EU ETS post IP completion day. Under the UK ETS, a cap is set on the greenhouse gases that businesses can emit (via the total number of allowances circulation) which will decrease over time. The success of the UK ETS is critical to the UK’s commitment to achieving net zero carbon emissions by 2050 and the government will consult in due course on how to align the cap with an appropriate net zero trajectory. The White Paper sets out that the UK is open to linking the UK ETS internationally in principle (which could be with the EU or other schemes) but no decision has yet been made

  • decarbonisation of heat: The UK heat sector lags behind the power sector in terms of progress towards decarbonisation, predominantly because heating of homes and building in the UK is heavily dependent on natural gas supplied via the gas grid (as well as oil for off-gas grid homes). Gas grid connections for new homes are expected to be phased out, as the government has pledged to consult on whether it is appropriate to end gas grid connections to new homes from 2025, in favour of clean energy alternatives. In order to achieve net zero and the transition from fossil fuel dependency, a radical shift is required in how homes and buildings are heated, and various measures are introduced or reiterated in order to aid this transition. These can be broken down into three different areas:
    • electrification of heat: The White Paper reiterates the government policy in respect of significantly growing the installation of electric heat pumps from 30,000 per year to 600,000 per year by 2028. This is to be supported by the Clean Heat Grant proposed in a recent consultation on future support for low carbon heat, the government response to which is to be published in 2021. The government has also committed to consulting in early 2021 over new regulations to phase out fossil fuels in off grid homes, businesses and public buildings, including a backstop date for the use of any remaining fossil fuel heating systems
    • alternatives to natural gas: The White Paper also sets out measures to increase the production and use of alternative forms of gas, thereby reducing emissions and utilising the existing network and infrastructure. A green gas levy on gas suppliers will (subject to consultation) fund a new Green Gas Support Scheme, to launch in Autumn 2021 and incentivise increased deployment of anaerobic digestion. If successful, this scheme will support an increase of the proportion of biomethane in the gas grid. The use of hydrogen in gas networks is also highlighted as having the potential to decarbonise gas on a large scale, although it is recognised that this is still in the early stages and the feasibility of using hydrogen for clean heat needs further testing and development, which will be carried out using hydrogen village demonstration projects in the 2020s. BEIS also plans to engage with the industry in relation to the future of gas as part of a review of the overarching market framework set out in the Gas Act to ensure the appropriate powers and responsibilities are in place to facilitate a decarbonised gas future and to enable the widest range of gasses to be used to decarbonise energy
    • heat networks: The roll out of more heat networks, particularly those which run on low or zero carbon heat sources is recognised as another important aspect to the decarbonisation of heat. BEIS commits to fund the Green Heat Network Fund, as the successor to the existing £320m Heat Networks Investment Project (HNIP), which will come to an end in 2022. This will deliver additional £270m funding for low-carbon networks, particularly focusing on the recovery of waste heat and the use of heat pumps (a consultation on the design of the system was published in November 2020 (see LNB News 30/11/2020 36). Furthermore, legislation will be proposed to bring heat networks within the regulatory regime to protect consumers and reduce carbon emissions, e.g. by requiring existing heat networks to switch to low-carbon fuel sources as part of a natural replacement cycle.
  • investment and competition in networks:
    • onshore networks: In order to incentivise the investment in electricity networks which is required to meet the expected increase in electricity demand, government will introduce legislation to enable competitive tendering in the building, ownership and operation of the onshore electricity network, at both the transmission and distribution level. This will build on the success of the OFTO model in respect of offshore networks and open up a market which is currently ringfenced to a small group of licensed distribution and transmission network operators.
    • offshore networks: In respect of the offshore network, the government has also launched the Offshore Transmission Network Review to improve the delivery of transmission connections for offshore wind generation, which may allow for the interconnection of future offshore projects (instead of each one having its own dedicated cable to the mainland) and links to interconnectors with neighbouring markets.
    • EV infrastructure: Further to the Prime Minister’s confirmation that the UK will end the sale of new petrol and diesel cars and vans by 2030 , the government will provide funding of £1.3bn to accelerate the rollout of chargepoints, which includes £950m of funding in future proofing grid capacity at motorway and major A road service areas
  • flexibility: Increased flexibility will be required on the electricity system as markets adapt to the deployment of renewable generation and the challenge of balancing generation and demand in real time in a cost-effective manner. The White Paper includes measures to enable the transition from reliance on gas-fired plants for such flexibility to alternative sources of flexibility, such as energy storage in batteries, increased interconnected capacity from neighbouring electricity markets, or from consumers using smart technologies to shift when they use the energy to different times in the day. In partnership with Ofgem, BEIS will publish a new Smart Systems Plan in spring 2021, which will include a new framework for monitoring flexibility across electricity markets and will also legislate to define electricity storage in law. The government is also launching a £100m competition to accelerate commercialisation of innovative technologies (excluding lithium ion batteries and pumped hydro storage)

  • governance: The White Paper states that the roles of Ofgem, the electricity and gas system operators and the transmission and distribution network operators need to be updated. Specifically, BEIS commits to review the long-term role and organisational structure for the ESO and indicates that there may need to be greater independence from the current ownership structure

What is the expected impact of the White Paper?

The White Paper was given a clear prelude by the Prime Minister’s ten point plan and includes a raft of measures and commitments which could help the UK set an international benchmark in tackling climate change and make a decisive and swift transition away from fossil fuel dependency. This will be broadly welcomed by the sector and the public, as it has the potential to provide much needed impetus to a UK economy which has been heavily impacted by coronavirus and the increasingly likelihood of no deal with the EU following the Brexit transition period. Notwithstanding that the publication of the White Paper was delayed and a number of the measures were already known as at the date of publication, this feels like a landmark moment which will enable greater innovation, competition and investment in the energy sector and lead towards a cleaner, smarter, and more flexible energy system.

Electrification of the heat and transport sectors is clearly going to be key to achieving decarbonisation commitments and electricity demand will therefore increase significantly. The White Paper takes a holistic approach to revolutionising the energy sector and adapting to a world where energy is far more decentralised, multidirectional and more dynamic, by supporting improved digital infrastructure and removing barriers to entry for flexible generation and storage providers. As expected, the White Paper outlines plans for a significant increase in the deployment of renewable power generation, but also notably includes a clear vision for CCUS and nuclear energy playing a significant role in the decarbonisation of the UK energy systems. It also identifies the sectors which need further investment or government intervention and commits funding to such areas, for example CCUS, nuclear, clean gas alternatives and EV networks.

However, this should not be read as a handout to the private sector, as the White Paper focusses on leveraging private sector capital wherever possible and effective competition to drive down costs wherever this is feasible (e.g. in relation to investment in onshore networks). This is also framed in light of the impact on the taxpayer and bill payer, focusing on achieving a fair deal for consumers and includes measures to ensure that the fuel poor and the vulnerable are protected. Notwithstanding the clear policy shift away from fossil fuel reliance, the White Paper recognises the continued importance of the UK oil and gas industry and the critical part it can play in the transition to net zero. The skills and resources within the industry are called upon to support the growth of CCUS, hydrogen production and renewable electricity generation

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