Energy Secretary takes action to reinforce UK energy supply

The Energy Secretary has taken a common-sense decision to shore up the UK’s energy supply as the nation transitions to net zero.

In a plan set out today, the Government has committed to support the building of new gas power stations to maintain a safe and reliable energy source for days when the weather forecast doesn’t power up renewables.

No other major economy has done more when it comes to cutting emissions. The UK is the first major economy to cut its emissions by half since 1990, compared to the EU who have cut emissions by 30%, the US not at all and China’s emissions are up by 300%.

This is the latest step in efforts to reach net zero in a sustainable, pragmatic way that rids the UK of the need to rely on foreign dictators like Putin. The UK led the way on banning imports of Russian gas and is delivering new sources of home-grown energy: with new nuclear power plants, record investment in renewables, and new oil and gas licences in the North Sea.

The need for continued unabated gas generation into the 2030s as a back-up to ensure energy security and reduce costs has been recognised by the Climate Change Committee. Today’s plan keeps the UK on track to meet its net zero targets.

Prime Minister, Rishi Sunak, said:

Our record on net zero speaks for itself – the latest stats show that we’re already halfway there, with greenhouse gas emissions 50% lower than in 1990.

But we need to reach our 2035 goals in a sustainable way that doesn’t leave people without energy on a cloudy, windless day.

I will not gamble with our energy security. I will make the tough decisions so that no matter what scenario we face, we can always power Britain from Britain.

Energy Security Secretary, Claire Coutinho, is expected to say:

There are no two ways about it. Without gas backing up renewables, we face the genuine prospect of blackouts. Other countries in recent years have been so threatened by supply constraints that they have been forced back to coal.

There are no easy solutions in energy, only trade-offs. If countries are forced to choose between clean energy and keeping citizens safe and warm, believe me they’ll choose to keep the lights on.

We will not let ourselves be put in that position. And so, as we continue to move towards clean energy, we must be realistic.

As part of the second consultation on the Review of Electricity Market Arrangements, the Energy Secretary has set out a plan to boost gas power capacity. Firstly, by broadening existing laws requiring new gas plants to be built net-zero ready and able to convert to low carbon alternatives in the future such as carbon capture and hydrogen to power. Secondly, these gas power plants will run less frequently as the UK continues to roll out other low carbon technologies. Finally, this is in line with wider government plans to deliver net zero whilst keeping costs down for billpayers.

Electricity is powering a growing share of the economy. This year the UK registered the one-millionth electric vehicle and applications to the electric heat pump scheme are up 50% year-on-year.

The UK has built the five largest operational offshore wind farm projects in the world, and the share of electricity coming from renewables has risen from 7% in 2010 to almost half today. That has allowed a phase-out of coal generation altogether, with the last major plant closing this year.

While the renewable share will increase in the years ahead, they aren’t failsafe, and future supply can only be calculated based on estimation. That is why flexible power generation is needed, to keep electricity secure and reliable, acting as back-up generators to keep the lights on.

The consultation also includes proposals to reduce people’s bills across the country. A significant proportion of the UK’s energy is located away from areas of high demand: for example, a quarter of the UK’s renewable energy is generated in Scotland. Different wholesale prices could better match supply and demand and bring down costs for people across the country. The reforms could save households £45 off their yearly energy bill and the government will consult on the proposals to deliver the long-term change the UK needs to make a brighter future for Britain, and improve economic and energy security for everyone.

Ms Coutinho is also expected to add:

From my time in this role, it is clear to me that we have entered a new era. It’s an era in which energy can be weaponised against us. An era where our adversaries can inflict harm directly on British families and businesses through energy prices.

If we cannot retain control of energy prices, if we cannot protect families and businesses from the threat of future shocks, then we are not really secure. So, we must be hard-headed about the future of our energy system. We must put national interest over ideology.

This builds on wider measures to reduce energy bills, including improving access to cheaper deals. For example, some households could save up to £900 a year – nearly half a typical bill - through cheaper, off-peak energy tariffs, such as by charging an electric car at off-peak times. In addition, energy prices have recently fallen to their lowest level since the war began.

It is yet another step to put more cash in people’s pockets – building on the Chancellor’s historic budget delivered this week, which has slashed National Insurance Contributions: giving the average worker an extra £900 a year.

Jon Butterworth, CEO at National Gas, said:

We welcome today’s announcement which will advance the electricity market arrangements review (REMA) in consultation with industry. Getting this right will play a critical role in our journey to net zero and help create a diverse, decarbonised energy system. Timely delivery of phase 2 and the review’s conclusion, will provide industry with policy confidence and unlock crucial investment.

Today’s announcement also states a requirement for unabated gas in the power system beyond 2030. Gas will continue to play an important role in keeping the lights on, acting as a bridge to a clean power system and complimenting the growth of renewables. In order to deliver a net zero power system, we must develop flexible power technologies including hydrogen, and gas with carbon capture and storage.

Kisha Couchman, Deputy Director at Energy UK, said:

With more of our power generated by a diverse range of clean energy sources and a growing role for flexibility, the energy system has continued to undergo significant change over recent years. We welcome the Government pressing ahead with ensuring our electricity markets are fit for the future and capable of attracting the billions of pounds of investment we need for power generation, storage, and network infrastructure.

The challenge is to bring forward changes to support this aim while also providing the certainty essential to bring forward long-term investment – so it’s also right to look at the role that existing mechanisms can play.

Guy Newey, CEO at Energy Systems Catapult, said:

It is increasingly clear that the only way we can get to a net zero electricity system in time and without pushing up bills is to move to a market that reflects local supply and demand. 

It is an essential step forward to see government proposing stronger locational signals in the wholesale market through zonal pricing and a strong push for a smarter energy system. While it is disappointing to see nodal pricing ruled out, improved locational signals will deliver significant benefits to consumers and opportunities for innovators.

The growing importance of electricity in the economy means security of supply is an essential partner of decarbonisation. Achieving security of supply means the rapid build-out of a raft of clean technologies as well as making our system as flexible as possible. And depending on how quickly we can build new renewables, nuclear, and other important technologies like Bioenergy Carbon Capture and Storage, it is also likely to require an ongoing role for rarely-used gas power plants to ensure security of supply in extreme weather events.

Delivering change at the pace and scale required means speeding up planning so that we can build new generation and transmission quickly, digitalising our energy system to make it more flexible, and fundamental reform to the power market.

James Waddell, Head of European Gas and Global LNG at Energy Aspects, said:

The UK and wider European power sector will over the coming years be dealing with increased intermittency of power generation because of the greater share of renewables within the energy mix. The electrification of the heating sector is also likely to significantly boost winter power demand relative to the summer meaning that technologies are required to manage that seasonal shift in demand.

Having enough dispatchable power generation from gas-fired and/or nuclear power plants to tackle periods of high power demand and low renewable generation over weeks or even months is essential to avoid significant price spikes and outages. Existing electricity storage solutions are only designed to handle much shorter mismatches of power supply and demand.

Dan Monzani, Managing Director, UK and Ireland at Aurora Energy Research, said:

We need urgent action to ensure energy security in a future net zero system. Well-designed market reform and accelerated network build would mean renewable electricity is able to meet more of our needs more often.  The final few hours of energy demand each year will always be the hardest to decarbonise.

So we need to double down on firm low carbon technologies, like nuclear, carbon capture and long-duration storage but we also need to invest in maintaining reserve gas capacity. In a net zero system in 2035, we will need to run gas 90% less often but we still need to maintain two-thirds of the current gas capacity to ensure our energy needs are met at all times.

Alex Grant, Senior Vice President & UK Country Manager at Equinor said:

We welcome the UK’s focus on energy security alongside energy transition in an increasingly challenging global energy context and are pleased to be supporting. A growing renewables-based electricity system will require market reform in order support the transition to net zero at lowest cost.

With Equinor’s broad renewable energy portfolio in the UK including offshore wind and battery storage across the country, we welcome the publication of the 2nd REMA consultation and the focus on zonal pricing, which will help maintain investor confidence. We look forward to working with DESNZ and wider industry to support progression of these reforms.

A spokesperson for the Electricity System Operator said:

The ESO welcomes this important step forward in the Review of Electricity Market Arrangements.  Establishing the right market incentives is essential to ensuring delivery of the clean power required to deliver affordable, clean power and maintain energy security. Locational pricing can deliver £15bn to £50bn in consumer savings, incentivise new industries such as green hydrogen, maximising benefits that can arise from decarbonisation of existing industry in Great Britain. We look forward to continuing to support Ofgem and the Department for Energy Security and Net Zero as the next stage of assessment of options for electricity market reform are assessed.