The covid-19 pandemic followed by the Russia-Ukraine conflict have had a severe impact on global oil and gas supplies. As gas prices and thereby energy bills have increased across the globe, nations have started refocusing their efforts on ensuring energy security in the future by reducing their dependence on gas and opting for cleaner sources of power. Thus, renewable energy strategies have been formulated and massive investments are happening in the renewable energy sector. The United Kingdom, too, has started lowering its dependence on imported gas and is making efforts to build its domestic energy capacities through a mix of onshore and offshore wind, solar power, green hydrogen, nuclear energy as well as oil and gas.
Against this backdrop, UK’s Business and Energy Secretary Kwasi Kwarteng delivered a speech at the Chatham House Second Century London Conference on June 23, 2022.
Four months ago, a terrible war returned to European soil. The brutality unleashed by Putin’s forces has been horrifying, and this has had a profound humanitarian impact, and on energy costs and security. However, the gas crisis was not borne out of this war. As economies re-opened after lockdown and demand increased dramatically – prices inevitably rose.
When I speak to my counterparts across Europe and internationally, they are all facing the same challenges. In Germany, the government has re-started coal-fired power stations. In France, system operators are calling on households to take showers rather than baths. No country in Europe is immune, least of all Britain.
While the UK gets very little gas from Russia, we are all vulnerable to gas markets that we are unable to control. Despite our barrage of crippling sanctions, Russia is still able to weaponise its dominance over gas supply. Just last week, Russia reduced gas deliveries to Italy and Slovakia and cut off France entirely. And just before that, companies in Poland, Bulgaria, Denmark, and Germany were choked off Russian gas supply.
Europe cannot be in this position any longer.
In Britain, we have already reduced Russian gas imports by 75% compared with the same period last year, and the proportion of oil imports from Russia has halved. Our last Russian LNG shipment was on 2 March this year. And by the end of this year, we will no longer import any Russian fossil fuels.
We need to reduce our exposure to gas markets, to volatile gas markets entirely. And we can do that by moving off gas in the long-term.
But what this has shown is that we need to reduce our exposure to gas markets, to volatile gas markets entirely. And we can do that by moving off gas in the long-term.
But how did we get to this position? Yes, COVID-19 and Russia’s invasion has put a huge strain on Britain’s energy system. But were we as resilient as we might have been? Our system has been decades in the making. And when we look back, we see an energy system that was essentially nationalised after the War, some 90 per cent of our power generation was from coal. Even in the 1950s, we were mining 1 million tonnes of coal every working day. This was a fairly straightforward energy mix. We had an abundance of domestically sourced coal, and we simply burned it. Four decades later, the National Coal Board, as well as other nationalised utilities were in a bad state. They made losses, were very inefficient, and they needed modernisation.
So, getting private capital to fund these necessary upgrades was absolutely essential – and the sector did deliver. Since the 1980s, we have attracted hundreds of billions of pounds in private finance – money that otherwise would have come simply from higher taxes. Competition and innovation led to greater efficiencies, there were huge cost reductions, and considerable revenue was used to fund necessary tax cuts and drive public sector reform. This was a good outcome for the consumer, the Treasury, and the wider British economy.
In the 1980s and 90s we had the Dash for Gas, and it looked as though Britain had struck gold and was set for life, that’s how it felt at the time.
But of course, today, global gas prices are at unimaginable, record highs. A dependence on gas has left us more exposed.
But this government has increased renewable capacity by 500% since 2010, and the current situation shows we need even more diversity. And of course the key to greater diversification of the energy market is unlocking private investment. Over the coming decades, Britain will need many hundreds of billions of pounds of investment into clean energy, grid upgrades and new nuclear power, for example. This investment will create hundreds of thousands of good jobs in industries that will be built to last. Private finance is essential to the energy transition – it is not the enemy of that transition. It is private capital and deployers of that capital who are investing, creating jobs, innovating, and exporting. We cannot transition without the private sector taking those risks and investing their capital.
Over the coming decades, Britain will need many hundreds of billions of pounds of investment into clean energy, grid upgrades and new nuclear power
But it does mean that we need a stable, predictable, and competitive business environment for these companies to continue to invest in the UK. We have a clear, long-term plan to attract investment into new technologies, but energy infrastructure by its very nature does take time. In the immediate term, we are of course exposed to winter, and we have to consider how our resilience shapes up in that challenge.
Unlike many in Europe, our energy comes from a variety of highly diverse, reliable, and secure sources. On electricity, our diversity of supply is a great strength. We have the world’s second largest installed capacity of offshore wind – only just beaten by China in fact only a year ago. We have onshore wind, we have solar power, we have nuclear, we have hydroelectric power, and of course we’ve got interconnectors between us and countries in Europe.
However, despite this diversity of supply, we must be prepared for any scenario – however extreme. Since January, I have been rapidly scaling up our activity to improve winter preparedness and resilience. But we cannot escape the fact that as geopolitics has changed – so must we. And that’s why we are exploring domestic gas storage options carefully.
Winter preparedness aside, however, we must renew our focus on the future. Not since the wind God Aeolus gifted wind to Odysseus have human beings been able to harness the power of the winds with such efficiency and effectiveness. This is a resource that cannot be manipulated. Our ambition is for offshore wind to generate 50GW by the end of this decade, more than enough to power every home in the UK.
This will be possible thanks to our Contracts for Difference scheme, arrangements – a mechanism which is copied and envied all around the world. That’s why earlier this year, I took the decision to run these auctions annually – rather than every 2 years, which has been the case in the last 6 years. This means we can secure new renewable capacity – sooner.
And as I speak, 10GW of renewable power is currently being built, constructed, across the UK. That’s equivalent to the capacity of 3 Hinkley Point C nuclear power stations, and of course we have already installed today 12GW at the moment.
But we need to go further. The Energy Security Bill will unlock our plans. Next month, I will announce the results of Allocation Round 4 – our biggest renewable energy auction ever. In the summer, I will set out options to fundamentally reform our electricity market.
Later this year, we will update our planning policy and eliminate some of the bureaucracy, which can get offshore wind and solar projects off the ground.
Then, later this year, we will update our planning policy and eliminate some of the bureaucracy, which can get offshore wind and solar projects off the ground. We’re driving local partnerships in England for onshore wind – which everyone should know is the cheapest and quickest way to build renewable power. All of these will be driven by a new Electricity Networks Commissioner who will be appointed, announced this month.
We’re making great progress in this area. One area, of course, where we’re seeking to make even greater progress is hydrogen. Jules Verne, 150 years ago, imagined that water might one day be used as a fuel – ‘furnishing an inexhaustible source of heat and light.’ Today, green hydrogen produced by electrolysers has become a critical part of our approach to greater energy independence. And with the global low carbon hydrogen economy set to be worth nearly a trillion dollars by 2050, this booming market is ours for the taking.
So, this summer, I will launch a Hydrogen Business Model and our Hydrogen Fund allocation round – with contracts awarded in 2023. Very soon, we will enter negotiations with the first CCUS-enabled projects. And this is a huge opportunity to re-industrialise our old industrial heartlands – and to protect and drive the competitiveness of British industry. If we get this right, we will reach our 10GW hydrogen production target this decade.
Now underpinning all of this is a renewed commitment to nuclear power. We dithered on this for 30 years, but we now realise the importance of nuclear power, because we know we need a continuous, low-cost, low-carbon supply of energy to support our renewables. Next month, we’ll accept bids to bring nuclear projects to maturity. We’re keen to revive sites from Hartlepool to Heysham, from Wylfa and Trawsfynydd. Thanks to the Nuclear Act, we have a new financing model to cut the cost of each new large-scale project by £30 billion. Great British Nuclear – our delivery vehicle – is up and running with Simon Bowen at the helm. It’s tasked with helping these projects through every stage of the development process and developing a resilient pipeline of new builds. Taken all together, we want to see progress on up to 8 new reactors this decade.
I’m also obviously focused on our energy needs today. We can look to the future, but we do have an immediate responsibility. And like many other industrialised countries, we cannot move to a clean, secure and sovereign energy system without continuing to use oil and gas. Not only would that lead to thousands of job losses, but without gas, we will have no carbon capture and we will have no blue hydrogen production. These will be new industries that will create even more jobs.
We are transitioning away from fossil fuels but it’s much better to source the fossil fuels we need here at home. And that’s why we’re planning another oil and gas licensing round this year. And frankly, we have got to use all the tools at our disposal to ensure our energy security. It’s an imperative, it’s not a mere option.
We are transitioning away from fossil fuels but it’s much better to source the fossil fuels we need here at home.
Our plans have been laid out in the British Energy Security Strategy. We remain resolutely focussed on creating a clean, affordable home-grown energy system. And it’s not simply a question of climate change, tackling climate change, which we take extremely seriously, it is also a matter of national security.
Energy produced in Britain is the safest option. And that’s how we will deliver security, affordability, and sustainability in our energy system.