GK consultants Sam Tankard and Milo Boyd assess the potential ramifications of a Liz Truss government for the UK’s net zero commitments, and what conclusions can be drawn from the ministers appointed at the Department for Business, Energy and Industrial Strategy. Take a look at the analysis here: What does the Liz Truss premiership mean for the UK’s net zero agenda?
‘Net zero’ has become very topical and an increasingly mainstream issue. As one of the Government’s flagship policies, the Net Zero Strategy and related initiatives, such as the Heat and Buildings Strategy, may encourage many businesses and investors to look more closely at Government activity in decarbonisation and energy efficiency.
Last month, GK Strategy hosted a roundtable discussion with keynote speaker, Dr Alan Whitehead MP, Shadow Minister for Energy and the Green New Deal. As ESG specialists, GK pride ourselves on working with investors and organisations that value and demonstrate the importance of sustainability policies.
We strongly believe that the investment community has a vital role to play in the net zero agenda.
GK co-founder and executive chairman, Robin Grainger, asked Dr Whitehead and other participants some important questions about what ‘net zero’ looks like practically, how the investment community can help the Government achieve its targets, and what is the new Government’s take on the net zero agenda.
Beginning the discussion, it was clear that net zero policies are here to stay. The shadow minister expressed his desire for a greater adoption of net zero as a ‘state of being’ rather than simply being an aspiration. He said that it should become a constant in the economy, and ultimately the basis upon which the entirety of the economy operates.
Dr Whitehead outlined where he thought the UK was doing well and where it was lagging behind. He said that one area which required much more attention was that of land use, and land use change, to ensure that food systems were resilient to shocks.
He went on to say that the UK was generally performing quite well on low carbon energy, partly due to some very ambitious plans from the Government. He also noted that the UK was beginning to develop a more effective carbon capture and storage economy, which would be particularly important for high-emitting industries in the future and could eventually be used to support hydrogen production.
The Government came in for criticism on its attitude towards infrastructure, arguing that it was not realistic enough, and did not account for the need to have necessary infrastructure in place well before the net zero goal of 2050.
The Labour frontbencher stated he believed that the UK is also ‘woefully deficient’ with regard to its grid system as a result of the historic focus on fossil fuel-orientated energy, which has meant that the increasingly necessary transmission of clean, renewable power from the British coastlines to inland regions is made more difficult.
We also heard Dr Whitehead explain Labour’s proposals for net zero, which were firmed up at the recent Labour Party Conference in Liverpool last month. Labour would support the current landscape by:
- creating a £180 billion green investment fund that would drive development of infrastructure, lead the electric vehicle (EV) revolution, and help Britain lead the world in hydrogen;
- giving more of a focus to the demand side of energy, seeking to use energy in a smarter way through a big retrofit programme;
- joining up more of the thinking currently emerging from Government, simultaneously aiming to ensure that projects could be run at the local level.
Comparing this to the new Conservative Government under Prime Minister Liz Truss, there seems to be a greater Labour commitment to the net zero agenda. These measures targeting investment, especially in the demand side of energy, and associated job creation, seem like a good start.
With the Truss Government’s approval rating, and that of the whole Conservative Party, declining sharply in recent weeks, it would be useful for investors and businesses to begin, or continue, their dialogues with influential Labour policymakers.
The discussion last month cemented the fact that net zero policymaking is here to stay, even under a pro-fracking Truss Government, and certainly under a Labour administration. Private equity firms and other investors should take government policies seriously and consider investing in the ‘green transition’. Dr Whitehead advised against investing in the ‘brown economy’ and into areas that are likely become stranded assets.
He concluded that it will hardly be a ‘feast or famine’ situation for the investment community as the UK continues to transition to a fully green economy. In his view, there would undoubtedly be many opportunities that will arise with the advent of a green economy, with new markets opening up and new technologies to support.
GK provide expert advice for investors and business leaders looking to take advantage of the green economy; to learn more about it and the transition to net zero, please contact firstname.lastname@example.org.
About GK Strategy
GK Strategy is a political consultancy based in the heart of Westminster. We support private equity in their due diligence process by advising on deals and producing political due diligence reports, identifying any risks to an asset in the deal process.
GK Strategy also provide strategic communications support to companies once the deal process is complete.
GK Consultant Milo Boyd takes a look at the European Union’s recently published REPowerEU proposals to assess the likelihood of a clean break from Russian fossil fuels.
The Government has finally published its long-awaited Energy Strategy, against the backdrop of soaring global energy prices to improve the UK’s energy independence. GK Strategy Consultant Sam Tankard takes a closer look.
Negotiators at the end of the COP26 climate summit in Glasgow in November 2021 felt a fragile sense that real progress had been achieved as the final deal between 197 countries contained an agreement to draw down fossil fuel subsidies. Despite a fierce argument over whether coal should be phased down or phased out, the direction of travel was clear, said COP26 President Alok Sharma, who hailed that “the end of coal is in sight.”
Four months on, the global energy picture has shifted significantly; and not completely in the direction sought by Sharma and other COP negotiators. The monumental shift by western allies away from their previous Russia-reliant policies and towards new energy strategies puts their individual Net-Zero policies at risk.
The questions now are whether such a shift can happen rapidly enough to allow the world to meet its tenuous climate goals — and if the economic instability of the Ukraine war will prove to be a long-term setback, rather than an incentive towards a green transition.
As things stand, the US and the UK have both announced bans on Russian oil imports, while the EU has published a plan for more gradual independence from Russian fuels – cutting its reliance on Russian gas by two-thirds by the end of this year. Responding, Russian Deputy Prime Minister Alexander Novak warned that Western countries risk oil prices of $300-plus per barrel if they follow through on cutting off Russian supplies.
The UK Government is poised to announce its new energy supply strategy, which would make the UK more independent in its energy supply, in the ‘coming days’. The strategy will be a real watershed moment – determining whether the conflict has lent a new sense of urgency to the task of transitioning away from coal, oil and gas or, alternatively if fossil fuels are here to stay, as long as they’re not sourced from Russia. There have, for example, been calls for renewed North Sea exploration and exploitation, as well as a U-turn on fracking. Additionally, UK Prime Minister Johnson is currently lobbying United Arab Emirates and Saudi Arabia to increase oil production and attempt to secure major investment in green energy.
Johnson has already announced that the new strategy ‘maximises [the use of] renewables’. However, figures from the Department for Business, Energy & Industrial Strategy shown that the UK’s reliance on Russian gas has doubled in the past four years. Although this only represents 4% of the UK’s total energy supply, it is still a step in the wrong direction.
At this stage, it seems reasonable to assume that the UK will increase energy production from a variety of sources, including gas and oil, but to start a new era of energy policy, the Government could look to pull the levers at its disposal that would set in motion full-scale system transformation. Each of these can help to secure the UK’s future energy security, shield consumers from the worst energy price volatility as a result of foreign influences, whilst further strengthening the UK’s low carbon credentials. Some of these have already been pulled, including the ramping up of renewable energy through schemes like annual contracts for difference, but there are real opportunities to go further.
Gas heating of homes remains one of the UK’s biggest sources of emissions, with 85% of residential buildings connected to the gas grid. Although costly, any Government decision to improve domestic energy efficiency and untangle ties to the European gas markets intrinsically linked to Russia would result in tangible benefits for both the UK and hard-pressed consumers over the longer term and help to offset the seemingly unavoidable rise in fossil fuel production. A rapid scale up of other sources that makes use of the UK’s existing renewable credentials – such as the gradually increased deployment of hydrogen – or a delay to the planned closure of several nuclear power stations would also considerably reduce the pressure on the system.
In the immediate term, there are increasing suggestions that the UK Treasury – led by Chancellor Rishi Sunak – will have to produce COVID-scale market interventions to, first, save the UK from an energy crisis and, second, markedly soften the associated ‘cost of living crisis’ for British voters.
More broadly, the energy-related challenges facing the British Government are more serious than at any time since the oil crisis of the early 1970s or the year-long miners’ strike of the mid-1980s. Reducing emissions already represented a huge task, but now the Government needs to increase, simultaneously, the UK’s energy independence. The challenge will be enormous – but the opportunities for renewable energy providers could be equally huge. The ‘dash for gas’ is certainly over; a sprint for additional solar, nuclear and wind-power (including, significantly, onshore) seems certain to begin.
To discuss this issue further, please email our consultant Dani Schmidt-Fischer and Milo Boyd on email@example.com and Milo@gkstrategy.com
Annual contracts for difference – how will this impact the UK’s renewable energy generation?
Amidst a worsening energy and cost-of-living crisis, and ongoing pressure from within the Conservative Party in the shape of the Net Zero Scrutiny Group, earlier this month the Department for Business, Energy and Industrial Strategy has made one of its biggest statements to reaffirm its commitment to the development of the renewable power industry in the UK. In line with commitments in the 2021 Net Zero Strategy, the Department has taken the decision to hold Contracts for Difference (CfD) auctions on an annual basis from March 2023, rather than every two years as previous.
The scheme is the Government’s flagship policy for the deployment of low-cost renewable energy, which incentivises investment into renewable energy generation by providing energy providers with stable and predictable returns on their supplies. This is achieved through long-term contracts of 15 years, where two parties — a renewable energy supplier and the Low Carbon Contracts Company (LCCC) — agree to pay the other party for the difference between the market price and the value which the parties agreed at the point the CfD was entered – the strike price. For example, when the price for electricity dips below the strike price agreed with the government as part of a developer’s CfD, the developer will receive a ‘top up’ to the level of the strike price, and vice versa.
This significantly reduces the investment risk for developers, and allows them to borrow money more cheaply, accelerating the development of low-carbon technologies and crucially continuing to drive down the costs of generation. This can act as the catalyst of continual development for the UK’s renewable energy market, creating optimal conditions for consistent private investment into the landscape.
These developers will be crucial pillars for the UK’s net-zero strategy, not least because of the UK’s lofty target to reach 40GW of wind power capacity by 2030. The scheme has clearly already had an effect. In 2010, total capacity was 5.4 GW. By 2020 that figure had more than quadrupled to 24 GW, after the scheme was introduced in 2013 on a bi-annual basis.
So why the need to scale the scheme up to annual rounds of bids? One of the biggest factors behind this is undoubtedly UK energy security. The Government has painfully learnt the complications and difficulties of being dependent on supplies of natural gas from the European continent for a significant portion of the UK’s energy supply, with considerable strain now being felt by the British consumer. Increasing the frequency of CfD auctions will increase the number of opportunities for developers to engage with the scheme, helping to provide a diversified power supply and support the UK’s long-term energy security. The decision will also dramatically lessen the burdens for renewable energy companies, who will be able to take advantage of the regularity of auctions rather than having to navigate the two-year periods of uncertainty between the CfD auction rounds.
Fundamentally, this move is a positive one for both supplier and consumer. The annual rounds of contracts greatly ease the strain on renewable suppliers, providing developers with the assurance that their risks will be minimised and incentivises continued investment into the UK. The subsequent scale-up of renewable energy into the grid will mean that there is much greater flexibility in the system for consumers to help shield them from future price shocks and advancing the UK’s Net Zero credentials further.
The fast-paced nature of this environment will create a strong platform for engagement with Government. GK Strategy has extensive experience of advising governmental engagement and helping businesses take advantage of existing opportunities within the energy policy landscape.
For more information, get in touch with firstname.lastname@example.org.