Latest round of reports on long-overdue energy independence plan suggest Number 10 and 11 continue to be at loggerheads over the cost of actions that could protect consumers from record energy bills
Relations between Downing Street and the Treasury continue to fray over the Energy Security Strategy, with reports suggesting Number 11 is blocking proposals to expand government support for household insulation and energy efficiency schemes for the lowest income households.
A plan from Number 10 and the Department for Business, Energy and Industrial Strategy (BEIS) to expand the Energy Company Obligation (ECO) scheme as part the imminent energy independence plan has been rejected by Chancellor Rishi Sunak over cost concerns, the Telegraph reported yesterday evening.
The ECO scheme uses money raised through a levy on energy bills to fund domestic energy efficiency improvements, predominantly for the most fuel poor and energy inefficient households. BEIS and Number 10 wanted to inject roughly £200m of public funds into the scheme annually in order to boost the number of homes that could be retrofitted each year, arguing the approach would help reduce energy bills, curb gas imports, and cut carbon emissions, while delivering significant economic and health benefits. However, Chancellor Rishi Sunak is reported to be blocking the plans on cost grounds, with the Treasury said to be opposing any measures in the Energy Security Strategy that would necessitate fresh spending and adjustments to budgets set out last autumn.
The reported rift is the latest development in a growing row between Number 10 and Number 11 over the energy security plan, with briefings indicating that the significant delays to the document are largely due to Sunak’s reluctance to sign off on any increased spending. Previous reports have suggested the Chancellor has pushed back against colleagues’ plans to significantly expand the UK’s fleet of nuclear power stations, and has questioned the value for money of additional solar and onshore wind development.
Senior government figures are reportedly livid that the Treasury refuses to increase public spending for measures designed to reduce household bills and gas imports in the midst of a cost of living and energy security crisis, according to the Telegraph.
The Energy Security Strategy is still expected to be published tomorrow, but it could face further delays if Ministers fail to thrash out continuing disagreements over key parts of the plan.
The Strategy is expected to set out the government’s vision for protecting households and businesses from surging oil and gas prices exacerbated by Russia’s invasion of Ukraine, while also reducing the UK’s reliance on Russian fossil fuel imports and wider volatility in global energy markets. It comes just a week after a 54 per cent increase in the domestic energy price cap came into effect on 1 April, increasing energy bills at their fastest rate in more than 30 years. A further hike to the price cap in October is expected to plunge millions more of households into fuel poverty and deepen the ongoing cost of living crisis.
At the same time, Ukraine is calling on its allies to respond to the latest atrocities committed by Russian forces by extending sanctions to cover fossil fuel exports from the Kremlin. And Russia is responding to economic sanctions by threatening to restrict or even halt gas exports to Europe ahead of next winter.
However, the Energy Security Strategy has been repeatedly delayed amid reports of wrangling between senior ministers over the role onshore wind and funding for new nuclear and energy efficiency programmes, fuelling fears the government’s plans could end up being badly underpowered and offer little in the way of support for the two quickest and most cost-effective means of reducing gas imports: energy efficiency measures and onshore renewables projects.
In a statement this morning, Ed Matthew from the E3G think tank said there were “worrying signs” that the strategy was “headed for failure”. The nuclear power plants the government appears to be favouring in the strategy are notoriously expensive to construct and produce electricity at a higher cost than wind and solar, he warned, arguing the government’s plans to build up to seven new large nuclear reactors will fail to deliver a net zero grid in an affordable way to consumers.
Matthew accused the nuclear industry of using the invasion of Ukraine to make a last-ditch case for government subsidy to deliver a major expansion of nuclear, despite its unfavourable economics. “Nuclear costs continue to rise while the costs of renewables and energy storage fall,” he said. “There are now question marks over whether any further nuclear power stations will be required at all. Advances in storage, interconnection, diverse renewable supply and smart demand management offer the possibility of a renewables-based energy system, that keeps the lights on and brings down bills. This is the nuclear industry’s worst nightmare.”
Matthew also noted that energy efficiency and other measures that reduce demand for oil and gas had been worrying absent from briefings about the strategy, despite analysis that highlights how the UK could reduce 25 per cent of its fossil gas demand by 2030 through energy conservation measures alone.
As such, Matthew acknowledged that Sunak faced a dilemma as he had to make the decision on whether to unlock funding that would enable the Prime Minister’s “high-cost nuclear programme” or boost funding for energy saving programmes. “Will he support this bid, or will he surge public investment into saving energy instead, which will guarantee increased energy security, reduce energy bills and still boost the economy?” he said. “Conserving energy should not be a dilemma for a Conservative. If he is worried about funding a large-scale energy efficiency programme, he could announce a windfall tax on the colossal, unearned revenues of fossil fuel companies.”
There are also questions to the extent to which the government will set out plans to increase investment in the North Sea as part of the Energy Security Strategy, with climate and energy experts counselling that new oil and gas exploration will have a negligible effect on energy bills and could ultimately keep households hooked on volatile gas markets for longer. They have also warned any new fields approved today could take several decades to come online, and could breach UK carbon budgets when they are finally commissioned.
In a statement this morning, Greenpeace warned that briefings about the Strategy did not bode well for British energy bill payers or the climate. “The Energy Security Strategy is being introduced at speed in response to Russia’s invasion of Ukraine and the concern over the dependence on Russian fossil fuels,” the green NGO said. “Yet if touted policies briefed to the media come to fruition it will fail in its own terms. Few of the propositions will reduce UK fossil fuel usage in the short term, and the emphasis has shifted to nuclear and to new oil and gas licences, which will not deliver for well over a decade, and will not be the best measures to reduce bills, addressing the cost-of-living crisis.”
In a speech to the Harvard Kennedy School this morning, Business Secretary Kwasi Kwarteng acknowledged that UK consumers would be vulnerable to Russia’s manipulation of energy markets for as long as they consumed fossil fuels. “For as long as we depend on oil and gas – wherever it is from – we are all vulnerable to Putin’s malign influence on global markets,” he said. “To diminish Putin’s malign influence, we not only need to phase out Russian fossil fuels, but also look to domestic sources of energy too. And with gas prices at record highs, and the price of renewable energy plummeting, we need to accelerate our transition away from expensive gas.”
But he noted the UK also wanted to boost domestic production in the North Sea, arguing such a move would protect jobs and reduce the UK’s reliance on Russian energy imports.
“The transition to clean, homegrown energy can’t happen overnight,” he said. “It remains the case that there will continue to be an ongoing demand for oil and gas over the coming decades while we transition to clean energy. So in the meantime, we want to maximise domestic production in the North Sea production to protect jobs and reduce reliance on imports.”
Experts have questioned the extent to which increasing production in the North Sea will lead to less imports, given that a significant proportion of fossil fuels extracted off UK shores are sold by private companies into international markets. They have also warned such a policy will hamper progress towards the UK’s climate goals, do nothing to reduce demand of fossil gas, and boost the profits of energy companies already raking in record returns amid the gas price crisis squeezing households.
Senior ministers have also indicated this week the Energy Security Strategy could see the government accelerate its plans to grow the UK’s low-carbon hydrogen market, with a report in the Times this morning suggesting the plan will see the UK’s 2030 target for low-carbon capacity doubled from 5GW to 10GW.
“Global hydrogen production is set to boom – we’re going to grab as much market share as possible,” Kwarteng wrote on Twitter yestereday. “This homegrown super fuel could power British industry, homes and transport. We’re set to generate 5GW this decade, but will go further in this week’s Energy Security Strategy.”
The government is yet to take a final decision on whether it plans to move ahead with hydrogen in the UK’s heating system, confirming in last autumn’s Hydrogen Strategy that it will make a final decision in on blending in 2023 “following testing of the safety, technical and economic case”.
However, the use of hydrogen to decarbonise heating remains highly contentious. Energy experts and the United Nations have argued that heating is one of the lowest valued applications for hydrogen, warning electric heat pumps are a far cheaper way to decarbonise homes and that limited reserves of the low carbon fuel should be reserved for industries that are less amenable to electrification, such as shipping, steelmaking, chemicals production, and long-haul aviation.
They have also warned the conversion of the gas grid to a hydrogen-fossil fuel mix could ultimately slow the decarbonisation of buildings in the UK, because it would “lock in” fossil gas and the infrastructure required to pump it to homes around the country for decades to come, while also discouraging investment in zero carbon heating solutions, such as electric heat pumps and district heating.
Whatever form the Energy Security Strategy does take, it is clear it will not be short of controversy. Debates around nuclear, gas, and hydrogen’s role in the net zero transition are not new, but a decision to go full throttle on any of the three in the new roadmap is set to draw sharp criticism from campaigners and energy experts who have long pointed out that energy efficiency, solar, and onshore wind can generate cost savings far more quickly for households facing crippling energy bills. What is more, the flurry of last hour briefings indicate the long-awaited plan is not finalised as disagreements continue to divide an increasingly fractious Cabinet.