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Clear early policy decisions needed to prevent the UK’s energy transition stalling, says DNV

Clear early policy decisions needed to prevent the UK’s energy transition stalling, says DNV

 

  • DNV’s UK Energy Transition Outlook 2024 predicts that without swift action the UK is currently on course to miss its 2030 NDC target and its legally binding mid-century decarbonization target
  •     DNV’s findings show that progress to net zero now seems to be stalling - with the

disappointing latest wind allocation round results, uncertainty around decarbonizing home heating and the role of hydrogen in the UK – and the government needs to increase policy support to a low-carbon future

  •     Even with the massive scaling of renewables, the UK remains heavily reliant on fossil fuels for at least the next decade and beyond, only reducing to 70% by 2031 - necessitating the acceleration of decarbonisation efforts for example carbon capture or use of hydrogen.
  •     However, the energy transition is affordable even with annual energy infrastructure CAPEX expected to increase from an annual average of £26 billion to £38 billion per year over the next 30 years
  •     Domestic consumers will benefit from an almost 40% reduction in household energy bills by mid-century as the share of renewables increase, when compared with 2021 prices, with an overall reduction in energy demand driven by increased electrification

LONDON, UK, 22 February 2024: The UK Government must prioritize long-term policy clarity and consistency to create an investable marketplace for energy transition financiers to accelerate the move away from fossil fuels, says DNV in its 2024 UK Energy Transition Outlook (ETO) report.

The study states that the transition is stalling, and the country is not on track to meet either its legally binding 2050 decarbonization targets or its Nationally Determined Contribution (NDC) commitment of reducing emissions by 68% by 2030 under the Paris Agreement.

DNV, the independent energy expert and assurance provider, forecasts show that the UK’s annual emissions will amount to some 125 million tonnes of carbon dioxide equivalent (MtCO2e) in 2050, and while this represents a significant 85% reduction relative to 1990 levels, it is not the 100% reduction by mid-century that the UK has legislated for.

DNV determines that with the right incentives, the transition can still be accelerated through swift deployment of technologies such as wind, solar PV, smart grids, electric vehicles, but also mitigating technologies as CCS and hydrogen.

The UK hydrogen market is in particular need of significant support. The report outlines that by 2030, hydrogen production will reach 1Mtonnes/yr, only 60% of which will be low carbon, equivalent to roughly 5GW of low carbon hydrogen versus the government target of 10GW.

Hari Vamadevan, executive vice president and regional director, UK & Ireland, Energy Systems at DNV, said: “The evidence in our 2024 UK ETO is clear – without immediate action the UK will fail to deliver on its climate commitments, fall behind in the global race to decarbonize and  miss out on many of the benefits that switching to a low-carbon system will bring. But, by putting the correct policy levers in place, there is still time for industry and government to deliver a transition that is good for business, good for consumers and good for the planet.”

DNV recommends the UK Government adopt a ‘whole systems’ thinking approach to the energy transition and act across all its dimensions to counter system inertia.

On the supply side, policy makers should provide clear incentives to crowd in private capital for buildout of green generation, and on the transmission and distribution side they should facilitate planning and permitting for delivery of critical infrastructure. At the same time there is a need for extensive engagement on the demand side with society at large to embed low carbon solutions and, additionally, ensure a just transition by ensuring downside social impacts are minimised.

DNV forecast annual energy infrastructure CAPEX spend to increase from an annual average of GBP 26 bn in previous decades to around GBP 38bn per year over the next 30 years. While this is a significant increase in absolute terms, the share of GDP devoted to energy CAPEX expenditure remains relatively stable at just above 1% of GDP across the 2000-2050 period.

There will be big wins for the British public though and the transition means domestic consumers will benefit from an almost 40% reduction in household energy costs by 2050, when compared with 2021 prices. DNV concludes that the decarbonization of the UK economy is affordable, with a substantial green prize awaiting households in the form of cleaner, more efficient and less expensive energy.

Today, close to 80% of all UK primary energy comes from fossil fuels, of which just over 50% is produced nationally, with renewables (13%) and nuclear energy (7%) covering the remaining share. Even with the expected build-out of renewables, this heavy reliance on fossil fuels will remain for the next decade, only reducing to 70% by 2031.

But by 2050 this picture will be significantly different with low-carbon supply sources meeting nearly 65% of the UK energy needs. More than half of that will be via variable renewables - wind and solar - with and the remainder split between bioenergy and nuclear.

For this, it is imperative that there is a step-change in historical electrical grid investment levels to ensure the grid will be the enabler, not the blocker, of the energy transition. This will require an overhaul of the way networks are planned, built, and operated. Crucially, policy makers and regulators need to accept that the levels of risk associated with delivering this step-change will be different from risks that previously were deemed acceptable.

Hari Vamadevan added: “The required climate objectives and decarbonization targets are in place, but the onus is on the UK Government to put a clear, ambitious strategy in place to make them a reality. What the UK desperately needs is a detailed transition roadmap to chart the country’s journey to the low-carbon energy system of the future – only then can businesses invest with confidence to drive the energy transition. The UK Government has always claimed to be a leader in the global net zero transition; now it is time to deliver on those claims. The ball is in the court of the policymakers.”

Energy leaders, government officials and representatives from a wide array of trade bodies will meet in London today for the launch of the 2024 UK ETO. A panel comprised of Viken Chinien, VP – Enterprise Risk Management DNV; Hannah Bronwin, Director of Business Development, SSE Thermal; Owen Bellamy, Team Leader, Energy Supply Decarbonisation and Resilience, Climate Change Committee; Harry Manisty, Investment Director, Octopus Energy Generation; Dean Cooper, Global Energy Lead, WWF; Clara Barby CBE, Senior Partner, Just Climate; and moderated by Lucy Siegle, British journalist and writer on environmental issues, will discuss the actions that need to be taken in order to give the low-carbon transition fresh impetus.

Read the latest issue of the OGV Energy magazine HERE

Published: 22-02-2024

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