Press release

7 Apr 2022 London, GB

EY comments on today’s Government Energy Security Strategy

Balancing the energy trilemma has never been easy, however the long-term solution for both energy security and affordability is to continue to invest in and build a renewable energy infrastructure for the UK

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UK’s drive to net zero

Rob Doepel, EY’s UK&I Managing Partner, Sustainability, comments:

“Balancing the energy trilemma has never been easy, however the long-term solution for both energy security and affordability is to continue to invest in and build a renewable energy infrastructure for the UK.  This acceleration may bring some economic pain and concerns on supply in the short term, but as the last nine months has highlighted, the long-term cost of inaction could impact generations to come.  It’s clear the time to accelerate is now and it’s encouraging to see today’s Government announcement to further bolster efforts to accelerate the energy transition and invest in technologies that can both reduce and remove carbon dioxides already in the atmosphere.

“However, the Energy Security Strategy could have gone further.  The recently published IPCC working group report calls for drastic cuts in fossil fuel use, widespread electrification and improved energy efficiency to contain global warming to manageable levels of 1.5 degrees Celsius above preindustrial levels.   This new policy is silent on energy efficiency, which is a missed opportunity.  We need drastic action on buildings and household insulation.  The government needs to follow up on this ‘Energy Supply’ strategy with a bold and ambitious plan for energy efficiency.

“The IPCC report is a timely reminder that we cannot delay action to reduce emissions across all sectors, including agriculture, transportation, energy and buildings.  If the economic implications of increasing the pace of the energy transition are uncomfortable now, they are only going to get worse if we don’t dramatically increase the level of investment in clean energy and the Infrastructure required to support them.”

Nuclear

Chris Lewis, EY Energy Partner, specialising in Nuclear, commented:

“The UK has long needed to commit to 16GW of installed nuclear baseload generation to ensure that we can sufficiently electrify transport, heating and other power demands, so the announcement to commit to 24GW is welcomed.

“The recent closure of two operational nuclear reactors has brought into sharp focus the need to replace these. Nuclear remains the power source that emits the lowest carbon emissions and is a key component of the UK’s energy mix – now and in the future.

“Accelerating Sizewell C is good for energy security and sustainability. There is a long track record in nuclear that demonstrates building the same type of power plant, in the same way, is the most economic source of power.  Sizewell C is a direct replica of Hinkley Point C and the UK government should ensure that the funding is available to accelerate this project delivery.  The new government body, Great British Nuclear, must immediately provide accelerator funding to bring forward new projects.

“Small modular reactors (SMRs) will also play a vital role. EY’s report on SMRs shows that the UK should commit to a high volume of SMRs, to ensure that same solution is built at scale and rolled out to many locations.  The new Nuclear body must also drive the acceleration of SMRs.”

Oil and Gas

Derek Leith, EY’s Global Oil & Gas Tax Lead comments:

"No doubt the newly announced energy strategy will be controversial for some because as well as committing to investment in nuclear and increased investment in renewables it also sets out an ongoing commitment to the development of oil and gas resources. It is an unpalatable truth that fossil fuels remain in demand in the UK, especially for transportation and domestic heating. Fossil fuel production from the UK Continental Shelf is set to decline significantly over the remainder of the decade and that natural production decline is more aggressive than is required to meet the Paris Accord. Even with the development of existing discoveries like Jackdaw and Rosebank the decline curve is not materially changed. If there were to be some more discoveries as a result of the new licence round the Government intends to issue later this year it is very unlikely that these will interfere with the Government's net zero targets. The task force announced by Government to support new developments should also be focused on decarbonising the process of producing resources from any new fields.

“Whilst domestic demand for fossil fuels remains high there is no benefit in restricting the UK's production of these resources, as they would simply need to be imported from elsewhere instead. The key issue for the Government, and for the country, is that there needs to be a clear plan to reduce fossil fuel demand and the consequential emissions. Regrettably the strategy released today does not focus on the demand side of the energy equation where the emphasis should have included energy efficiency, home and industrial building insulation and domestic heating. Making our electricity generation almost completely low carbon is an important step but we also need to have infrastructure that can enable transportation and heating to be powered by that electricity rather than fossil fuels."

Lee Downham, EY’s Energy Market Segment Leader, comments on the government’s Energy Strategy announcement:

“Geopolitical uncertainty has brought to the fore the urgent need for the UK to review and address security of energy supply. In response, it is encouraging to see the Government’s Energy Security Strategy, that goes some way to addressing the UK’s over reliance on imported fossil fuels and accelerating its transition to net-zero.

“However, the biggest challenge remains the UK’s short-term dependency on fossil fuels and what bets, across the energy mix, the Government will back to help the country transition to a lower carbon future. While accelerating the UK’s transition to lower carbon energy sources  is undoubtedly the right medium to long-term strategy, balancing security of supply and affordability is the challenge the UK faces in the short term.

“Of course, there will be conflicting voices in the market as to which energy source best matches the needs of the Energy Strategy. For the Strategy to be deemed a success, it is likely that a mix of energy power generation, spread across fossil and lower carbon alternatives, will be the winning formula to help the UK transition to net-zero.”