The writer chairs the Lords Economic Affairs Committee and is an adviser to Banco Santander
As in so many countries, the impact of the Russian invasion of Ukraine on energy prices has been a wake-up call for the UK, exposing the country’s energy security vulnerabilities. The record temperatures were a reminder, if need be, of the need to fight against climate change. Together, these events raise a question: what is the plan to provide affordable and reliable energy as we move to net zero?
Answer: there is none. This is not to say that the government is lacking in commitment: it has passed legislation aiming to achieve net zero carbon emissions by 2050 and has set itself the goal of decarbonizing the electricity system by 2035. no ambition either, having increased the role that low carbon energy, particularly nuclear energy, will play. But a six-month investigation by Lords’ Economic Affairs Committee concluded the government lacks a comprehensive net zero delivery plan that takes energy security into account, setting out what needs to be done by whom and in what deadlines. This must be a priority for the next prime minister.
Such a plan is essential to mobilize sufficient investment to achieve the government’s objectives. In 2020, £10billion was invested in low-carbon technologies, but the climate change committee advises the government that £50 billion a year is needed by 2030. Investors have a healthy appetite to close this gap. If they want to invest more, however, ministers must act now to boost confidence.
Our committee has identified several fields of action. Market models need to be created to encourage investment in low-carbon technologies such as hydrogen, carbon capture and storage, and long-term storage. The planning system in England must include energy security alongside climate change objectives. The new UK Infrastructure Bank is expected to focus on financing innovative and potentially riskier projects, signaling their viability to investors. In the meantime, more investment in the North Sea should be allowed, while ensuring that any expansion of oil and gas exploration or investment is focused on projects with short lead times and payback periods , limiting the risk of stranded assets.
Action on all of the above, and more, is needed now to provide affordable and reliable energy during the transition – it is a prerequisite for public support for the changes needed to reach net zero. However, none of this will resolve the current energy shock. There is nothing ministers can do to lower the price of energy in the short term. Yet steps could be taken now to mitigate its impact over the coming winters.
Some necessary measures – such as extending the life of coal-fired power plants due to their closure – are already underway. But policy gaps remain. Faster insulation of homes and other measures to improve energy efficiency are needed. Ways are already being sought to encourage local communities to install onshore wind farms in their region; given that they can be built relatively quickly, ministers should now reconsider their ambitions. It is crucial to know that there is an agreement with European partners on energy cooperation, because there is none to manage energy supply emergencies.
In all of this, the financial sector, including regulators, must be aligned with government policy. For example, the former chancellor has educated financial regulators to take energy security into account in what they do: these regulators must explain how they interpret this. Any green taxonomy should avoid making projects appear green or brown, which can stifle innovation and fail to reflect the transition process.
Politicians love to talk about “united government”, but rarely do. This time we have to. If we fail to ensure that UK energy is reliable, affordable and renewable, the transition to net zero will be messy – and we will all pay the price.