Ten years ago, the public, media and politicians wondered just how much the green economy could deliver growth. Fast forward ten years, and we see evidence of green growth in energy, transport, manufacturing and finance, where the adoption of green alternatives has driven innovation, created jobs and raised productivity.
Nowhere is this clearer now than in the energy sector. Given the volatility in fossil fuel prices, renewables offer the cheaper, more secure option, by generating homegrown energy. Without it we can’t keep the lights on, heat our homes, produce the fertiliser needed to guarantee food security or maintain a thriving manufacturing sector, risking supply chain disruption and deepening dependence on manufacturing superpowers like China.
The socio-economic benefits of the sector are also clear: it created good quality, well-paid jobs and invested in skills right across the country, positioning the UK as a goods and services export hub for renewable technologies. The offshore wind sector alone supports over 31,000 jobs, a 16% increase on 2021. These jobs are regionally dispersed, with Yorkshire benefitting most by hosting 15% of these. Achieving the Government’s ambition of 30GW of onshore wind by 2030 could likewise generate £45bn of GVA for the UK, creating 57,000 jobs. With high energy prices, renewables are by far the cheapest form of energy generation. Just at this year’s government auctions, enough contracts for wind and solar capacity were secured to power 12.5 million homes, saving each household over £100 a year.
A key reason why this sector was able to deliver so much is the existence of a well-designed, stable, and attractive policy and regulatory systems.
Underpinned by the government-backed Contracts for Difference (CfD), it has lowered the cost of investment in what was at the time perceived to be a risky, high-capital form of energy generation. Together with investment from the Green Investment Bank, the UK created a pipeline of projects which in turn made investment in renewable energy supply chain companies attractive – with the Siemens Gamesa blade factory in Hull being a good example.At the same time, the Electricity Market Reform in 2013 has kept market arrangements stable at a crucial time for the sector, enabling economies of scale to be reached.
Whilst regulation and market arrangements should evolve, we are now at a point where protracted or, in some cases, rushed reform risks moving the dial in the wrong direction.
A prime example of this comes from recent interventions in the market to tackle the supernormal profits of renewables as gas prices have skyrocketed. For most of 2022 rumours around the potential implementation or the shape of a price cap or windfall tax have put investment into the sector on hold, at a time when we should be supercharging it. Not only were these interventions based on perceived rather than actualised profits, they were also designed in a way that put renewables at a disadvantage to oil and gas though higher investment allowances for the latter.
The Review of Electricity Market Arrangements (REMA), risks being overtaken by the political imperative to decouple gas and electricity prices to benefit consumers. Whilst the aim is admirable, such extensive reforms should not be rushed to serve purely political points. The previous Electricity Market Reform package from 2013 had been in development for over 3 years, with adequate consultation to understand the potential unintended consequences of radical reforms. The timelines now will be much compressed, with radical changes to how we price electricity and accelerate low carbon power deployment potentially being announced after less than 1 year of consultations.
This is deterring private investment, and risks delaying other reforms we urgently need. For example, the shift to locational marginal pricing (which assumes that, through pricing signals, generators can be incentivised to locate close to demand, reducing the need to build electricity transmission infrastructure) could be seen as a silver bullet. This would delay the urgently needed investment in transmission to enable us to move electricity from where it’s generated to areas of demand to where it’s needed.
We are in a position where a mixture of delayed regulatory reform (on the grid side) and rushed reform (on market arrangements) risk cracking the foundation upon which a thriving renewables sector has developed. Even if we are still the world leader in offshore wind, other countries could catch up quickly. The US passed the Inflation Reduction Act (IRA), which is already attracting European investors in renewable energy and supply chains. The EU will also pass its own version of IRA is to keep investment on the continent, rather than challenging the US at the WTO. The UK cannot afford to take its leadership position for granted and must maintain an attractive investment environment in a shifting global context.
There is still much we need to deliver to guarantee our energy security, provide affordable energy to all, create jobs, accelerate innovation, and bolster export opportunities in the process. Attaining 50GW of offshore wind by 2030 will require £48bn of private investment by 2030, the fourth largest source of investment into UK infrastructure. We have the most ambitious target in the world for floating offshore wind, 5GW, a technology for capturing the power of our wind resources in deeper, windier waters. 80% of the world’s wind potential comes from deep waters, suited to floating offshore wind, creating an important opportunity for the UK to export services and expertise to the world. UK’s green hydrogen exports from offshore wind could reach £48bn annually with potential for £200bn gross value added, and generate up to 120,000 jobs from the production of green hydrogen and export of electrolysers.
To grasp these opportunities, we need to look beyond short-term interventions to balance the budget or a quick fix to the energy crisis. Government and industry need to work together to solve the energy trilemma in an enduring way, to the benefit of all.
This blog was co-produced alongside UncheckedUK Essay Collection by Emma Rose, Playing by the Rules: Why strong social and environmental protections can help our country thrive