Implementing the UK’s energy transition

The UK faces a race against time to reach net zero by 2050. The aim is to slow glob­al warm­ing by reduc­ing green­house gas emis­sions as much as pos­si­ble and off­set­ting the small amount that remains by remov­ing the equiv­a­lent amount from the atmos­phere.

To achieve that goal, the UK must grad­u­al­ly tran­si­tion to exist­ing renew­able ener­gy sources, such as wind and solar pow­er, while also invest­ing huge sums of mon­ey in devel­op­ing future forms of clean ener­gy, for exam­ple nuclear fusion and green hydro­gen.

At COP26, 200 coun­tries agreed to a range of pledges, goals and mea­sures aimed at reach­ing this tar­get. Now that the talk­ing is over, the time for action has arrived and the UK must imme­di­ate­ly get to work on imple­ment­ing an ener­gy tran­si­tion strat­e­gy.

We spoke to two clean ener­gy experts for their advice on the approach the UK should take.

Strategy

Reach­ing net zero will require coop­er­a­tion between the gov­ern­ment, busi­ness­es, pri­vate financiers and every­day peo­ple, who are like­ly to pay more for their ener­gy in the short term as the tran­si­tion to renew­able ener­gy gets under­way.

Accord­ing to organ­i­sa­tion­al improve­ment com­pa­ny BSI, the IT sec­tor (61%) is lead­ing the way for the pro­por­tion of com­pa­nies that have com­mit­ted to net zero. In com­par­i­son, oth­er sec­tors are far behind, notably man­u­fac­tur­ing (45%), finan­cial ser­vices (42%), health­care (26%) and edu­ca­tion (22%). 

Mike Theobald, the direc­tor of ener­gy tran­si­tion at WSP, says busi­ness­es that fail to com­mit to net zero tar­gets could strug­gle to grow. He says: “It’s already becom­ing increas­ing­ly dif­fi­cult to attract exter­nal invest­ment for projects with­out an ener­gy tran­si­tion plan in place and access to cash is mov­ing stead­fast­ly towards low car­bon and net zero-based devel­op­ments. Organ­i­sa­tions need to adapt quick­ly for con­tin­ued access to cash.”

Private investment

At COP26, a glob­al coali­tion of 450 pri­vate com­pa­nies across 45 coun­tries signed up to the Glas­gow Finan­cial Alliance for Net Zero (GFANZ) and agreed to deliv­er and man­age £96tn worth of invest­ment towards achiev­ing net zero.

That agree­ment fol­lows the Cli­mate Finan­cial Part­ner­ship (CFP) between Black­Rock and the gov­ern­ments of France, Ger­many and Japan, which set out a plan to align funds aimed at reduc­ing car­bon emis­sions. James Simp­son, a part­ner at Hunton James Kurz who has worked in project financ­ing for 35 years, says the UK will need an injec­tion of pri­vate cash.

“I think pri­vate invest­ment is very, very impor­tant,” he says. “Projects of this scale require huge sums of mon­ey and will have to be dri­ven by pri­vate financ­ing. What we’re see­ing in the UK, espe­cial­ly in the off­shore wind sec­tor, is a ter­rif­ic appetite for financiers to sup­port these projects, so it’s cru­cial.”

Renewable energy

In the short term, cash will be fun­nelled towards renew­able ener­gy sources that are already read­i­ly avail­able, for exam­ple wind and solar pow­er. For pri­vate investors, these forms of ener­gy rep­re­sent lucra­tive long-term invest­ments.

In a typ­i­cal renew­able ener­gy project, for exam­ple the estab­lish­ment of a new off­shore wind farm, investors will stump up approx­i­mate­ly 20% of the total cost of the project, with the remain­der being financed by banks in the form of debt.

Simp­son says banks are attract­ed to the poten­tial long-term suc­cess of renew­able ener­gy ini­tia­tives. “Banks that will lend to this will be look­ing at the via­bil­i­ty of the project after­wards,” he adds. “In the off­shore wind sec­tor, we’ve seen that banks feel there’s a sig­nif­i­cant prospect for those types of renew­able assets,” he says. “We’ve already seen it in the Mid­dle East, where huge solar and wind projects have been under­tak­en.”

Innovation

Despite the will­ing­ness to invest in wind and solar pow­er, those ener­gy sources alone won’t be enough to pow­er the UK and elim­i­nate the risk of out­ages – at least in the short term – mean­ing a diverse ener­gy mix will be need­ed in the years ahead.

Inno­va­tion will be key, as com­pa­nies try to devel­op new sources of clean ener­gy. Green hydro­gen presents one option, but nuclear fusion is attract­ing invest­ment from com­pa­nies across the UK. “Nuclear fusion is mov­ing away from being a dis­tant source of clean ener­gy to near term proof of con­cept,” says Theobald. “Mul­ti­ple, well-fund­ed organ­i­sa­tions with cred­i­ble pro­grams are explor­ing how to har­ness fusion pow­er to ener­gise grids with almost lim­it­less base load clean ener­gy.”

Roadmap

Organ­i­sa­tions want to decar­bonise and invest in clean­er tech­nolo­gies and there­fore a com­pre­hen­sive tran­si­tion roadmap is need­ed to under­stand what is expect­ed by when and what they need to include in their busi­ness plans. 

Larg­er organ­i­sa­tions with big­ger bud­gets will be bet­ter equipped to fund and begin this tran­si­tion but help will be need­ed for small busi­ness­es that col­lec­tive­ly will have an equal influ­ence on the suc­cess of the ener­gy tran­si­tion.

“The gov­ern­ment must fos­ter the right incen­tives for UK indus­tries of all sizes to take the right steps,” says Theobald. “They must also be ready to guide and assist small­er organ­i­sa­tions that have less resources to eval­u­ate the opti­mum way for­ward.”

With COP26 now over, the UK gov­ern­ment must act with urgency if it is to hit net zero by 2050. Cash to devel­op exist­ing forms of renew­able ener­gy and the devel­op­ment of future sources is crit­i­cal, while sup­port for small busi­ness­es will also be key if the UK is to achieve its goals and stave off the worst effects of cli­mate change.