Posted on January 15, 2024
The UK has gone further and faster down the green energy road than many predicted. Despite the successes so far, more challenges are ahead
By
Last autumn, Scotland’s biggest offshore wind farm, off the Angus coast, began operating at full capacity, generating sufficient electricity to power two-thirds of Scotland’s households. Seagreen’s 114 giant turbines will displace more than two million tonnes of CO2 each year. Offshore wind is a success story: in the year to April 2023, renewable electricity generation capacity grew by six per cent, with offshore wind growing by nine per cent and solar by eight per cent, the highest rate of quarter-on-quarter growth since 2017.
On 15 May 2023, the UK produced its trillionth kilowatt hour (kWh) of electricity generated from renewable sources – enough to power UK homes for 12 years based on average consumption. While it took 50 years to reach this milestone, based on current projections, it will take just over five years to reach the next trillionth kWh. ‘The UK has done well at decarbonising the electricity system; that has been a remarkable story,’ says Esin Serin, policy fellow at the London School of Economics and Political Science. She’s also impressed ‘by how rapidly the UK has phased out coal.’
Since 2000, when renewables accounted for just 2.8 per cent of all electricity in the UK, their contribution has increased substantially. Electricity generation from wind power increased by 715 per cent between 2009 and 2020. In 2022, a record 40 per cent of electricity came from renewables and wind was the second-largest source of electricity after gas (26.8 per cent). Biomass contributed 5.2 per cent, solar 4.4 per cent and hydro 1.8 per cent, according to the National Grid Electricity System Operator. Total oil and gas production remains 25 per cent below pre-pandemic levels.
‘The renewable-energy picture in the UK is quite good,’ agrees Jonathan Marshall, senior economist at the Resolution Foundation. ‘We’ve had a big expansion in offshore wind and until 2016 [when the government introduced a moratorium], a decent roll-out of onshore wind.’ He does add, however, that the UK benefits from serendipitous geography, as it enjoys a combination of shallow seas (making it easy to attach wind farms to the seabed) and windy conditions.
In the UK, the average annual wage in the renewable energy industry is £42,600 or nearly 25% more than the national average.
More than 140,700 people are currently employed in the sector, which is predicted to grow to 210,000 by 2035.
Source: Renewable Energy Association
A HOME FOR INNOVATION
Britain also does well in relation to innovative clean technology, such as floating wind turbines, tidal stream (the latter projects can resemble upside-down wind turbines) and operations and maintenance of renewable infrastructure, according to Nathan Bennett, head of strategic communications at RenewableUK, which represents 450 companies involved in renewable energy, with 75GW of floating wind in the pipeline, 20 per cent of all proposed global wind. Meanwhile, tidal stream is on course for 12.5GW of capacity and becoming cost competitive with nuclear in the 2030s.
The UK ranks ninth globally on ‘green’ exports, accounting for 2.5 per cent of global export volume of such products. This share is similar to France, but significantly lower than China, Germany and the USA (at 19, 13 and ten per cent respectively).
‘Most of the world does not have our shallow seas and so countries such as Japan will base much of their renewable energy on floating wind turbines,’ says Bennett. ‘We are in a position to develop the expertise and build the components and export them to the world.’
With the average annual wage in the renewables industry at £42,600, significantly above the national average of £33,400, the sector is also attractive to work in, according to RenewableUK. More than 140,700 people were employed in the renewable energy and clean technology sector in 2021–22 – the Renewable Energy Association (REA), which represents 500 member companies, projects this could increase to 210,000 by 2035.
COULD DO BETTER
Much of the UK’s progress towards net zero is driven by the power sector, with 41.7 per cent of power generation now coming from renewable sources, according to the Department for Energy and Net Zero. The challenge, as Marshall puts it, is that ‘it proved easy to close down coal-fired power stations that were not often operating at full capacity. It’s less easy to do that to gas.’
Serin points out that ‘the UK has fallen short in tackling transport emissions and domestic heating and building decarbonisation in general.’ Major policy gaps are failing to enable the growth of potentially game-changing technologies, according to the REA. ‘There is still a long way to go, with 8.36 per cent of the UK’s total heat consumption and only 5.32 per cent of the UK’s total transport consumption generated by renewables in 2022,’ according to a spokesperson.
To make matters worse, the government, no doubt for political reasons, decided to announce it was going to apply a brake to our green transition. Prime Minster Rishi Sunak declared in a September speech that he was fighting back in ‘a war against motorists’. He extended a deadline to stop the sale of new petrol and diesel vehicles, delayed a proposed ban on the installation of gas and oil boilers in new homes, and, for good measure, scrapped plans to make landlords improve the energy efficiency of their properties.
47 % of UK power generation now comes from renewables.
On 15 May 2023, the UK produced its trillionth kilowatt hour of electricity generated from renewable sources. It took 50 years to reach that amount of renewable energy produced. It will only take five to produce the next trillionth kWh
Sources: Renewable Energy Association & The National Grid
The move, which Sunak described as ‘a pragmatic re-think’, was dismissed by critics as short-term politicking and took the UK renewables sector by surprise. From a business and industry perspective, weakening commitments on decarbonising transport and homes appears curious at a time of irrevocable transition from a society predominantly powered by fossil fuels. Analysis by the Climate Change Committee, the government’s own climate watchdog, calculated that bills for drivers and renters would actually end up being higher than under the original deadlines, and issued a testy reminder that the Climate Change Act binds the UK to net zero and a 100 per cent reduction in emissions by 2050.
Other critics pointed out that such uncertainty over the country’s direction would put off investors. This autumn, an auction for contracts for further wind farm development failed to attract a single bid.
THE DAMAGE FROM SUNAK’S SPEECH
‘We can expect progress to take a hit backwards,’ says Serin, who has little time for the prime minister’s backsliding on electric vehicle and heat pump deadlines. ‘[That speech] damaged the UK’s reputation and leaves investors wondering how serious the UK is about carbon capture and storage, hydrogen and other green technologies. Other countries are trying to bring these technologies in and the UK risks losing its place.
‘It’s crucial the PM takes a more pragmatic approach that eases the burden on working people, but those announcements were a political calculation and didn’t do anything to ease that burden. We need support targeted at those least able to afford new technology.’
A fundamental fault needs fixing, says the REA. ‘On one hand, the government’s Powering Up Britain: Energy Security Plan committed to a fully decarbonised power system by 2035. On the other hand, this summer, the government issued new fossil oil and gas exploration licences. The long-term strategy and visible government actions currently do not align. At times it can feel as if we are wading through treacle when repeatedly being challenged to make the economic case for net zero.’
DO WE NEED A GREEN INDUSTRIAL STRATEGY?
Unlike the USA, the EU and many other states and regional bodies, the UK doesn’t have a formal green industrial strategy. Opinion is divided over whether this is because the current UK government is philosophically opposed to a strategy of prescription and believes instead in leaving matters to the free market.
‘The idea that you simply create demand and the supply rushes in behind it – that’s not how the world works. It doesn’t give manufacturers confidence,’ says Bennett. Serin says the political decision to put a carbon price on power generation made coal uneconomic, while government incentives played a large part in the growth of offshore wind. The overarching driver, says Marshall, was the 2013 Electricity Market Reform, which set up long-term financing and a positive environment where investors had the confidence to take out loans to build infrastructure such as wind farms.
‘It’s hard to see how big change happens without government policy,’ he says. ‘Different areas of decarbonisation respond to legislation differently. The car industry has been making electric vehicles for years, so Sunak’s announcements probably won’t have much impact. But renewable energy for electricity is not going to happen without government intervention. Uncertainty is rarely good.’
Wind-generated electricity in the UK (the second-largest source ) accounts for 26.8% of current output. Biomass contributed 5.22%, solar 4.4%, and hydro 1.8%
Overall renewable energy capacity across the UK grew by 6% last year, with offshore wind up by 9% and solar up by 8%
Source: The National Grid
‘Net zero involves a transformation from the incumbent technologies to low carbon,’ argues Serin. ‘You have to incentivise the latter, so that when companies have a choice, they go for the cheaper option. The failure to write a strategy down on paper is leaving the UK behind when the USA and EU are racing ahead.’
Investment in clean technologies needs to rise from the current £10 billion a year to £50 billion per year by 2030, according to the Climate Change Committee. It reckons that of the £50 billion per year, £9–12 billion needs to come from the Treasury. ‘It’s important to note that this investment is frontloaded,’ says Serin. ‘The more we invest in the short term, the less we have to do in the long term, the less it costs. The costs of new technologies come down quicker, they become more efficient.’
Serin points to levers at the government’s disposal, including tax incentives for net-zero aligned investments, R&D grants, risk sharing, public infrastructure investment, skills programmes and removing policy barriers to investment such as planning restrictions.
A coherent industrial strategy would also address problems in the energy supply chain, where, says Bennett, ‘manufacturers of components have not been targeted for support or incentives in the same way as energy producers at the top of the chain (those who operate the turbines). ‘The cost pressure has been forced down the supply chain and that’s not healthy in the long term. Increasing the number of tower and blade factories is not going to happen unless companies get support incentives and certainty.’
Capturing the value of the floating wind market requires a proactive strategy, he adds. ‘We need to build ports large enough to house the enormous related components so that we are not outcompeted by other nations. If we don’t react, we will lose manufacturing and investment overseas. Taking time to nurture emerging industry is not a new approach – governments did this for the oil and gas industry in the 1960s and 1970s.’
GREEN OPPORTUNITIES
The UK is heavily specialised in services, and areas such as green finance and related services present key opportunities, according to the Resolution Foundation, which has also identified comparative advantage in goods such as pharmaceuticals, which rely heavily on the UK’s strong science base and universities. ‘These are a source of strength when it comes to net zero,’ says Marshall. ‘National returns from government support for innovation – including private returns for the innovator as well as direct and indirect knowledge spillovers for other UK innovators – are particularly high for both tidal and offshore wind energy technologies,’ he says. ‘These both have estimated returns of nearly three times the average across all technology fields.’
REGIONAL BOOST
A meaningfully green economy would boost regional and less productive parts of Britain, says Serin. ‘Tidal stream energy is concentrated in coastal communities, which have seen large declines in shipbuilding and fishing. Carbon capture and storage is concentrated in industrial heartlands that face a risk of job losses if a way cannot be found to decarbonise the industries.’
Modelling by the REA shows that consistent and proactive support from the government could see future jobs and investment distributed more equally across every region and nation of the UK. By 2035, the North East could see a 111 per cent increase in market value, the North is projected to support around 30,600 jobs, with a further 12,700 jobs held in Yorkshire and the Humber.
THE RACE WITH RIVAL NATIONS
The UK lags behind when it comes to gigafactories – giant electric car battery plants – with just one due to start production in Somerset in 2026, says Serin (France has one already operational and three others planned). ‘While the UK is specialised in clean technologies, it ranks 15th globally on related patenting and straggles behind some countries. For example, South Korea and Japan produce around four times as many clean patents per 100,000 workers compared to the UK.’
Other nations are racing ahead with their transition to a green economy. In the USA, the Inflation Reduction Act has committed large-scale and long-term government support that provides US$393 billion of subsidies to clean technologies and sectors seeking to attract substantial private sector investment, while the EU is deploying a Green Deal Industrial Plan that’s expected to relax state aid rules, introduce fast-tracked permitting for clean technology and offer investment incentives.
While 8.3% of the UK’s total heat consumption comes from renewabless, only 5.32% of transport energy consumption was generated by renewables in 2022.
Transport is the largest emitter of greenhouse gases in the UK, accounting for 24% of all emissions.
Sources: Renewable Energy Association & Department of Transport
BUSINESS LEADERS – THE NEW TREE HUGGERS?
At times, it can be hard to see daylight between green advocates and business leaders. In its July 2023 report, the voice of British business, the CBI, said that the UK couldn’t address the issues ‘around the edges’ of the green economy. ‘To be truly in the race, we need to get more strategic, more ambitious, and act with more agility,’ it declared. Going green wasn’t just about benefiting the planet; it also offered a way out of the UK’s current economic gloom.
Globally, business and industry are taking matters into their own hands and, essentially, following the money, with around two-thirds of global GDP now covered by some form of clean-energy/emissions-reduction target. The good news, says Bennett, is that ‘we are further ahead in decarbonising our electricity system than most other nations’, but he acknowledges ‘a degree of discomfort among industry about the politicisation of green policies’. He remains optimistic, taking Sunak ‘at his word’ when the prime minister insisted the government wasn’t rolling back in the long term (the onshore wind moratorium was, in effect, reversed in the autumn of 2023). He’s also confident the UK will become a truly green economy and points to public opinion to underpin his optimism. An Opinium poll this autumn for RenewableUK found that four-fifths of UK voters believed that the growth of green industries was important for the growth of Britain’s economy.
‘There’s no indication in reality that the government is moving away from the renewables sector. It would be very difficult to move backwards,’ says Bennett. ‘The economics have fundamentally changed. Wind and solar remain the cheapest way to produce electricity and that remains the case despite recent infrastructure costs. The arc of capitalism is now bent behind renewables, not just in the UK but across all major nations.’
BEARERS OF GOOD NEWS?
The government, industry and campaigners need to get across the message ‘that by doing this stuff you are making people’s lives better’, says Marshall. ‘Getting to net zero is hard; muddling through probably isn’t the best way to do it. Some areas are still tricky – agriculture will prove hard as we have not had much progress on livestock reform and we still talk about blast furnaces to make steel. But the wider economy is moving the right way.’
Sunak’s pronouncements mean that the Climate Change Committee is less confident that the UK will meet its 2030 commitments, which in turn makes it harder to meet the 2050 net zero targets.
As well as a more positive message, Serin believes that clean technology needs to be made politics-proof. ‘We seem to be going in the wrong direction right now,’ she says. ‘To maximise certainty for businesses making long-term investment decisions, individual policies need to be woven into an overall growth strategy that can outlive political cycles.’
How green can a green economy be?
A green economy will mean profound chage. ‘A lot of it will be hard to conceptualise and involves what could be called “the hidden plumbing” of the economy,’ says Esin Serin of the LSE. ‘It’s about economic activities that don’t stretch the boundaries of the environment. It comprises everything from textile factories to coffee shops. It means a manufacturer calculating [the footprint of] a washing machine after it’s been sold to a customer. It means a concert organiser being responsible not just for their energy costs or their coffee cups but incorporating the carbon footprint of the travel to the concert.
‘It will require a cultural change and it’s crucial for the public and private sectors to work together to make low-carbon energy more affordable.’
A green economy should play to the UK’s strengths, says Jonathan Marshall of the Resolution Foundation, as it will be driven by the knowledge economy. ‘The service-based economy accounts for 80 per cent of GDP and involves professional, higher-skilled, largely computer-based work – consulting, banking, finance. The UK is in a good position for this and should focus on it rather than starting from a low base in fields such as manufacturing and heavy industry.’
Economic strategy would be based around low-carbon activities in transport, services, engineering, oil and gas, legal work,’ he adds. ‘It involves lawyers advising on green investments and green accounting [whereby firms incorporate their wider carbon footprint in their accounts],’ says Marshall. ‘It needs to include a wider acknowledgement that some jobs are time-limited and retraining people as their jobs fall by the wayside.’
What difference can a government make?
The lack of an industrial strategy has been widely cited as putting at risk the UK’s record on green technology. But the government can address this by ensuring organisation from the top down is coherent, argues Simon Sharpe, a former UK government policy adviser.
‘Coordination between departments is always difficult, but I don’t believe it is the main structural problem facing UK policymaking for the low-carbon transition,’ he says. Instead, Sharpe argues, the larger structural problems are found in HM Treasury, ‘which too often uses its disproportionate power over budgets to micromanage policy’. The departments responsible for energy, industry, transport and agriculture ‘have greater expertise in those areas’, he says, ‘and it’s a waste of public money when that expertise is not fully used and wrong policies get chosen.’
Sharpe is unconvinced that imposing levies on fossil fuels makes a difference. ‘The traditional advice of economists is that carbon pricing is the most efficient policy for reducing emissions – but this is a mistake arising from thinking about the problem the wrong way,’ he says. ‘The transition from horses to cars was not made by taxing horse manure, the internet was not created by putting a tax on letter-writing. Investment in new technologies and their supporting infrastructure and systems is what matters most.’
