Key View

• While the UK government’s new energy strategy will focus on increasing energy security, adding upside risks to our power forecasts, it fails to address key issues on cost, power storage and efficiency.
• The renewable sector will see the largest upside risks to forecasts given new targets announced for offshore wind, while onshore wind provision is marginal and solar support remains vague.
• Aside from the renewables sector the nuclear sector has received large scale support with a heavy focus on rapidly developing new projects and small reactor technology.
• In a bid to reduce the role of fossil fuels in other sectors the new strategy places particular focus on the role of hydrogen in the energy mix, yet the UK remains a global laggard in this regard.

While the UK government’s new energy strategy will focus on increasing energy security, adding upside risks to our power forecasts, it fails to address key issues on cost, power storage and efficiency. The UK’s latest energy strategy launched April 7th 2022 has been designed to reduce energy costs, increase low carbon power generation and increase energy security against a backdrop of the Russian invasion of Ukraine. While we believe the plan will serve to shore up domestic energy supply and increase low carbon power, we remain skeptical as to whether it will impact energy prices or tackle consumption inefficiencies, with the current strategy focused on the energy supply rather than the management side.

The plans place a heavy emphasis on increasing offshore wind, solar and nuclear power with a more moderate approach to onshore wind, as we outline in the below. We highlight that the championing of these technologies will present several key issues for the government with offshore wind and nuclear having the highest cost per KWh. Coupled with little in the way of an energy management initiative, this will place further pressure on energy prices.

Furthermore, the plans demonstrate a lack of support for energy efficiency and the tackling of energy consumption and power storage. This was only outlined specifically through the role of heat pump manufacturing to which the government has placed an extremely minimal GBP30mn in support. We highlight that this lack of focus on reducing energy and ultimately gas consumption particularly in heating will serve to work against the expansion of other energy segments. Power storage through pumped hydro and battery technologies have been entirely omitted which we believe will work against growth in renewables. Because of this fact we would expect to see further policy surrounding these issues.

The renewable sector will see the largest upside risks to forecasts given new targets announced for offshore wind, while onshore wind provision is marginal and solar support remains vague. The UK has set a new target to build 50GW of offshore wind by 2030, previously set for 40GW with a floating technology to comprise 5GW, up from 1GW previously. In order to realise this growth, the targets will be supported by new planning measures which will reduce the planning time for new projects from 4 years to 1. Offshore wind planning has been a hurdle for several previous offshore wind projects. Most recently, over 2021 and 2022 both the 1.8GW Norfolk Vanguard and 1.8GW Norfolk Boreas sites required government intervention to address planning concerns with grid connection as well as public opposition. If applied successfully, these new measures could have a significant impact on our wind outlook for the market in which we forecast 37.7GW of new capacity over the coming decade.

Furthermore, the very nascent and more expensive floating wind sector will see its prominence rise further with the new targets. The long-term growth of the wind sector was secured in the UK with a vast 25GW offshore wind leasing round developed by the Crown Estate, of which 13GW was floating technology. Known as ScotWind, the sites relate to projects off the Scottish coasts and has seen 17 proposals selected for 7,000sq km of development space.