UK & Europe
Energy & Natural Resources
The White Paper notes that the UK’s energy system was designed for the age of fossil fuels; but by 2050, electricity could provide over 50% of final energy demand, displacing petrol and diesel in vehicles and some gas for heating.
This necessitates a very different approach, and the White Paper sets the goal of creating "investment opportunities across…to enable a smarter, more flexible energy system, which harnesses the power of competition and innovation to the full". It commits to "instil competition deep into the operation of our energy markets" to drive down cost and increase innovation. So, consistently with the "Power" section in Chapter 1, the Government's policy is to encourage change and innovation via a free-market economy.
The White Paper identifies the following key issues:
The Government's key commitments regarding the energy system are:
These commitments are undoubtedly praiseworthy, but whether they can all be achieved in time is questionable. For example, the goal of electricity becoming the primary source of power for vehicles and domestic heating requires massive infrastructural changes given the sheer scale of the task for a nation with approximately 27.8 million households, where currently EVs constitute approximately 10% of UK market share now.
The White Paper envisages market providing the necessary investment and innovation in response to Government "price signals" and support. However, energy and construction companies will likely need incentives to take on the risks of such a technologically ambitious project of this scale. The Government has already spent a fortune tackling Covid-19 and, following Brexit, will it have sufficient funds to support these energy projects?
There are also legal obstacles to overcome. For example, the adoption of clean energy sources like hydrogen is a central part of the Prime Minister’s Ten Point Plan and the White Paper, but there is currently very little legislation in relation to hydrogen specifically. The Gas Act 1986 applies to hydrogen, and so any corporation planning to transport hydrogen by gas pipelines must follow all the requirements applicable to gas transporters in the Gas Act (e.g. obtaining a license in advance). This may deter local, decentralised production. Transportation of hydrogen is further restricted by the UK Gas Safety (Management) Regulations ("GS(M)R"), which only permits 0.1% hydrogen in the network. A recent test shows that up to 20% of hydrogen can be injected into the gas distribution network safely, albeit there has been no such practical experience in the UK due to the restriction in GS(M)R. To promote the use of hydrogen in the UK, a special regime for injection, transportation, storage and pricing of hydrogen is likely to be implemented via amendment of the Gas Act and GS(M)R. But will there be the necessary legislative time for all this, while the country adapts to a post-Brexit, post-Covid world?
Another issue is the Government's desire to enable competitive tendering in the onshore electricity network. Currently only offshore electricity transmission projects are open for competitive tendering, and Ofgem is responsible for managing the competitive tendering process. This is regulated in Article 147 of the Energy Act 2013 and the Electricity (Competitive Tender for Offshore Transmission Licences) Regulations 2015. To enable competitive tendering for the onshore electricity network, the Energy Act is likely to be amended again, and a set of new regulations promulgated. Is there the legislative will and time to get this done?
The White Paper's key commitments are laudable, and it is particularly praiseworthy that the Government has identified the critical need to embrace cutting-edge technological/IT solutions to build a world-leading digital infrastructure for the UK's energy system. However, it remains to be seen whether the necessary legislative reform will occur and whether the light-touch, free-market approach can achieve the ambitious goals set out in the White Paper.
 Hydrogen falls under the definition of “gas” under Article 48 of the Act.