The UK's energy priorities: enhancing energy security and pathways to decarbonisation

 

Speech delivered by Business and Energy Secretary Kwasi Kwarteng at the Chatham House Second Century London Conference.

Good morning. Thank you so much, thank you Sir Nigel, for inviting me to speak here today.

And thank you all for managing to get here with the travel disruptions that we’re facing.

Four months ago, a terrible war returned to European soil.

The brutality unleashed by Putin’s forces has been horrifying, and this has had a profound humanitarian impact, and on energy costs and security.

However, the gas crisis was not borne out of this war.

As economies re-opened after lockdown and demand increased dramatically – prices inevitably rose.

When I speak to my counterparts across Europe and internationally, they are all facing the same challenges.

In Germany, the government has re-started coal-fired power stations.

In France, system operators are calling on households to take showers rather than baths.

No country in Europe is immune, least of all Britain.

While the UK gets very little gas from Russia, we are all vulnerable to gas markets that we are unable to control.

Despite our barrage of crippling sanctions, Russia is still able to weaponise its dominance over gas supply.

Just last week, Russia reduced gas deliveries to Italy and Slovakia and cut off France entirely.

And just before that, companies in Poland, Bulgaria, Denmark, and Germany were choked off Russian gas supply.

Europe cannot be in this position any longer.

In Britain, we have already reduced Russian gas imports by 75% compared with the same period last year, and the proportion of oil imports from Russia has halved.

Our last Russian LNG shipment was on 2 March this year.

And by the end of this year, we will no longer import any Russian fossil fuels.

But what this has shown is that we need to reduce our exposure to gas markets, to volatile gas markets entirely.

And we can do that by moving off gas in the long-term.

But how did we get to this position?

Yes, COVID-19 and Russia’s invasion has put a huge strain on Britain’s energy system…

…but were we as resilient as we might have been?

Our system has been decades in the making.

And when we look back, we see an energy system that was essentially nationalised after the War, some 90% of our power generation was from coal.

Even in the 1950s, we were mining 1 million tonnes of coal every working day.

This was a fairly straightforward energy mix.

We had an abundance of domestically sourced coal, and we simply burned it.

Four decades later, the National Coal Board, as well as other nationalised utilities were in a bad state.

They made losses, were very inefficient, and they needed modernisation.

For Prime Minister Thatcher and the Chancellor of the Exchequer Nigel Lawson, the motive for liberalisation was obvious.

They could see that monopolies curtailed innovation, they limited choice, and they pushed up prices.

And they could also see that greater investment was needed to replace age old infrastructure.

So, getting private capital to fund these necessary upgrades was absolutely essential – and the sector did deliver.

Since the 1980s, we have attracted hundreds of billions of pounds in private finance – money that otherwise would have come simply from higher taxes.

Competition and innovation led to greater efficiencies, there were huge cost reductions, and considerable revenue was used to fund necessary tax cuts and drive public sector reform.

This was a good outcome for the consumer, the Treasury, and the wider British economy.

In the 1980s and 90s we had the Dash for Gas, and it looked as though Britain had struck gold and was set for life, that’s how it felt at the time.

But of course, today, global gas prices are at unimaginable, record highs.

A dependence on gas has left us more exposed.

But this government has increased renewable capacity by 500% since 2010, and the current situation shows we need even more diversity.

And of course the key to greater diversification of the energy market is unlocking private investment.

Over the coming decades, Britain will need many hundreds of billions of pounds of investment into clean energy, grid upgrades and new nuclear power, for example.

This investment will create hundreds of thousands of good jobs…in industries that will be built to last.

Private finance is essential to the energy transition – it is not the enemy of that transition.

It is private capital and deployers of that capital who are investing, creating jobs, innovating, and exporting.

We cannot transition without the private sector taking those risks and investing their capital.

But it does mean that we need a stable, predictable, and competitive business environment for these companies to continue to invest in the UK.

We have a clear, long-term plan to attract investment into new technologies, but energy infrastructure by its very nature does take time.

In the immediate term, we are of course exposed to winter, and we have to consider how our resilience shapes up in that challenge.

Unlike many in Europe, our energy comes from a variety of highly diverse, reliable, and secure sources.

We get the gas we need from the UK Continental Shelf, we have imports from Norway, we have LNG coming in from all round the world, Liquefied Natural Gas, through our impressive port infrastructure – it’s the second largest infrastructure in Europe.

On electricity, our diversity of supply, I’ve always maintained, is a great strength.

We have the world’s second largest installed capacity of offshore wind – only just beaten by China in fact only a year ago.

We have onshore wind, we have solar power, we have nuclear, we have hydroelectric power, and of course we’ve got interconnectors between us and countries in Europe.

However, despite this diversity of supply, we must be prepared for any scenario - however extreme.

Since January, I have been rapidly scaling up our activity to improve winter preparedness and resilience.

Earlier this year, I personally requested that National Grid uses the upcoming Capacity Market auction to the full to mitigate uncertainties.

Only last week, I was pleased to host Centrica and Equinor as they signed their major agreement to shore up Britain’s gas supply over the next 3 winters.

Like many others in Europe, I’ve also requested to extend the life of our coal-fired power stations for extra supply for this winter.

Now, West Burton coal power station will remain open this winter, and negotiations with Britain’s 2 other remaining coal plants are ongoing.

But we cannot escape the fact that as geopolitics has changed – so must we.

And that’s why we are exploring domestic gas storage options carefully.

… potential regulatory options to extract more gas from existing fields…

…and further measures, of course, around energy efficiency.

Winter preparedness aside, however, we must renew our focus on the future.

Not since the wind God Aeolus gifted wind to Odysseus have human beings been able to harness the power of the winds with such efficiency and effectiveness

This is a resource that cannot be manipulated.

Our ambition is for offshore wind to generate 50GW by the end of this decade…more than enough to power every home in the UK.

This will be possible thanks to our Contracts for Difference scheme, arrangements – a mechanism which is copied and envied all around the world.

That’s why earlier this year, I took the decision to run these auctions annually - rather than every 2 years, which has been the case in the last 6 years.

This means we can secure new renewable capacity - sooner.

And as I speak, 10GW of renewable power is currently being built, constructed, across the UK.

That’s equivalent to the capacity of 3 Hinkley Point C nuclear power stations, and of course we have already installed today 12GW at the moment.

But we need to go further. The Energy Security Bill will unlock our plans.

Next month, I will announce the results of Allocation Round 4 – our biggest renewable energy auction ever.

In the summer, I will set out options to fundamentally reform our electricity market.

Then, later this year, we will update our planning policy and eliminate some of the bureaucracy, which can get offshore wind and solar projects off the ground.

We’re driving local partnerships in England for onshore wind – which everyone should know is the cheapest and quickest way to build renewable power.

All of these will be driven by a new Electricity Networks Commissioner who will be appointed, announced this month.

We’re making great progress in this area. One area, of course, where we’re seeking to make even greater progress is hydrogen.

Jules Verne, 150 years ago, imagined that water might one day be used as a fuel - ‘furnishing an inexhaustible source of heat and light.’

Today, green hydrogen produced by electrolysers has become a critical part of our approach to greater energy independence.

And with the global low carbon hydrogen economy set to be worth nearly a trillion dollars by 2050, this booming market is ours for the taking.

So, this summer, I will launch a Hydrogen Business Model and our Hydrogen Fund allocation round – with contracts awarded in 2023.

Very soon, we will enter negotiations with the first CCUS-enabled projects.

And this is a huge opportunity to re-industrialise our old industrial heartlands – and to protect and drive the competitiveness of British industry.

If we get this right, we will reach our 10GW hydrogen production target this decade.

Now underpinning all of this is a renewed commitment to nuclear power.

We dithered on this for 30 years, but we now realise the importance of nuclear power, because we know we need a continuous, low-cost, low-carbon supply of energy to support our renewables.

Next month, we’ll accept bids to bring nuclear projects to maturity.

We’re keen to revive sites from Hartlepool to Heysham, from Wylfa and Trawsfynydd.

Thanks to the Nuclear Act, we have a new financing model to cut the cost of each new large-scale project by £30 billion.

Great British Nuclear – our delivery vehicle - is up and running with Simon Bowen at the helm.

It’s tasked with helping these projects through every stage of the development process and developing a resilient pipeline of new builds.

Taken all together, we want to see progress on up to 8 new reactors this decade.

I’m also obviously focused on our energy needs today. We can look to the future, but we do have an immediate responsibility.

And like many other industrialised countries, we cannot move to a clean, secure and sovereign energy system without continuing to use oil and gas.

It would be madness to do as some of our most strident climate activists ask and stop production overnight.

Not only would that lead to thousands of job losses, but without gas, we will have no carbon capture and we will have no blue hydrogen production. These will be new industries that will create even more jobs.

I have always taken personally a very balanced view of this question relating to our home-grown fossil fuels.

We’re not going to pander to an extreme climate lobby, but we’re not blind to the real dangers we face through climate change, we’re not going to indulge in climate scepticism.

We are transitioning away from fossil fuels… but it’s much better to source the fossil fuels we need here at home.

And that’s why we’re planning another oil and gas licensing round this year.

And frankly, we have got to use all the tools at our disposal to ensure our energy security. It’s an imperative, it’s not a mere option.

This year, earlier this year, when Russian tanks rolled into eastern Ukraine, of course the whole world changed.

That’s why, after much reflection, I asked the British Geological Survey to look again at the science around shale gas extraction in England.

They will report back to me next week, and I will consider the next steps.

We have always been clear that shale gas could be part of our future energy mix, but we need to be led by the science and above all we need to have the support, the ongoing support of local communities.

Our plans have been laid out in the British Energy Security Strategy.

We remain resolutely focussed on creating a clean, affordable home-grown energy system.

And it’s not simply a question of climate change, tackling climate change, which we take extremely seriously, it is also a matter of national security.

We cannot – and will not - be blackmailed by dictators with their hands on the gas taps.

Energy produced in Britain, is the safest option.

And that’s how we will deliver security, affordability, and sustainability in our energy system.

Thank you.

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