Grand Plans – from hydrogen hubs to banning the sale of new petrol and diesel cars and vans (but not lorries) from 2030, the announcement contains some major statements of intent. However, the public funding is relatively modest, at £12bn, and only time will tell whether it is sufficient to initiate a fundamental change in how we generate and consume energy. The strategy appears to be based on providing Government funding to kick-start new technologies or deployment, with the hope that the private sector will then have the confidence to finance the commercialisation of these technologies. It remains to be seen whether this strategy will be successful.
Hydrogen, Hydrogen, Hydrogen – perhaps the most notable aspect of the announcement is the commitment to fund hydrogen hubs - essentially to demonstrate the viability of using hydrogen as a viable heating and power source. Hydrogen is very much having its moment in the sun, as both oil & gas companies and renewable power businesses see the opportunities to produce a low- or zero- emission transportable fuel. The EU has to date taken the lead in seeking to establish a hydrogen fuel infrastructure, so the UK’s proposal is to be welcomed. There is a specific target of producing 5GW of ‘low carbon’ hydrogen production capacity by 2030. This is interesting terminology as it does not rule out ‘blue’ hydrogen (produced from fossil fuels) provided that the CO2 equivalent emissions are at least partially sequestered (see Carbon Capture point below).
Carbon Capture, Encore – once again, a UK government announces investment in carbon capture, utilisation and storage (CCUS). In fact, the announcement of funding for this sector is in addition to the Treasury’s announcement of £800m for CCUS made earlier this year. Cynics with long memories will recall that previous funding announcements for pilot projects made over a decade ago were subsequently withdrawn. This time may be different.
Nuclear is Here to Stay – despite extensive criticism of the subsidies provided to the first new nuclear generation facilities at Hinckley Point C, the Government has signalled that nuclear power will remain an important component of the UK’s energy mix. Along with additional large new builds (such as Sizewell C), there will be a focus on small modular reactors (SMRs), perceived by many to be the long term solution for nuclear power. SMRs are intended to be replicable at a significantly lower cost and can be developed more rapidly as a result of a standardised regulatory process. Once again, the technology will need to be commercialised and it will be interesting to see the support proposed.
The Importance of the Grid – the shift from fossil fuels to electricity generated from low carbon sources (particularly for transportation) will significantly increase pressure on the grid. To date, National Grid (the system operator) has successfully managed the transition, but major investment in both transmission and energy storage infrastructure will be necessary. There will continue to be opportunities for industry participants, particularly in storage. The potential to transport hydrogen utilising existing gas networks may provide some respite, but, as noted above, a lot will depend on progress in that sector.
The Devil is in the Detail – as with all major policy announcements, we will only really understand the strategy and the implications for participants in the UK energy sector once we have detailed information on each of the items set out in the plan. Much of that should be provided in the Energy White Paper, which (after many delays) is expected to be issued in the next month.
We will provide an update on the White Paper once it has been issued and encourage you to reach out to us.
ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm whose lawyers practice throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.