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What it will take to escape Russia’s fuel war with Europe

Putin house - Anaïs De Busscher for The Telegraph
Putin house - Anaïs De Busscher for The Telegraph

Few would blame Liz Truss for reaching for every lever at her disposal to try and isolate the UK from Russia’s fuel war with Europe.

Alongside the significant package of support mustered for households and businesses, the Government’s aim to end the short-term approach to energy security and supply should be welcomed.

Looking beyond this winter, we urgently need an exit strategy that reduces our exposure to the price volatility of fossil fuels.

Part of the answer - as the Government has noted in its recent announcements - is to embrace the homegrown solution of cleaner sources of energy that won’t deplete over time, in the form of renewables like wind and solar power supported by nuclear as necessary.

The latest auction for new generation sources of energy secured prices for renewables that are nine times cheaper than current high electricity prices set by gas generation.

These forms of energy are already holding prices slightly lower than they would otherwise be, but their potential is far greater - particularly as the price of new renewables is fixed by reverse auctions (known as ‘contracts for difference’) rather than the gas price.

While expanding extraction of gas and oil around the UK may help with energy security, the kind of volumes likely to be accessible quickly are unlikely to impact meaningfully on the prices that gas attracts on the global market.

Continuing the shift to a low carbon energy system based on long lasting capital assets - such as wind farms and nuclear power stations - should reduce our exposure to price spikes that come with fossil fuels.

The Government’s existing ambitions reflect this, setting targets including 50GW of power from offshore wind within the next decade, and a five-fold increase of solar to around 70GW by 2035. By comparison, at its historic peak in 1995, nuclear energy was providing 12.7GW.

Crucially, renewables operators are ready to move. Developers are confident that onshore wind turbines, for instance, could be operational within a year of approval in the right policy and planning environment.

In the context of the new ambition for the UK to be a net exporter of energy by 2040, our geography means that offshore wind in particular could represent a sizeable economic opportunity to sell electricity across the channel or beyond.

In a joint letter to the new Prime Minister on the day of her appointment, my Commission and the Climate Change Committee set out steps the Government can take to unlock the potential of cheap renewables for the future and accelerate the end of burning fossil fuels.

Firstly, ministers should continue the successful process of generation auctions and remove barriers to getting the infrastructure built and connected to the grid.

We also need to ensure our regulatory regime supports investment by industry in cabling and network infrastructure ahead of need, to avoid delays in connecting new sources.

In recent weeks and months, the Government has signalled improvements to the system, such as the setting up of a new independent system operator for the electricity grid and steps to streamline the planning process for key infrastructure projects. These should proceed at pace.

The UK’s national policy statements for energy - which may sound like bureaucratic exercises but are vital for ministers to be able to set strategic direction and inform the planning process for major new infrastructure projects - have not been properly updated in a decade.

The Government needs to urgently fulfil last week’s pledge to set out its objectives for the sector to guide the priorities of regulators, industry and investors.

That strategic vision for the future needs to reflect the legally binding net zero target and the interim goal to reduce greenhouse gas emissions by 78pc by 2035, compared to levels in 1990.

Reducing prices, enhancing energy security and reaching net zero carbon emissions by 2050 all point in the same direction - we have to take bolder steps towards a sustainable future for energy supply.

The public agrees. The business department’s most recent survey suggests almost 9 in 10 of us are supportive of solar energy, with 83pc backing offshore wind and 78pc supporting onshore wind.

Perhaps inevitably, these levels of support are lower when respondents are asked whether they’d be happy for the infrastructure to be built in their local area. But this isn’t about local people being anti-renewables - local opposition to fracking or coastal plants for landing gas pipelines attract similar, if not greater, concerns.

I think people see the value of renewables, but perhaps not unreasonably are keen to see local benefits to compensate for disruption.

Industry has begun to explore ways of offering people cheaper energy deals in neighbourhoods that host renewables infrastructure. While our current market arrangements make this complicated, if we can drive a car on energy generated by the sun, I’m sure we can find a way of ensuring communities share in the benefits that low cost renewables bring.

Alongside addressing supply, we could be doing much more to reduce waste. Many of us are already taking simple steps like reducing boiler flow temperatures and switching off devices that sit idle on standby in the corner of the room. Switching off the floodlighting of statues and public buildings can serve a symbolic and educative purpose.

Every little helps, but the real heavy lifting involves sorting out our draughty properties. Millions could be saved from energy bills across homes, businesses and the public sector if our buildings were less leaky.

A decade ago, we were seeing more than 2.3m insulation measures a year, like lofts or cavity walls being insulated. Last year the figure for comparable schemes was less than 100,000.

The stop-start nature of energy efficiency schemes since 2012 has hampered development of a skilled and reliable supply chain, and not helped to reduce costs for households.

To keep on target for reducing carbon emissions, as well as bills, we need attractive and accessible programmes that help homeowners with their lagging and double glazing. Providing carrots as well as sticks is the only way to achieve the Government's stated aim that all owner occupiers should achieve EPC C standard by 2035, and landlords should do the same for their properties by 2028.

The bottom line is that the current state of the UK property stock means that a significant proportion of the ballooning bills we face is wafting out of windows and roofs across the land.

A national effort to insulate and cut waste makes sense for both our pockets and the planet.

The same spirit needs to be evoked - and similarly backed by practical policies - when it comes to shifting to lower carbon forms of home heating.

Heating homes and other buildings remains a major source of emissions, making up 17pc of the UK’s carbon emissions in 2019. Unlike electricity, there has been relatively little progress in reducing emissions from heating, which continues to rely on natural gas. Around 85pc of homes have gas heating systems.

I don’t blame people for being attached to their gas boilers. As long as the alternatives out there offer only a similar level of comfort and the additional benefits are unclear, I understand why people have questioned the need to bother.

But the current crisis shows gas is not the benign choice people have tended to think. Our reliance on gas heating has left households and businesses dangerously reliant on volatile markets for a basic human need. And if we’re serious about tackling climate change then we can’t keep using natural gas to heat our homes forever.

Heat pump installations have grown over time, with 54,000 installed in homes in 2021, up from 37,000 in 2020. But compare that to the 1.7m fossil fuel boilers that are installed every year.

It is clear that we need to help people prepare for this change. That means ensuring that the alternatives are more attractive - and key to that is reducing both up-front and running costs.

The Government’s current plan to kick start the supply chain is welcome. The Boiler Upgrade Scheme provides £5,000 towards the cost of buying a heat pump, though it only has funding for a total of 90,000 installations between now and 2025. The government’s own target is to install 600,000 heat pumps a year by 2028, so we need to go further and faster.

The Government plans to oblige boiler manufacturers to sell a certain number of heat pumps and, alongside an obligation for all new build homes to have low carbon heating, this could begin to get the market motoring.

But it’s unlikely to be enough to persuade everyone to make the switch.

We also need to ensure that the price of electricity to run a heat pump is not persistently higher than that of gas, which acts as a disincentive to switch from gas boilers. This disparity needs to be addressed and should form part of the Government’s plans for reform of the energy market.

Alongside this we should keep exploring the options on the potential role of hydrogen and district heating networks to serve properties where those sources could prove the most cost effective.

Evidence on the pros and cons of hydrogen is becoming more available and ongoing trials of hydrogen boilers and related infrastructure will help determine hydrogen’s role in our future energy system.

In the meantime, a clear regulatory framework for both hydrogen and carbon capture and storage needs to be established.

The Government has pledged to take a decision on the role of hydrogen in home heating by 2026. The deadline for this decision can’t be pushed backwards without posing a risk to the long-term strategy of removing gas from our heating networks.

The Government might reasonably maintain flexibility on options where it can, but difficult choices have to be made sooner rather than later to help the private sector efficiently plan and deliver the necessary infrastructure.

The Commission itself is currently exploring some of these questions, including the likely infrastructure networks needed for heat, power and hydrogen, as part of the second National Infrastructure Assessment - a fully costed cross-sector look at infrastructure needed for the next 30 years to be delivered to government.

There is no such thing as free money. The public ends up paying somehow for infrastructure, whether through taxes or bills.

This means we need an honest conversation with the public about the costs of net zero, but crucially also the costs of inaction.

There is no trilemma between reducing emissions, enhancing energy security and cutting household bills - all three point in the same direction. That direction is increasing low carbon domestic electricity supply.

Achieving this also has the potential to create jobs across the country, particularly to roll out the home insulation required.

That's not to deny that there will be some costs upfront. The shifts involved are huge, and some of the savings will take time to materialise. In the face of that, it can be tempting to leave the problem for another year, another Parliament, or even another generation.

But the crisis is now. The Prime Minister has acknowledged the risks of simply applying a sticking plaster to the problem of energy costs. Her announcements so far have indicated a willingness to make bold decisions for both the short and medium term.

In fact, what I’m advocating is not necessarily bold - it is common sense - but it does require that same willingness to make decisions: let’s get on with diversifying our energy supply, reducing waste and switching our heating methods.

If the current energy price crisis - coupled with the ongoing droughts - doesn't bring home the message that we can no longer kick the can down the road, it's hard to know what will.

Sir John Armitt is Chair of the National Infrastructure Commission