Implementing the UK’s energy transition
To prepare for a changing energy landscape, and meet the objectives set out at COP26, the UK will need to examine its energy infrastructure and energy financing
The UK faces a race against time to reach net zero by 2050. The aim is to slow global warming by reducing greenhouse gas emissions as much as possible and offsetting the small amount that remains by removing the equivalent amount from the atmosphere.
To achieve that goal, the UK must gradually transition to existing renewable energy sources, such as wind and solar power, while also investing huge sums of money in developing future forms of clean energy, for example nuclear fusion and green hydrogen.
At COP26, 200 countries agreed to a range of pledges, goals and measures aimed at reaching this target. Now that the talking is over, the time for action has arrived and the UK must immediately get to work on implementing an energy transition strategy.
We spoke to two clean energy experts for their advice on the approach the UK should take.
Reaching net zero will require cooperation between the government, businesses, private financiers and everyday people, who are likely to pay more for their energy in the short term as the transition to renewable energy gets underway.
According to organisational improvement company BSI, the IT sector (61%) is leading the way for the proportion of companies that have committed to net zero. In comparison, other sectors are far behind, notably manufacturing (45%), financial services (42%), healthcare (26%) and education (22%).
Mike Theobald, the director of energy transition at WSP, says businesses that fail to commit to net zero targets could struggle to grow. He says: “It’s already becoming increasingly difficult to attract external investment for projects without an energy transition plan in place and access to cash is moving steadfastly towards low carbon and net zero-based developments. Organisations need to adapt quickly for continued access to cash.”
At COP26, a global coalition of 450 private companies across 45 countries signed up to the Glasgow Financial Alliance for Net Zero (GFANZ) and agreed to deliver and manage £96tn worth of investment towards achieving net zero.
That agreement follows the Climate Financial Partnership (CFP) between BlackRock and the governments of France, Germany and Japan, which set out a plan to align funds aimed at reducing carbon emissions. James Simpson, a partner at Hunton James Kurz who has worked in project financing for 35 years, says the UK will need an injection of private cash.
“I think private investment is very, very important,” he says. “Projects of this scale require huge sums of money and will have to be driven by private financing. What we’re seeing in the UK, especially in the offshore wind sector, is a terrific appetite for financiers to support these projects, so it’s crucial.”
In the short term, cash will be funnelled towards renewable energy sources that are already readily available, for example wind and solar power. For private investors, these forms of energy represent lucrative long-term investments.
In a typical renewable energy project, for example the establishment of a new offshore wind farm, investors will stump up approximately 20% of the total cost of the project, with the remainder being financed by banks in the form of debt.
Simpson says banks are attracted to the potential long-term success of renewable energy initiatives. “Banks that will lend to this will be looking at the viability of the project afterwards,” he adds. “In the offshore wind sector, we’ve seen that banks feel there’s a significant prospect for those types of renewable assets,” he says. “We’ve already seen it in the Middle East, where huge solar and wind projects have been undertaken.”
Despite the willingness to invest in wind and solar power, those energy sources alone won’t be enough to power the UK and eliminate the risk of outages – at least in the short term – meaning a diverse energy mix will be needed in the years ahead.
Innovation will be key, as companies try to develop new sources of clean energy. Green hydrogen presents one option, but nuclear fusion is attracting investment from companies across the UK. “Nuclear fusion is moving away from being a distant source of clean energy to near term proof of concept,” says Theobald. “Multiple, well-funded organisations with credible programs are exploring how to harness fusion power to energise grids with almost limitless base load clean energy.”
Organisations want to decarbonise and invest in cleaner technologies and therefore a comprehensive transition roadmap is needed to understand what is expected by when and what they need to include in their business plans.
Larger organisations with bigger budgets will be better equipped to fund and begin this transition but help will be needed for small businesses that collectively will have an equal influence on the success of the energy transition.
“The government must foster the right incentives for UK industries of all sizes to take the right steps,” says Theobald. “They must also be ready to guide and assist smaller organisations that have less resources to evaluate the optimum way forward.”
With COP26 now over, the UK government must act with urgency if it is to hit net zero by 2050. Cash to develop existing forms of renewable energy and the development of future sources is critical, while support for small businesses will also be key if the UK is to achieve its goals and stave off the worst effects of climate change.