Delivering her key report to the UK Government on Friday, Supply Chain Champion, Sian Lloyd Rees, sets out the case for creation of a new short-term funding mechanism to ensure the UK seizes a £1 trillion addressable market in renewable and low carbon technologies.
The oil and gas sector stands at a crossroads, with a faster-than-predicted decline exacerbating the challenges faced by the supply chain to retain its skills and expertise in the UK.
Meanwhile, there is a narrow timeline for these subject matter experts to develop innovations in renewables and low-carbon technology. This needs to start right now – this year – for the UK to capitalise on projects due to scale up as soon as 2026 as spending on renewable energy sources outstrips oil and gas.
Without intervention, as seen in other market-driven economies, there is a risk that enterprise opportunities will continue to be realised elsewhere.
Lessons can already be traced in the UK where early ambition to grow fixed-bottom offshore wind failed to establish domestic industrial strength with international supply chains benefitting instead.
The size of the prize for a technology-rich UK industry is vast across carbon capture and storage, floating offshore wind and hydrogen – all told, opportunities are worth £1trillion, according to Rystad Energy analysis.
Of a £100 billion global addressable market for floating offshore wind, oil and gas suppliers will be able to target around 55% of products and services required. For hydrogen and carbon capture and storage it’s even higher – they’re worth £590bn each – and the industry could capture 80% of the products and services required.
‘Lack of clarity on timelines and differing requirements’
One of the challenges for the current operating environment is lack of clarity on timelines and differing requirements for these new market opportunities while investment for innovation generally requires a certain degree of return to fund the R&D.
The UK oil and gas supply chain is weighted heavily to operational expenditure, but upfront capital spend is needed to drive innovation in new energy segments, with a significant lead time to scale up for the volume required.
Something must be done to bridge the innovation gap as the decline of oil and gas is seeing a weakened supply chain where development of new and adapted solutions for renewables is becoming less feasible.
In my new report to the UK Government, the key recommendation is creation of a £50 million innovation funding pot – increased to £150m with match funding from developers and supply chain – made available and ring-fenced over a five-year period.
This would not only help oil and gas firms pivot to new tech and solutions to support net zero but send out a strong signal from government on its priority for developers to invest where their customers are engaged.
While the oil and gas supply chain can potentially access existing green growth funds – R&D and GIGA (Green Industries Growth Accelerator) being examples – the conditions of award are not necessarily compatible with requirement to adapt, extend and standardise existing technologies and solutions.
Repurposing R&D and GIGA
This new model would repurpose monies already committed to R&D and GIGA, simplifying access to funding mechanisms – a commitment made in the North Sea Transition Deal signed between industry and government in 2021 – and facilitate a broad ecosystem of UK companies to support net zero domestically and export around the world for decades.
Priority allocation should be given to companies and consortiums with existing UK strength and a significant addressable market potential.
Additionally:
- SME inclusion and jobs based in the UK for a minimum 5-year period would be conditions of award. Prioritisation based on market potential and UK strength will attract further inward investment.
- The funding should be distributed through established grant funding and streamlined routes to support the pace necessary.
- Existing, fit for purpose organisations should be used to administer and support the projects. The Net Zero Technology Centre (NZTC), National Manufacturing Institute Scotland (NMIS) and the Offshore Renewable Energy catapults are good examples.
‘Showcasing the UK oil and gas supply chain’s capabilities’
The North Sea Transition Deal saw the establishment of the Supply Chain Champion role, and my recommendation is this should be continued for a further 2-3 years to support establishment of an efficient process.
What’s clear from my three-year term is that, even with broad engagement across energy sectors, knowledge of the capabilities of the oil and gas supply chain is variable and hinders its growth potential to sit alongside any investment intervention.
We need only look to our neighbours in Norway, a relatively small oil and gas supply chain, to see the effect of a highly centralised approach in showcasing capabilities globally on the new energy stage.
A more effective approach should be thought through on showcasing the UK oil and gas supply chain’s capabilities as they relate to the energy transition, including the Department for International Trade (DIT), UK Export Finance (UKEF) and wider government support.
For more than 50 years, this industry has helped deliver secure energy to homes around the country and generated billions of pounds in exports for the economy. To ensure its continued success as the next wave of clean energy opportunity comes through, we must ensure it stands at the vanguard of innovation, retaining skills, competing against international peers and developing technologies for global export.
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