The FTSE100 index leapt at the start of the week as investors doubled down on energy stocks in what appeared to be a panic move, believed to be motivated by the shoring up of domestic energy security.
An ambitious goal to achieve net zero emissions by 2030 will be a major driver for building domestic energy reserves, according to ministers, against a backdrop of ongoing conflict in Russia and the Middle East.
Energy secretary Ed Miliband told industry at the EnergyUK conference in September that reaching net zero, which the government wants to achieve by 2030, will be a matter of “national security”.
On Tuesday, oil prices wobbled and fell 4%, limiting further decline, after a possible ceasefire was mooted between Hezbollah and Israel in the Middle East. Meanwhile, BP (LON: BP) continued to make share gains on Thursday, with its share price rising 1.35% by mid-afternoon, while Shell (LON: SHEL) and National Grid (LON: NG) shares were also trading up, buoying the UK’s benchmark stock index.
Mission
Energy Minister Michael Shanks told Energy Voice this week that achieving a secure energy transition is mission-critical to the new government.
“All the work that we’re doing certainly on expanding the last auction round, the biggest renewables auction we’ve had in history, but also some of the work we’re doing here with Chris Stark in Mission Control is around bringing the whole power of government together to deliver on this mission,” Shanks said.
In July, former chief executive of the Climate Change Committee, Stark, was appointed to lead the government’s newly established Mission Control tasked with delivering clean power mission by 2030.
Net zero targets and finite resources are drivers behind government’s energy security goals.
The risks to energy security are two-fold: they are geopolitical and resource-based.
Building up domestic energy capacity could help avoid reliance on oil and gas imports from gas and oil rich nations such as Russia and the Middle East.
During the Russia-Ukraine conflict, when gas and oil infrastructure was blocked across mainland Europe, the oil price surged above $100 per barrel.
Renewables
The energy transition is already being mobilised and remains “achievable”, Shanks told Energy Voice.
When asked to expand on the government’s energy security policy and how it will be achieved amid rising energy prices and an objective to reduce the country’s reliance on gas, Shanks said: “First of all, to clarify on gas, absolutely what we’re saying is that we want to see a system in the future that recognises the fact that the North Sea is a declining basin, and has been for a number of years now.”
The UK also closed its last coal facility this month, a year ahead of schedule, as policy measures and signals to investors helped aid a relatively swift transition away from hydrocarbons.
“What we want to do is make sure that that transition is prosperous and just for the workers and for the communities, but recognising that the transition is already happening,” Shanks said.
“But that doesn’t mean the oil and gas from the North Sea will not play a role in our energy system for many, many years to come, because it absolutely will. But on the on the broader point, it is right to say that to get 2030 and beyond is ambitious. But we’ve deliberately set an ambitious target that we also think is achievable.”
Miliband has emphasised that renewables are key to the UK’s security, committing to decarbonise the grid by 2030, while this week standing by a consumer tax on petrol.
Labour’s plan to decarbonise the grid by 2030 involve setting up a new state energy investment that will invest in renewable energy, GB Energy, which will be located in Aberdeen, and on Thursday government unveiled a “cap and floor” price mechanism for energy storage projects.
Shanks downplayed barriers to the grid and network, emphasising that investment and planning is about leadership: “That’s where the mission-driven government approach is about getting all the people around the table to say this is what the government has decided.”
He said the upcoming International Investor Summit next week will “bring hundreds of people to speak to government about investment propositions”, and said government has already broached talks with investors.
“We know there’s a number of significant investments on the table that people want to partner with us to deliver what we need to by 2030 and what government’s doing is making sure planning, regulation and everything else is aligned to make this happen as quickly as possible,” Shanks told Energy Voice.
Grid
Decarbonising the grid is expected to require an investment of more than £100 billion and critics fear that the widespread adoption of renewables could lead to blackouts if there is not enough baseload power capacity at base level.
Grid operators have long feared that adopting more renewable energy could lead to energy blackouts and deficits, particularly in areas where there is not local capacity to serve demand.
For the first time, wind farms comprised the largest source of energy supplying the grid, above gas, in May 2023, sending a strong signal of what is possible while drawing attention to the need to balance grid supply.
The new Department for Energy Security and Net Zero (DESNZ) has hailed battery storage as crucial to provide back-up energy capacity, unveiling a decision to adopt a minimum floor price for energy storage on Thursday.
“The UK is a step closer to energy independence as the government launches a new scheme to help build energy storage infrastructure,” the department said in a statement.
“This could see the first significant long duration energy storage (LDES) facilities in nearly four decades, helping to create back up renewable power and bolster the UK’s energy security.”
The responsibility for managing baseload power capacity is largely borne by electricity grid operators, with the UK and Ireland among European countries to roll out mandatory smart meters, while private companies are also seeking to manage capacity with supply and demand to prevent bottlenecks.
For example, UK midstream operator, North Sea Midstream Partners started operating a new onshore electric-drive compressor at the Teesside Gas Processing Plant to make the plant more efficient on Thursday, with a goal to bolster energy security. The project is located next to the Net Zero cluster of carbon-sequestered gas projects being developed as part of the government’s decarbonisation initiative under the track one carbon capture and storage drive at Teesside.
“As well as bolstering domestic energy security for years to come, provision of this onshore compression service will support a smooth and managed energy transition, providing a stable supply of energy while waiting for renewable energy sources to be integrated into the grid,” a spokesperson for the company said.
