ICIS EXPLAINS: UK election impact on energy

UPDATED:

• On 24 June 2024, ICIS updated this analysis to include a review of the renewable capacity pledges from manifestos and their likelihood of being met
• On 21 June 2024, ICIS updated this analysis to include a breakdown of the impact of new gas licenses on British gas supply
• On 20 June 2024, ICIS updated this analysis to include the Scottish National Party’s manifesto plans for energy. The manifesto table now includes these details
• Initial analysis published with detailed table reviewing energy policies from announced manifesto pledges, original analyses covering nuclear power and gas-fired power generation, a UK election special episode of the ICIS Hydrogen Insights podcast

LONDON (ICIS) — On 4 July 2024 the UK public will elect a new government, but what do the different parties have in store for energy? The following analysis reflect core pledges from manifestos and reviews those pledges in detail using ICIS data and insights.

This analysis of UK political pledges and announcements will be continuously updated by the ICIS energy editorial team. Lead authors include: UK power reporter Anna Coulson, British gas reporter Matthew Farmer.

UK PARTIES COULD STRUGGLE TO MEET RENEWABLE CAPACITY ELECTION PLEDGES – Added to analysis 24 June 2024

• UK parties unlikely to meet capacity targets
• Key to onshore wind would be change to regulation
• Offshore wind could struggle following recent CfD round

LONDON (ICIS)–For the UK general election, Labour, the Conservatives and the Green Party are the only three of the main parties to present outright capacity targets for renewable energy deployment across their manifestos. However, ICIS data and analyst insight suggests that meeting such targets could face difficulties due to recent setbacks in the UK’s Contracts for Difference (CfD) bidding process and restrictive regulation for onshore wind.

The Labour party manifesto states it will double onshore wind, triple solar power, and quadruple offshore wind by 2030. To present an idea of this, ICIS has multiplied its forecasted capacity for these technologies in the UK by the end of 2024 by their respective factors according to Labour’s pledges. Actual intended capacity may vary. ICIS had contacted the Labour party for comment but received no response by the time of publication.

Onshore wind

Labour plans to double onshore wind capacity by 2030, while the Green Party would deploy 53GW of capacity by 2035.

The Liberal Democrats would ‘remove the Conservative’s unnecessary restrictions on new wind power’, likely referring to the requirements the current government introduced in 2015 and changes to the law in 2016.

Planning policies were updated in September 2023 to allow locations suitable for new wind farms to be identified in several ways, rather than only in the area’s development plan.

However, decisions continue to be made by local planning authorities which differs to the process for other infrastructure projects where decisions on major projects are made by the Secretary of State.

The current government does not have an onshore wind capacity target and the Conservative’s manifesto has no mention of one however, it does state that the party will ensure democratic consent for onshore wind.

ICIS analytics forecasts 25.85GW of onshore wind capacity in 2030 and in 2035, under a base case scenario, which is below Labour and the Green Party’s targets. ICIS analyst, Robbie Jackson-Stroud, stated that planning permission is one of the main challenges onshore wind projects face.

“Costs for turbines have also risen and so they are then squeezed into a CfD funding pot where they have to compete with solar”, he added.

Jackson-Stroud noted that onshore wind could be a key component to the development of renewable capacity in the UK, changes to regulation permitting.

“One aspect that is likely to change is regulation and approval of onshore wind projects, which require less budget and time to build. However, it is difficult to envisage a new government being timely enough to sufficiently improve the approval process and have enough projects apply to shift onshore capacity before 2030. It should be noted, however, how much potential a change to regulation would have to long term capacities, and you can expect more capacity in the 2030s”, Jackson-Stroud said.

Offshore wind

The Conservatives, Labour and the Green party all position offshore wind as a key technology to support the decarbonization of the UK’s power system. However, achieving such targets appears difficult following an unsuccessful fifth auction of the CfD scheme in 2023, in which there were no bids for offshore wind amid a low strike price.

The current government increased the strike price for the upcoming sixth auction round, raising the maximum strike price from £44/MWh to £73/MWh.

Jackson-Stroud highlighted the difficulty facing the next wave of auctions when considering 2030 targets.

“Both parties [Labour and the Conservatives] have pledged unachievable targets without a huge budget increase for the CfD. Taking into account the time it takes to build offshore wind sites (that are getting increasingly larger on average) there are only two CfD auctions at most that can fund capacity to come online by 2030.

“There is roughly 27GW of offshore wind already under CfD, under construction or operational, suggesting the need for a further 23GW across two auctions, which would be a record at a time where costs are higher than they have ever been. While the budget for the latest round has been raised to an all-time high of £800m for offshore and £1.2bn total, this would still procure only 12GW of wind in even the most conservative estimates.

“This means regardless of Labour increasing 2030 targets for offshore, even the 50GW already in place will not be met, and a change of party doesn’t change the blockers to this,” Jackson-Stroud said.

ICIS analytics forecasts that offshore wind capacity will be 39GW in 2030 under a base case scenario, therefore falling short of the Conservative and Labour party targets.

Similarly, offshore wind capacity is forecast to be 48.04GW in 2035 under a base case scenario, well below the Green Party’s target.

Solar

Labour plan to triple solar capacity by 2030, while the Green Party and Conservatives have set targets for 2035, 100GW and 70GW respectively based on manifesto and recent policy announcements.

However, reaching such targets may prove challenging based on recent CfD results. ICIS analyst Matthew Jones previously noted that for the UK to meet its 70GW by 2035 target, CfD capacity awards would need to average 4.5GW/year. However, over the last two CfD rounds, just 2.2GW was awarded in each.

Further, ICIS analytics forecasts 42.97GW of solar capacity by 2030, and 48.54GW by 2035, under a base case scenario, therefore missing the Labour, Conservative and Green Party targets.

Since the closure of the renewable obligation and feed-in tariff schemes, the CfD scheme is the only subsidized route to market for solar.

The forecast models cited in this story are available as part of ICIS Power Foresight. If you would like to learn more about ICIS Power Foresight, please contact head of power analytics Matthew Jones at Matthew.Jones@icis.com

UKCS LICENSING – Added to analysis 21 June 2024

Several parties have committed to end the issuing of new licenses for extraction of oil and gas on the UK continental shelf (UKCS), however ICIS analysis shows the inclusion of new licenses may have a minimal impact in mitigating output decline.

Gas production on the UKCS started declining in 2000, but held steady during the 2010s. It currently accounts for approximately 40% of Britain’s gas supply mix, with the bulk of remaining volumes coming through Norwegian imports and LNG. From the late 2020s, UKCS production is expected to decline by approximately 6% per year.

Licenses on new discoveries would not reverse the decline in British production expected in coming years. However, they would have accounted for another 0.80 billion cubic meters (bcm) of British gas production in 2030, increasing to 1.5bcm in 2035.

In contrast to the other parties, the Conservatives and Reform UK have committed to annual licensing rounds and “fast-track” licenses, respectively. Both have done so with a justification of maintaining British energy independence, citing the rising price of energy caused by the full-scale Russian invasion of Ukraine.

GAS-FIRED POWER DEMAND LIKELY UNMOVED

Both the Conservatives and the Labour party show support for the continued use of gas for power generation, bolstering a key area of demand for British gas market participants. However, of the two parties, the Conservatives presented a more bullish mentality by noting intensions for new gas plants, aligning with previous announcements to support new capacity.

Labour meanwhile take a muted approach, noting the need for a strategic reserve of gas for power generation.

Both Labour and the Conservatives have therefore presented policy that could reduce power-market price volatility as renewable capacity grows, with gas offering baseload generation at periods of low renewable output.

Gas demand for power to remain

From a gas-market perspective, the use of gas for power amounts to a large share of overall demand. In 2023, gas offtake for power accounted for 26% of total gas demand.

The UK is heavily reliant on gas-fired power generation, with it contributing 26% of the UK’s electricity mix in the period 1 January to 31 May 2024, according to data from National Grid.

Similarly, gas-fired generation provided an average 36.3% of the mix over the 2019-23 period, therefore making a significant contribution to the UK’s electricity stack.

While the capacity of new gas generation is not mentioned in the Conservative party’s manifesto, ICIS analytics forecast data indicates that gas capacity is set to increase through to 2026, under a base case scenario.

This would suggest that offtake for power generation could well remain a key share of overall gas demand under either a Conversative or a Labour government.

Further, ICIS data shows that there will be 7.92GW of gas capacity in 2050 under a base case scenario, which itself raises uncertainty around the prospect of pledges to decarbonize power grids by around the 2030s.

NUCLEAR

Nuclear power represented a large focus for the Labour, Conservative and Reform UK parties, which each announced plans to increase nuclear capacity through a mix of measures, such as plant life extensions, new large-scale projects, or Small Modular Reactors (SMRs).

Despite this, the overall pledges presented for the election suggests need for further capacity build-out in the run up to 2050 in order to meet the government’s target.

While the Conservative’s manifesto did not mention a specific nuclear capacity target, the current government has a target to reach 24GW of nuclear capacity by 2050.

ICIS analytics forecasts that, under a base case scenario, nuclear capacity will be 12.76GW by 2050.

Plant life extensions

Although Labour’s manifesto did not provide details on which nuclear plants it intended to focus on for life extensions, or for how long, the intension is in line with former market announcements from EDF, which stated plans in January 2024 to extend the lives of five UK nuclear plants.

EDF plans to invest an additional £1.3bn in these power stations over 2024-26, with the aim to maintain output from the four advanced gas-cooled reactors (AGR) for as long as possible, and for the Sizewell B plant to operate for an additional 20 years.

The lifetimes of the four AGR stations would be reviewed by the end of 2024.

New capacity

From a new capacity perspective Labour pledged to get the 3.2GW Hinkley Point C project over the line and that new nuclear power stations, such as the 3.2GW Sizewell C project, will play a key role in helping the UK to achieve energy security and clean power.

In January, the Conservatives announced plans for a new large-scale nuclear power plant, which would be as large as Hinkley Point C or Sizewell C, which are both 3.2GW in capacity.

The current government announced in May that Wylfa would be the preferred site for this new plant however, a commissioning date is still to be confirmed. This aligns with the party’s manifesto pledge to deliver a new gigawatt power plant at the same location.

The new plant in Wales could well boost UK nuclear capacity, but it would still present a capacity gap between the current ICIS forecast for 2050 and the government’s target of 24GW.

Small modular reactors

Labour, the Conservatives, and Reform UK all mention SMRs in their manifestos however, the Conservatives will approve two new fleets of SMRs within the first 100 days of the next parliament.

This is likely through the competitive process that Great British Nuclear (GBN) launched in 2023 to select SMR technologies best placed to be operational by the mid-2030s.

GBN plans to announce successful bidders for the competition by the end of 2024 and to take two SMR projects to a final investment decision by 2029.

However, it must be noted that SMRs are a new technology, and none are commissioned yet in Europe.   

HYDROGEN

In this UK general election special, ICIS hydrogen editor speaks with Rob Dale, founder and director of UK consultancy Beyond2050, which aims at supporting market participants in achieving their energy and sustainability goals.

Over the course of the episode, Jake and Rob review which parties have committed to hydrogen for the election and what makes this election the biggest for hydrogen so far.