On 20 February 2017, Travers Smith organised a debate on the future of UK energy, focussing on the likely balance between traditional and renewable energy sources along with related direct and indirect environmental, social and geo-political consequences.
Speakers at the event included upstream oil & gas specialist, Chris Longman, Director of Oil & Gas at SLR Consulting, and renewables expert Barny Evans, Associate Director of the Sustainable Places and Energy team at WSP Parsons Brinckerhoff. Chris and Barny were ably assisted by our own Doug Bryden, Head of Operational Risk & Environment, and Anthony Judge, former head of Real Estate. This was the first in a series of planned events regarding the future of UK energy and how this will in part be shaped by wider environmental, social and geo-political considerations (particularly, in a post-Brexit world).
After exploring past and current energy trends, the speakers provided their insights into what the future of the UK energy market might look like. Some of these messages were not as many in the audience anticipated and clearly illustrated both the importance and complexity of the debate.
We set out in the remainder of this note, the top ten takeaway points.
1. Who should bear primary responsibility for UK energy efficiency and climate change action?
Everyone has a part to play in this. Approximately one third of UK energy use relates to domestic consumption, one third to travel and the final third to industrial use. This means that industry alone cannot and should not be relied on to drive energy efficiency and reduce carbon emissions.
2. What does UK energy consumption currently look like and how is this expected to change?
Current UK energy use by fuel is made up of approximately 18% electricity use, 30% natural gas, 47% petroleum and 5% others (including coal and manufactured fuels). Although total UK energy use actually declined between 2010 and 2016, electricity use is predicted to increase significantly as we further transition towards the use of electrical modes of transport and heating, with a consequential decrease in gas and petroleum use.
3. Fossil fuels will soon be history, right?
Wrong. Oil and gas are here to stay, for the medium term at least. However, ageing offshore infrastructure, material future decommissioning liabilities and diminishing returns on investment as North Sea oil and gas, in particular, continues its slow decline, will be key challenges for the industry over the next few decades.
4. Fracking: bad for the environment, good for energy security?
It’s not that simple. Unconventional oil and gas (including fracking) will have a place in the UK energy mix, but the likelihood is that, despite the hype, we will never achieve the levels of production experienced in the US. Although many of the environmental scare stories around fracking are easily debunked or managed by regulation, major practical challenges around issues such as the population density in the UK, land access and water resource use, product and materials transport and sustaining outputs at commercial levels, remain.
5. Can we expect a 100% renewable energy future?
Not quite. Renewable energy will be an increasingly vital component of the UK’s energy mix over coming years, and could become the mainstay by 2050. But renewables are not a panacea; key outstanding problems include intermittency of supply (wind, solar and some other renewable sources are weather and daylight dependent), resistant local communities and grid access. Accordingly, nuclear, gas and other sources of energy will likely still be required as part the UK energy mix in the medium to long term.
6. How do we bridge the gap between renewables and fossil fuels?
In short, more and better energy storage along with new gas and nuclear power stations. Whilst short term energy storage technology already exists, longer term, inter-seasonal storage, is still to be developed. The key to bridging the gap between renewables and fossil fuels in the future will be the roll out of generating and storage capacity that can rapidly react to changes in electricity supply and demand, to minimise the peaks and troughs. Electrical storage is a key area of opportunity for the future (at both the small and large scale) as it will enable power to be saved when demand is low and exported when demand increases.
7. Will government austerity stymy renewables growth?
The reduction and withdrawal of key UK energy incentives such as the Renewables Obligation and Feed in Tariffs has had a short term impact on renewable investment (particularly for solar), but the medium to long-term future is secure. This is mainly because wind and solar technology is relatively mature, resulting in higher levels of component efficiency and attractive component pricing. Additionally, a more open energy market and, to a lesser extent, new renewable incentive regimes (such as contracts for difference) should help bring newer technologies online.
8. Renewable energy is all green, right?
Wrong. Whilst the environmental impact of solar parks and wind farms may not lead to the obvious local environmental impacts evident from traditional oil and gas (such as flaring, stack emissions and wastewater discharges), there are real local environmental impacts (including landscape blighting, noise from wind farms and local habitat and ecological changes from tidal and offshore developments) as well as supply chain environmental impacts (including carbon leakage and local pollution at the point of manufacture and extraction of raw materials).
9. Can the UK be energy independent?
The UK is currently highly reliant on imports of energy from abroad (55% of UK gas is imported, a significant portion of which is from Russia via European pipelines). Brexit, the election of President Trump and ongoing tensions with Russia have created some uncertainty in energy markets and strengthened arguments for greater UK energy security. However, declining North Sea oil and gas, practical difficulties with unconventional gas and renewables along with market forces may mean that, even if the UK could become totally energy independent, the practicalities and costs of doing so make this unviable. Accordingly, a balance will likely need to be stuck between energy independence on one side and free trade but avoiding an over-dependency on foreign energy on the other.
10. Is Brexit going to affect my energy bills?
The UK has explicitly ruled out continued membership of the EU's single market and full membership of the customs union. Additionally, it is not currently clear what aspects of EU energy regulation will be preserved post-Brexit. Accordingly, Brexit may well impact on the UK’s regulatory environment and the cost of importing oil and gas from the continent, with knock-on impacts on bill payers.
About us
Travers Smith is one of the UK's leading corporate, financial and commercial law firms, with over 200 lawyers and a wealth of experience across a range of practice areas and industry sectors.
Our dedicated Energy, Natural Resources and Infrastructure sector group is made up of experts across a range of departments and practice areas, including corporate, competition, commercial, finance, funds, dispute resolution, real estate and regulatory and risk.
On regulatory and risk, our highly regarded Operational Risk & Environment team provides a range of energy and carbon related legal services, including regulatory support, transactional services, enforcement defence and crisis management. In addition to dealing with permitting and compliance challenges and environmental and safety liabilities, the team regularly works on legislative and wider policy developments.
Future events
The debate identified some clear areas of challenge and opportunity for industry as well as highlighting the fundamental importance of ensuring a diverse, secure and sustainable UK energy market.
We are aiming to host a number of follow-up events over the course of 2017. If you would be interested in attending one of the events, please register your interest by clicking on the appropriate link in the cover email or feel free to contact us directly.
