The UK attempts to become a ‘clean energy superpower’
Can the new Labour administration realistically achieve the goals it set out prior to the elections?
In a nutshell
- The Labour government plans to reach zero carbon by 2030
- New initiatives will support clean energy investment and local production
- Major challenges remain, from market uncertainties to energy security
In July 2024, the United Kingdom elected its first Labour administration in 14 years, after a long Conservative reign. The Labour government, led by Sir Keir Starmer, immediately unveiled ambitious energy and climate goals that would “make Britain a clean energy superpower” within a remarkably short time. These plans would “cut bills, create jobs and deliver security with cheaper, zero-carbon electricity by 2030, accelerating to net zero,” Prime Minister Starmer’s government states, arguing that those objectives are closely intertwined. A zero-carbon electricity system would lower bills “for good” and prevent citizens from ever again being “vulnerable to dictators like [Russian President Vladimir] Putin.”
To achieve zero-carbon electricity, Labour aims to double onshore wind (scrapping the restrictions introduced by former Prime Minister David Cameron in 2015), triple solar power and quadruple offshore wind by 2030. It has also pledged to invest nearly GBP 22 billion in projects to capture and store carbon emissions from energy, industry and hydrogen production over the next 25 years – one of its biggest green spending promises. The government further wants to accelerate the deployment of nuclear energy, including extending the lifetime of existing plants.
Additionally, the UK plans to set up a new state-owned company, Great British Energy, capitalized with GBP 8.3 billion. Headquartered in Scotland, the company will partner with industry and trade unions to deliver clean power by coinvesting in leading technologies, supporting capital-intensive projects and deploying local energy production. Beyond the high-level descriptions, however, the company’s remit remains vague. Another new institution will be set up: the National Wealth Fund, aiming to “unlock billions of pounds of investment in the UK’s world-leading green and growth industries.”
From a climate perspective, that non-exhaustive list is a dream come true. However, it raises the question as to why previous governments did not pursue similar ambitions even though they were not climate unfriendly, as the UK’s progress on green energy confirms. It is also unclear how many of those claims constitute political rhetoric. There is often a wide gap between what a government promises to win an election and what it can deliver once in power.
Market realities also matter: It takes only one major global energy crisis to derail the plans of even the most determined governments. Assuming market conditions favor the Labour government, technical and commercial realities will likely keep it from meeting some of its ambitious energy targets, especially within the timeframes it has set.
Speeding up a transition already under way
In recent years, the UK’s primary energy and electricity mixes have undergone a remarkable transformation. The Labour government’s current efforts may seem novel or disruptive at first glance, but they are in fact an attempt to accelerate an existing trend.
The UK was the birthplace of coal power, which fueled the industrial revolution that spread across the world. However, after 142 years of coal use, on October 1, 2024, the country officially closed its last coal-fired power plant – a unique milestone among the world’s largest economies. In that respect, the Labour government’s decision to not grant new coal licenses will not make any difference.
Both natural gas, supported by production from the North Sea, and the fast deployment of renewable energy particularly since the late 2000s, have helped the UK pivot away from fossil fuel. The country has the highest combined share of natural gas and renewable energy in its power mix in Europe. The other important contributor to electricity generation is nuclear power, which accounts for 14 percent. The remainder comes from oil and hydropower.
For the UK to achieve its ambitious target of clean energy by 2030, it should eliminate all fossil fuels from its mix – primarily natural gas – which currently account for more than a third of the country’s power generation. While natural gas helped to crowd out coal over decades, the question today is which other fuels could replace natural gas in less than six years.
Only four countries in the world produce almost 100 percent of their electricity from renewable sources: Albania, Bhutan, Lesotho and Nepal – all with only a fraction of the UK’s population and economy.
Furthermore, these countries have met that target largely through hydropower, which currently drives less than 2 percent of power generation in the UK.
If the UK achieves its targets for the expansion of green technologies, it will get closer to its ambitions, but is still unlikely to meet its goal. Nuclear energy can make a notable difference, but the track record of nuclear power development – irrespective of which government is in place – leaves little room for optimism.
Renewable energy also requires backup facilities, because its power generation can vary greatly depending on the weather or other circumstances. Without nuclear or hydrogen to fill this gap, the UK will likely require natural gas. The Labour government announced it would maintain a strategic reserve of gas power stations to guarantee supply security. For now, fossil fuels remain essential in meeting energy reliability goals.
Some argue that the zero-carbon goal was loosely defined during the electoral campaign, and that the government will now need to clarify its practical implications. There will certainly be days between now and 2030 when the UK achieves 100 percent clean energy. If this is all the Labour government intended, it is a relatively easy goal. As it stands now, however, the UK is unlikely to sustain the target in the long term.
The risks of renewable energy
The Labour government is trying to boost the country’s energy security by emphasizing the development of “homegrown energy” and reducing reliance on energy imports. Increasing onshore wind capacity from 15 gigawatts (GW) to 30 GW, and offshore wind capacity from 15 GW to 60 GW by 2030 is one example.
The UK is home to abundant offshore wind resources, particularly in the North Sea, supported by its long coastline and shallow continental shelf, which are ideal for large offshore wind farms. It is already Europe’s largest producer of offshore wind (49 terrawatt hours – TWh) and the region’s second-largest wind power producer (82 TWh) after Germany (141 TWh), having overtaken Spain in 2017.
However, the idea of homegrown renewable energy is somewhat misleading. Generating electricity when the sun shines or the wind blows in the UK is one thing, but the security of the entire supply chain must also be considered. Here, several risks remain.
Facts & figures
Nominal government revenues from oil and gas in the UK
The UK has not expanded its manufacturing industry in tandem with the expansion in wind energy generation. “In every major component of the wind supply chain – nacelles, blades, towers, foundations, cables – the UK fails to be in the top three European nations in terms of manufacturing capacity,” according to one study. This means that the UK has to rely on imports to deploy wind power.
Furthermore, wind energy uses significant amounts of rare earth permanent magnets (REPMs) but supply is struggling to keep up with demand. One research paper adds that while sourcing enough REPMs for wind energy generation can be difficult, the greatest challenge for the industry is to source them domestically or from a de-risked supply chain.
The supply of REPMs is concentrated in one country – China. At present, the Asian powerhouse accounts for more than 60 percent of the world’s rare earth materials mining and 85 percent of their processing, and has a near monopoly over the production of REPMs, accounting for 92 percent. The situation does not bode well for security of supply.
Another growing concern is the impact of climate change on wind patterns and speed, and adverse weather conditions which can shorten the lifespan of equipment and increase turbine downtime. In 2021, a wind drought swept Europe; in September that year, wind turbines in the UK nearly halted.
Oil and gas in the North Sea
For decades, the UK has capitalized on another source of homegrown energy. The discovery of sizeable volumes of hydrocarbons under the waters of the North Sea in the mid-1960s propelled the country into the ranks of significant oil and gas producers.
By 1999 – the year when oil production hit its maximum level – the UK was the ninth-largest oil producer in the world (after Saudi Arabia, the United States, Russia, Iran, Mexico, China, Norway and Venezuela). At 2.9 million barrels a day (mb/d), the UK produced more oil than most OPEC producers, with only Saudi Arabia (8.5 mb/d) and Venezuela (3 mb/d) producing more.
Natural gas production also grew at a remarkable pace. At its peak in 2000 of more than 113 billion cubic meters (bcm), the UK was the world’s fourth-largest natural gas producer, after Russia, the U.S. and Canada.
Since hitting its peak, UK oil and gas production has been declining, as the discovery and development of new reserves has not kept pace with the maturation of existing fields. Still, domestic oil and gas production provides approximately 50 percent of the total demand for the UK.
The production decline has reversed the UK’s status from a net exporter to a net importer of both fuels. The greater that decline becomes, the larger that dependence will grow, assuming demand holds steady.
Facts & figures
Energy in the United Kingdom
- The world’s first coal-fired power station was built in London in 1882.
- UK emissions have fallen by around 50% since 1990 (International Energy Agency).
- Most existing nuclear power capacity in the UK is to be retired by the end of the decade.
- The UK’s first offshore wind farm (Blyth Offshore) became operational in 2000.
- The UK is the second-largest offshore wind market in the world and represents more than 40 percent of European offshore wind capacity.
- Rare earth elements – a group of 17 critical metals – are indispensable components in military defense systems, consumer electronics and renewable energy technologies.
- The UK is second only to China in offshore wind energy capacity.
Despite its ambitious green agenda, the Labour government declares that “oil and gas production in the North Sea will be with us for decades to come, and the North Sea will be managed in a way that does not jeopardize jobs” – a statement that should hearten the established industry, particularly in Scotland. However, the Starmer administration announced it will not issue new licenses to explore new fields because “they will not take a penny off bills, cannot make us energy secure, and will only accelerate the worsening climate crisis.” Given that many licenses remain in existence, the “ban” will have little effect. Nevertheless, the decision will undermine investment sentiment and confidence, especially at a time when there is no shortage of opportunities elsewhere.
As for “not taking a penny off bills,” that is not quite accurate. British consumers are exposed to global oil and gas market dynamics. Any barrel added to global supplies will put downward pressure on prices.
It is also worth mentioning that British consumers pay a high share of their energy bill in the form of taxes. According to the Office for Budget Responsibilities, fuel duties, which are levied on purchases of petrol, diesel and a variety of other fuels, represent a significant source of revenue for the government. In 2023-2024, they generated GBP 24.7 billion, amounting to 2.2 percent of all receipts – an amount equivalent to GBP 850 per household and 0.9 percent of national income.
Another important source of income for the government is the taxes paid by the oil and gas industry operating in the North Sea. The UK has one of the most unstable fiscal systems for upstream oil and gas in the world. The Labour government announced it would extend the windfall tax that its predecessor introduced on oil and gas companies in 2022, following Russia’s invasion of Ukraine and the increase in prices then. Originally imposed as a temporary measure, the Labour government will keep the tax until the end of the next parliament in 2030. The recently unveiled Autumn budget confirmed that the Starmer administration will also increase the rate by three percentage points and remove what it described as “unjustifiably generous investment allowances.”
More by Carole Nakhle
- Nuclear energy: Not much reaction
- U.S. shale oil and gas: From independence to dominance
- Energy security: Perceptions versus realities
If we account for all applicable taxes on the oil and gas industry, the UK’s total fiscal burden is around 78 percent – placing it in the higher range of government take, or the share claimed by the host government from industry revenues. Typically, such rates are found in countries with richer geological resources and more attractive opportunities than the UK. Smaller, costlier projects, like those in the UK, usually come with a lighter fiscal burden.
The UK has had similarly high rates in the past, but these were largely during periods of rising production and high oil prices. Moreover, those rates did not remain in place for long, as market conditions shifted and investor interest declined.
The UK oil and gas sector supports more than 200,000 skilled jobs and contributed more than GBP 19 billion to the UK economy in 2022-2023. The sector’s financial contribution allows the government to fund its other energy plans. Should investment decline in response to the latest fiscal measures, and oil and gas prices remain subdued, those jobs and government revenues may well be at risk, despite claims to the contrary.
Scenarios
Likely: The UK accelerates its energy transition, but misses some of its targets
It is difficult to make predictions based on pledges made during an election campaign. The Labour government has clearly set an ambitious agenda for greening its energy mix, but notable ambiguity remains as to what some targets actually entail, and how they will be achieved and funded. External factors such as global energy markets and geopolitics will also affect certain policies. The rapid increase in energy prices in 2022 forced many governments to revisit their targets and policies given social and economic pressure. When it comes to energy, public opinion influences government choices.
Delivering on all those election promises, particularly the targets set for 2030, is unlikely. If there is a boom in investment in the green energy industry in the UK, no adverse local conditions and no negative spillovers from global developments, then the Labour government stands a good chance of accelerating Britain’s energy transition. Yet even under the most favorable conditions, it will miss some targets.
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