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Development finance facilities: Prospects for APAC
Sponsors and project developers across the renewables and energy transition space are currently facing a challenging macroeconomic environment.
United Kingdom | 出版物 | 十二月 2020
The UK’s Energy White Paper marks the next chapter in UK energy policy development. It provides a framework for policy in the UK for many years to come. For the first time, the Government has sought to bring together energy-related policy from across a number of sectors; from energy and the built environment, to transport and the industrial sectors. In addition, the White Paper considers issues surrounding governance and begins to consider how energy systems and markets need to adapt to achieve the UK’s 2050 net zero target.
As a result of its breadth and ambition, the White Paper necessarily repeats previous announcements but it lacks detail in a number of areas, promising much for the Spring 2021. As the UK prepares to co-host COP26 in November 2021, we can expect a slew of further consultations and hopefully decisions throughout 2021. There are a significant number of important publications flagged to be released in Spring of 2021 which will develop proposals outlined in the White Paper further. These include a Hydrogen Strategy together with details of support for low carbon hydrogen, further interventions in retail energy markets, a Smart Systems Plan, a Transport Decarbonisation Plan, a Heat and Buildings Strategy, a North Sea Transition Deal and an Industrial Decarbonisation Strategy.
In this briefing, we consider the policy proposals in the White Paper in relation to:
Previously, energy policy has navigated the ‘energy trilemma’: balancing value for money, the imperatives of action to mitigate climate change, and ensuring national energy security. Policy intervention enabling the scale-up of renewable technologies means renewable electricity costs have tumbled over the last decade. This has resulted in a paradigm shift: low carbon methods are no longer seen as prohibitively expensive. Analysis by the Committee on Climate Change as a part of its recommendations for the 6th Carbon Budget found that these savings substantially reduce the cost of net zero compared with previous assessments. The cost forecast for net zero is now down to less than 1 per cent of GDP throughout the next 30 years.
This assessment enables the Energy White Paper to promote both consumer interests and decarbonisation. As already highlighted in the Prime Minister’s Ten Point Plan (see our briefing here), the Government also intends to capture the economic opportunity of a “green industrial revolution” including job creation, research and development, exports, and reinvigorating the UK’s industrial heartlands as part of the Government’s “levelling up” agenda.
Consumers will play an increasingly important role in the future energy system. Key to the strategy is smart metering which will enable the roll-out of time of use tariffs, allowing better management of energy demand via price signals, as well as enabling consumers to participate in offering demand-side response services. Ofgem intend to publish their final decision on how and when to introduce half-hourly settlement for electricity for households in spring 2021. Smart charging will also play an important role in facilitating electric vehicle charging (see further below).
A fair allocation of the costs required to deliver net zero will be an area of focus. Schemes such as the Energy Company Obligation and the Warm Homes Discount will continue to tackle fuel poverty. The White Paper also envisages further intervention in the retail energy markets. Key policy proposals include consulting on:
In addition, the Government will be assessing informally throughout 2021 what market framework changes may be required to facilitate the development and uptake of innovative tariffs and products.
Broader issues will also need to be considered. For example, as wholesale energy prices fall, the White Paper acknowledges that the proportion of household bills that pays for network investment and policy costs will rise. Although not expressly tackled in the White Paper, how to address the cost of legacy investment in renewables generation is likely to become a live issue. HM Treasury is undertaking a wider review on funding net zero and where these costs will fall. Its interim report will be published shortly, with its conclusions to be published in spring 2021.
The growth of renewable energy is key to the UK’s net zero target. Forecasts suggest that electricity demand could double by 2050, so renewable technologies will need to increase fourfold to keep pace. This level of deployment will require complementing technologies to supplement the intermittent supply from solar and wind. This will likely consist of a combination of long-duration battery storage and short-term dispatchable generation, new nuclear power, interconnectors, carbon capture, and hydrogen methods. Whilst the Government does not propose a prescriptive approach to new technologies, it will consult on proposals to bring forward, and legislate, the retirement of coal power to 2024.
Ensuring that energy policy and decarbonisation targets permeate public policy will be important if the objectives of the White Paper are to be achieved. It includes a commitment to establish a Ministerial Delivery Group, that will bring together the relevant government departments to oversee the expansion of renewable power in the UK. It will tackle barriers such as planning guidelines and environmental regulation, aviation and radar issues for wind turbines, marine biodiversity, and network infrastructure development to support deployment. In particular, a review of the existing energy National Policy Statements will be launched to ensure that these reflect the objectives of the White Paper, with the aim of designating updated NPS’s by the end of 2021.
The White Paper reiterates the ambition of deploying 40GW of offshore wind by 2040, including 1GW of floating offshore wind, a fourfold increase of today’s capacity. Whilst this level of deployment presents an opportunity for UK renewables, it will also place pressure on supply chains and on port infrastructure. The Government has already committed a £160m scheme and competitive process to develop major portside infrastructure hubs. This aims to bolster the supply chain for domestic and overseas markets, and attract inward investment of expertise and manufacturing. The increase of capacity will allow the UK to service both domestic and overseas markets, with an aim of 60 percent UK content; a fivefold increase in offshore wind-related exports of about £2.6bn per year; and £3bn GVA per year by 2030, a third of which will be from exports.
Government support mechanisms will continue to play a key role in delivering a diverse energy mix to the UK, particularly in ensuring that nascent technologies receive the necessary support to secure financing. Historically, early schemes such as the Renewables Obligation and Feed-in Tariff helped to accelerate widespread deployment by reducing power price risk, thereby facilitating the financing of larger-scale projects. This is evident from the increase in renewable energy generation from 7 percent of all electricity generated in the UK in 2010 to over 37 percent in 2019.
Presently, the Contracts for Difference (CfD) mechanism is the key form of support available in Great Britain. The Government has already announced CfD auction rounds to be held every two years—with the next, in 2021, to be open to onshore and offshore wind, solar, and other established technologies. Subject to the market pipeline between now and then, the capacity awarded will more than double to 12GW of energy.
The future of the CfD, however, will be kept under review. In parallel with the White Paper, the Government has published a separate informal consultation entitled Enabling a High Renewable, Net Zero Electricity System: Call for Evidence to assess potential reforms to the CfD and the electricity system more generally (the Call for Evidence). The aim of the Call for Evidence is to address how best deliver the following three Government objectives: (i) maintaining growth in renewable deployment; (ii) ensuring overall system costs are minimised for consumers; and (iii) supporting innovative technologies and business models. The responses received will inform the Government’s position on the long-term future of support for renewable developments and the design of future CfD allocation rounds.
The focus of the Call for Evidence is on the scale of investment necessary to further accelerate renewable deployment to meet the UK’s net zero goals, and in particular the policy framework which will enable these goals to be realised at the least overall system cost. Views are sought on a number of key issues including:
Both the White Paper and the Call for Evidence also highlight the need for a more coordinated approach to offshore generation and transmission development - currently being considered by the Offshore Transmission Network Review—and greater strategic coordination in the development and deployment of market-to-market transmission assets (see further below). The Call for Evidence asks what changes would be required to the CfD to facilitate the deployment of offshore wind farm projects as part of a multi-purpose hybrid offshore wind-interconnector project.
CCUS can support decarbonisation of gas-fired generation. The White Paper reiterates the pledge to support the deployment of at least one power CCUS project, to be operational by 2030, and to put in place the commercial framework required to help stimulate the market to deliver a future pipeline of power CCUS projects. The Government plans to introduce a business model based on the existing CfD framework, adapted so that price signals incentivise power CCUS to play a role in the energy system, which complements renewables.
Current Carbon Capture and Readiness requirements, which apply only to thermal plants larger than 300MW, are distorting the market. The Government has undertaken to review this threshold, and explore hydrogen-conversion methods, beginning with a consultation in 2021.
The Government will publish a new Biomass Strategy by 2022 to assess the contribution of biomass technology to its goals as well as sustainability standards. A call for evidence is expected soon, with a position paper planned for 2021. An aspect of this strategy will be consideration of the role Bioenergy Carbon Capture and Storage (BECCS) to deliver negative emissions by capturing the carbon released during biomass combustion and gasification. Potential applications include clean hydrogen production, power generation, waste management, and heat for industrial processes.
As part of the Government’s Ten Point Plan, additional large scale nuclear power plants and the development of the next generation of nuclear technologies—Small Modular Reactors (SMRs) and Advanced Modular Reactors (AMRs)—are embedded in the Government’s vision for the UK’s low carbon future. As a reliable, energy dense and low carbon energy source, the White Paper confirms the Government’s view that nuclear energy, complementing a renewable energy mix, is required to meet the UK’s commitment to decarbonisation. The White Paper provides an ‘in principle’ commitment to large-scale nuclear and an overview of existing funding and programmes for advanced nuclear technologies although it still lacks detail on the financing solution for new large scale nuclear plants. A key policy goal for new nuclear in the White Paper is to aim to bring at least one large-scale nuclear project to the point of Final Investment Decision by the end of this Parliament (in 2024), subject to clear value for money and all relevant approvals. In contrast to the unequivocal commitment to offshore wind, new large scale nuclear is still subject to the nuclear industry proving its case. The White Paper sets out the requirements for the industry to demonstrate value for money and that it is able to reduce costs in line with the goals set in the Nuclear Sector Deal, published in 2018, and to deliver on time and to budget.
Financing new nuclear projects remains a major barrier to bringing forward new large-scale nuclear plants in the UK, beyond Hinkley Point C. Alongside the White Paper, the Government has published its response on the consultation on a Regulated Asset Base (RAB) model for private investment in nuclear energy. The response concludes that the RAB model is a credible option but this will be considered alongside alternatives including government finance during construction. No clear path for financing new nuclear has been provided, and the White Paper indicates that this will be considered with the developer of the next large-scale project (most likely Sizewell C, with the commencement of formal talks with the Government having been announced this month), in consultation with other stakeholders including other nuclear developers.
In addition to large scale nuclear, the Government sees opportunities for the UK to be at the forefront of developing advanced nuclear technologies, with a predicted market for SMRs and AMRs of £400bn by 2035 and fusion as the ultimate solution to unlimited and affordable low carbon energy. The White Paper also picks out the potential role for AMRs with high operating temperatures in providing a cost effective solution to hydrogen production, helping to unlock hydrogen as a low cost, low carbon alternative fuel.
The White Paper includes:
£215m of the Advanced Nuclear Fund will be made available to develop a domestic SMR design, and refers to the funding allocated (subject to further spending reviews) to the UK SMR consortium led by Rolls Royce, which is to be match funded in the amount of £300m by industry. The remaining £170m is committed to an R&D programme for AMRs. The Office of Nuclear Regulation’s Generic Design Assessment process will be opened to small reactors from 2021. A further £40m of funding is being made available to support the development of the regulatory frameworks and the UK supply chain.
There is no further detail on the path to commercialisation of these technologies beyond these current funding rounds.
The commitment to fusion refers to the existing STEP (Spherical Tokamak for Energy Production) programme under development by the UKAEA, which aims to complete the design for a commercial fusion power plant by 2024 and to build the first commercial power plant by 2040.
Despite the fact that the UK’s electricity and gas networks are among the most developed in the world, the systems are nonetheless designed for the fossil fuel age. The challenge now is for the electricity and gas networks and the wider energy system to adapt to new types of incoming supply and a potential doubling of power demand by 2050. At present we have separate networks for electricity, gas and vehicle power, all running independently of each other. In the future these will increasingly merge into one system, as electricity becomes the main energy source for most of our daily needs. To address this change and ensure the UK’s energy systems are fit for purpose the Government has highlighted a number of policies, plans and ideas.
A Smart Systems Plan will be published in the first half of 2021 (building on the 2017 Smart Systems and Flexibility Plan) to include a new framework for monitoring and encouraging network flexibility, as well as legislating to define electricity storage in law (although no date has yet been set for the latter). It is hoped this will give much needed guidance on the regulatory and network infrastructure agenda for the next decade.
The Government will fund a Net Zero Innovation Portfolio which will include a competition to bring to market first of kind longer duration energy storage. Funding will amount to roughly £100m with delivery from spring 2021. As gas and other means of “firm” electricity production are reduced over the coming decades the Government sees energy storage as an essential element of ensuring continuity of supply and improved flexibility.
The Government will also legislate to enable competitive tendering for onshore networks construction, ownership and operation, firstly at the distribution level, and then possibly at the transmission level if evidence suggests this could work (but again no date has been set for this yet).
As further discussed in the Transport section below, the Government will support the roll out of electric vehicle charging infrastructure along England’s “Strategic Road Network” (motorways and “A” roads) by investing £950m in future proofing grid capacity at services stations and other stopping areas. Such improvements are essential before the private sector can grow the electric vehicle chargepoint network, which will put significant extra demand on electricity grid capacity. It will be important to understand how this £950m is expected to be deployed (having regard to the existing regulatory environment around grid connections). We anticipate there to be difficult questions regarding how to do so.
The Government has also announced it will work on a new approach to connecting offshore wind generation to the mainland grid, after major private sector generators warned that the process was the main stumbling block to meeting the 40GW target by 2040. Currently, each offshore wind farm has an individual connection to the mainland (including undersea cabling and shore-side connector). With a mass expansion of offshore wind environmental groups warn there could be a negative impact on the sea bed and related marine life, and coastal communities are increasingly concerned at the growing number of shore side connectors being built along the coastline. Little further detail is given on the proposed alternative mechanisms, apart from “hybrid, multi-purpose interconnectors” which would directly feed into the electricity export infrastructure (indeed the Government has also committed to developing at least 18GW of interconnector capacity by 2030), but one possible solution discussed by industry bodies is a network of shared “hub” grids which private projects could plug directly into.
The Government acknowledges that gas, which currently represents around 30 percent of final energy consumption in the UK, will continue to have a role in household cooking and heating for many years to come. While the Government hopes that gas for power will be increasingly connected to CCUS it is also exploring options for integrating hydrogen supply into the existing gas supply network – indeed in the Prime Minister’s “Ten Point Plan” it was announced that the UK will work towards a “Hydrogen Town” demonstration project. The Government is also to consult on updates to the Gas Act to ensure gas markets are effective in incentivising improvements in gas quality and will also review the Domestic Load Connection Allowance which it considers currently perversely acts as a subsidy for gas grid extensions rather than incentivising competition with other low carbon alternatives. The Government will host a series of consultations throughout 2021 with industry stakeholders to discuss the transition.
Transport accounts for nearly a quarter of UK domestic greenhouse gas emissions, the overwhelming majority of which come from cars, vans, busses and heavy goods vehicles.
The Energy White Paper reiterates the Government’s flagship policy to ban the sale of new petrol and diesel cars and vans (but not HGVs) by 2030, extending to hybrid vehicles too by 2035. The ban on petrol and diesel cars goes hand in hand with the plans for a massive acceleration in the roll out of electric and other low emission vehicles. As mentioned above, £950m of funding is to be allocated to reinforcing roadside grid capacity, intended to lead to 2,500 high powered chargepoints across England’s motorways and major A roads by 2030, increasing to 6,000 by 2035. Total support to roll out electric vehicle charging networks will near £1.3bn.
A further £1bn will also be spent on developing and promoting electric vehicles themselves, including £582m in grants for those buying zero or ultra-low emission vehicles and £500m for the development of “gigafactories” (electric car battery factories) with clusters in the North East and West Midlands to complement the Government’s “levelling up” agenda. The first UK gigafactory was announced earlier in December by Britishvolt, who will build their facility in Northumberland.
The Government will also consult on a date by which to phase out petrol and diesel HGVs. Battery power may work for smaller HGVs but the Government accepts it is still unclear how larger HGVs will be decarbonised and so has committed £20m to trial hydrogen fuelled HGVs and £120m in 2021/22 to deliver 4,000 zero emission buses.
A Transport Decarbonisation Plan will be published in the spring of 2021 which will focus on six strategic priorities:
The Zero Jet Council has been established to develop new technology to assist with the decarbonisation of aviation, but further details will await the publication of the Transport Decarbonisation Plan in spring 2021. The White Paper includes scant detail in relation to rail apart from a statement that the immediate focus would be on electrification but hydrogen and battery traction would also be trialled. The Government continues to implement the Clean Maritime Plan from 2019, which includes a demonstration competition to support the development of clean maritime technology such as hydrogen. However, as with both rail and aviation, we will have to wait for the Transport Decarbonisation Plan to be published to see further details on the actions to be taken to decarbonise the shipping and maritime industry.
Buildings are currently the second largest source of carbon emissions in the UK (after transport), with over 90 per cent of homes currently using gas or other carbon intensive fuels for heating, cooking and hot water. Decarbonising homes and commercial buildings therefore will be one of the most challenging (and expensive) tasks to achieve net zero. It is an area that can lead to significant savings for property owners.
A Future Homes Standard will ensure that all new-build homes will be fitted with low carbon heating, although no implementation date has been provided. In terms of existing homes, retrofitting can often be costly and the Government has decided to extend the Green Homes Grant Voucher for another year which will support supply chain development and allow people to voluntarily upgrade their home insulation or install low carbon heating before new anticipated regulatory measures come into force. The Government is to consult on a package of measures to create a long term regulatory framework to incentivise and promote energy efficiency in homes, including increasing the existing requirements to comply with Energy Performance Certificate (EPC) measures.
To ensure that energy efficiency is not just something that is available to wealthier households, the Energy Company Obligation will be extended from 2022 to 2026 and the Warm Home Discount will be expanded to around three million low income households until 2026.
Commercial buildings account for the majority of private sector building energy demand, with the majority of that demand being in rented buildings. Landlords therefore have a key role to play in the decarbonisation of much of the rented non-domestic building stock, for which the Government hopes will mostly be EPC Band B by 2030, where cost-effective. Again, the Government is to consult on enforcement mechanisms to incentivise greater compliance with what will be tougher rules (still to be consulted on and refined).
The Government has confirmed that it is to extend the Public Sector Decarbonisation Scheme for a further year, on top of multi billion pound investments in energy efficiency measures in public buildings more broadly such as schools and hospitals. Further details will be published in a new Heat and Buildings Strategy in the first half of 2021.
It is widely accepted that a move away from gas boilers will be required in homes, which will undoubtedly prove to be one of the most challenging elements of the transition, and so the Government will launch a consultation on whether to end gas grid connections for new homes from 2025. There are also plans to grow the installation of electric heat pumps from 30,000 to 600,000 by 2028, and evaluate hydrogen as an alternative to be used in household heating with a trial of the UKs first “Hydrogen Town”. £122m of new funding will go towards a new Heat Network Transformation Programme to support the roll out of local district heating systems, with a focus on the recovery of waste heat and heat pumps.
There is also a desire to increase the proportion of biomethane in the gas supply network, although no firm commitments have been made on dates or volumes.
The White Paper set out nine key commitments for the oil and gas industry. These are concepts or goals rather than specific policies, and there is no detail of any regulatory reform in the paper. The headline proposal – to make the UK continental shelf a net zero basin by 2050 – is not new. Although the Government acknowledges that net zero is an ambitious target, it pledges support to help achieve it. It discusses a “carrot and stick” approach – financial incentives for continued investment coupled with greater powers for the Oil and Gas Authority (OGA) to enforce responsible environmental behaviour by oil and gas companies, so that their business plans align with the Government’s net zero target. Oil and gas companies will need to envisage a transition to producing cleaner primary sources of energy (such as hydrogen and renewables), and look at repurposing existing infrastructure and assets in support of clean energy technologies, if they wish to flourish in the UK. The White Paper suggests that the Government will assist the industry by developing both regulatory and technical guidance on repurposing, so that it can be done safely and securely.
The White Paper also promises support for the development of CCUS projects and acknowledges the critical role that the oil and gas industry plays, both in terms of energy security and in the wider context of the UK economy. It is helpful in recognising that there cannot be a cliff edge with fossil fuel use but is firm that the transition must happen. Oil and gas companies that continue to focus on existing business models at the expense of developing cleaner fuels and technologies can expect to find themselves under the scrutiny of the regulator.
The White Paper commits the UK to the World Bank’s “Zero Routine Flaring by 2030” initiative, which seeks to end the practice of routine flaring by 2030, and there is also a promise to tackle “regulatory and policy” barriers to the electrification of platforms. It states that the OGA will take a more robust stance on flaring and push for reductions through its consents, field development oversight and project stewardship role so that the UK can reach zero routine flaring as soon as possible. Any future Government support will be dependent on the sector adopting meaningful measures which reduce emissions and report transparently on progress, for example, through adhering to the recommendations of the Taskforce on Climate-Related Financial Disclosures. Emission reductions will be expected across the supply chain, not just where resources are directly owned or controlled but upstream and downstream too.
In respect of decommissioning the White Paper states that the Government is to undertake a review of the Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) to ensure it is equipped to drive up environmental standards and achieve the net zero target. It is unclear when this review will take place or what it will focus on but it is suggested that OPRED will introduce a regulatory framework to support emerging decarbonisation technologies. The White Paper also states that the Government aims to produce a new strategy for the OGA before the end of 2020 – so watch this space – to bolster its powers to help deliver net zero.
Licensing is also considered in the White Paper, hinting at a pause in future licensing rounds until a thorough review of licensing has been conducted. There is a suggestion that independent advice may be sought to ensure that any future licensing remains consistent with the overall net zero objective. The review will look at licensing in the round and consider energy transition and emission reduction objectives alongside the impact on the supply chain and employment, before publishing its conclusions (expected early 2021).
A more solid commitment made in the White Paper is to agree a transformational North Sea Transition Deal with the industry during the first half of 2021 “focused on the economic opportunities of net zero and providing support for the communities that will be most affected by the move away from oil and gas production”. The deal aims to provide support to the industry to transform the sector and deliver the energy transition by diversification of the oil and gas supply chain into new energies, supporting the development of hydrogen production and delivery of the CCUS. The North Sea Transition Deal will also support UK-based oil and gas supply chain companies to secure new low-carbon export opportunities in overseas markets.
Notably, the White Paper does not set out any detailed policies or strategies for achieving the key commitments to the oil and gas industry. Whilst this might give industry participants the opportunity to feed in to any future consultations, they may nevertheless find this lack of certainty unhelpful, particularly in the current challenging market conditions.
The Government’s policy over the next 30 years is to significantly decarbonise the industrial sector, which still accounts for 16 percent of the UK’s greenhouse gas emissions. To achieve this, additional infrastructure (pipes and carbon storage) and emissions-capture technologies will be needed. The investment required for decarbonisation could increase operating costs for the manufacturing sectors, which already operate in competitive international markets, often on tight margins. Whilst in the long term (starting from 2030s) markets will provide the most cost-efficient solutions to deliver net zero, in the short term the Government will provide support to the industrial sectors, including investment in the critical infrastructure and deployment of low-carbon technologies.
Details of this support will be published in spring 2021 as part of an Industrial Decarbonisation Strategy which will aim to transform all manufacturing regions into centres for the production of low-carbon goods from where technology, know-how and skills can be exported to the rest of the world.
To provide investors with revenue visibility, the Government will bring forward in 2021 details of a revenue mechanism to incentivise private sector investment into industrial carbon capture, and hydrogen projects via new business models to support these projects. It will also develop user-friendly digital services to improve access to funding for the stakeholders.
To harness the potential of shared infrastructure, such as CCUS and low-carbon hydrogen production and distribution, and achieve economies of scale, the White Paper places a focus on existing industrial centres - “decarbonisation in clusters”. It envisages support for the delivery of four low-carbon clusters by 2030 and at least one fully net zero cluster by 2040. Currently, five major industrial clusters (Grangemouth, Teesside, Humberside, Merseyside and South Wales) account for around 50 per cent of UK’s emissions from manufacturing and refining.
CCUS will play a key role in decarbonisation of energy intensive industries - steel, chemicals, cement and oil refining. By 2025, £1bn will be invested to facilitate deployment of CCUS in two industrial clusters, and a further two clusters by 2030, aiming to capture 10 tonnes of CO2 per year by the end of the decade. Some of this investment will be spent on developing carbon transport and storage infrastructure - offshore and onshore pipelines, storage sites and wells, which require large upfront expenditure.
In addition, by 2022 a new commercial framework will be put in place to provide revenue support and encourage businesses to invest in carbon capture solutions. By taking action early, the Government estimates the UK could harness £3.6m worth of export opportunities from CCUS by 2030.
Another important contributor to achieving net zero by 2050 will be clean hydrogen, as a low carbon alternative to fossil fuels - particularly in heavy industry, power, heat and transport. A dedicated Hydrogen Strategy is expected in early 2021, targeting 5 GW of low-carbon hydrogen production capacity by 2030 and a ten-fold increase by 2050. This level will require a number of production technologies, including methane reformation with CCUS, biomass gasification with CCUS and electrolytic hydrogen using renewable or nuclear generated electricity.
Clean hydrogen will be produced at scale by the mid-2020s, with 1 GW production capacity by 2025. Also in the 2020s the safety, security, cost and potential for emissions reduction of clean hydrogen will be assessed, to scale up even further in the 2030s. Early deployment will help the UK to capture increasing international demand for hydrogen goods and services.
To support low-carbon hydrogen production and technology, a new Net Zero Hydrogen Fund will provide up to £240m of capital co-investment out to 2024/2025. Also, by 2022 there will be a commercial framework to encourage private sector investment. The Government will consult on its preferred model in 2021.
The decarbonisation of energy will be underpinned by a new UK carbon market. In May 2019, the Government consulted on a proposal to establish a UK emissions trading system (UK ETS) linked to the EU ETS, to replace the UK’s participation in the EU ETS (please see our blog on the consultation response here). Building on this proposal, the White Paper announces the intention to implement the world’s first net zero carbon cap and trade market. A cap will be set on the amount of greenhouse gases that a business would be allowed to emit. The Government will consult on how the cap will decline over time (the trajectory) to ensure that the UK meets its net zero target by 2050. Emissions allowances would be traded through Government auctions or secondary markets. Where abatement is cost-efficient, businesses would deploy clean energy technologies.
Initially, the UK ETS will apply to energy-intensive industries, electricity generation and aviation, but over time it will expand across the economy. Extending the UK ETS to two-thirds of emissions uncovered by carbon pricing will be explored, as well as how the UK ETS could incentivise the deployment of greenhouse gas removal technologies. The Government is open to linking the UK ETS internationally, although no decision on the preferred linking partners has been made yet.
Whilst the White Paper may not contain many surprises, it is nevertheless an important milestone and signpost for the future direction of travel in the energy sector. It sets in motion a number of policy, regulatory and legislative developments which will be crucial if the UK is to achieve its 2050 net zero target. It promises a more holistic approach to policy development. The next year in particular will be dominated by engagement with the Government to meet the time-table and milestones required to deliver on the reforms outlined in the White Paper.
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Sponsors and project developers across the renewables and energy transition space are currently facing a challenging macroeconomic environment.
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