Risks to the UK’s energy security

Recent energy supply shortages and high prices have highlighted the importance of energy resilience. Take natural gas. Gas prices throughout Europe have been unprecedentedly high since mid-2021. The initial increase in prices was driven by a rising demand for liquefied natural gas as economies in Europe and Asia reopened after COVID-19. High prices during the summer of 2021 meant that gas storage facilities, which Europe relies on during winter, did not fill up, sustaining high prices throughout winter 2021/22. Later, sanctions imposed on Russia after its invasion of Ukraine jeopardised the important gas supply from Russia to Europe. This supply was largely cut off during the summer of 2022, contributing to sustained high gas prices throughout the year.

Insufficient energy supply and high prices are only two of the major risks faced by the UK energy sector. Other risks are emerging from the low-carbon transition, damage from climate change impacts, and pressures on critical minerals such as cobalt, nickel and lithium. In addition, our increasingly digitised energy systems are becoming more vulnerable to cyber-attacks.

The transition away from fossil fuels in particular is leading to a more intermittent and less diversified energy mix. The electricity system will become harder to operate, as more electricity will be generated from less controllable renewable sources. The energy sources people use will become less diverse as heating, cooking, and transportation are electrified. Energy systems will become dependent on critical minerals and materials required for electrification, renewables, and batteries.

Limitations of current policies and processes

Britain’s current energy security process is increasingly unsuitable for managing these new risks. It narrowly focuses on the reliability of the electricity and gas networks. Much less emphasis is put on ensuring that there is a sufficient supply of fuels, such as natural gas, or on the materials and skills required for long-term energy security. Responsibility for energy security is currently split between government departments and regulators, slowing down decision-making.

Further undermining the UK’s energy resilience is a predominant policy focus on technological and supply-side decarbonisation measures. The newly formed Department for Energy Security and Net Zero, in its ‘Powering up Britain’ policy paper, reiterates this focus. Support for nuclear, wind, and carbon removal technologies is indeed necessary for the low-carbon transition. However, measures to reduce energy demand can rapidly reduce emissions in the short-term. Additionally, cuts in energy demand, resulting in a smaller energy system, would help decarbonisation in the run up to 2050.

Mitigating energy security risks

A more resilient energy system would require reductions in energy demand; a more flexible electricity system; and domestic low-carbon energy generation. It would also benefit from increased energy storage capacity and a new government body responsible for energy resilience. Risks to the supply of critical minerals and metals need purposeful investment in large-scale, circular economy infrastructure going beyond research funding.

Reducing energy demand is a cheap, fast, and effective way of improving energy security. Almost 60% of homes in England and Wales have an energy performance certificate (EPC) rating below C. Bringing these homes up to an EPC rating of C could save the equivalent of six nuclear power stations worth of power. Aggregated bill savings are estimated to be £10.6bn per year.

A recent project stress testing the government’s Net Zero Strategy through several future scenarios has shown that relying primarily on technology is risky, and that the Strategy might need to be complemented by societal changes reducing energy demand. The Tyndall Centre’s research confirms that demand reductions are necessary for meeting the Paris Agreement climate goals and for reducing reliance on expensive engineered carbon removals. Such reductions would be particularly important for the sectors where low-carbon energy supply is technologically challenging, such as aviation, freight, and heavy industry.

The ability to store energy, and move it back and forth to Europe would give the UK energy system more flexibility to deal with variations in supply and demand over periods ranging from hours to seasons. The UK currently has very little energy storage, so it relies on gas and electricity interconnectors with Europe to take advantage of their large gas storage facilities. The ability to trade energy with Europe also allows both parties to take advantage of differences in demand and supply due to differences in temperature and in renewable generation.

Similarly, diversification is essential to ensure supplies of the materials needed for a low-carbon transition. Here, the government has published its 2022 Critical Minerals Strategy. For example, the UK intends to work more closely with partners such as Saudi Arabia and invest in circular economy measures. Such measures would include a more efficient use of materials and their recovery from waste streams, for example from electric vehicle batteries. As circular economy is a systems approach, the government should acknowledge that many currently locked-in and incumbent practices might need to be uprooted. Non-incremental changes are required to the current infrastructure for collecting and processing waste.

Next actions for government: A pathway towards resilience

Energy resilience requires an integrated and joined-up cross-departmental strategy to tackle these issues simultaneously. A government body with overall responsibility for energy security would be able to balance the short- and long-term energy security considerations, including energy transition risks. This agency would also be able to view the complete energy supply chain and critical materials supply chain, ensuring that there are sufficient fuel and material imports, as well as making sure the infrastructure within the UK is reliable.

Several UK policy reviews published in 2023 concur. The Net Zero Review by Chris Skidmore MP, former Minister for Energy and Clean Growth, and an independent report by Tim Pick, the UK’s Offshore Wind Champion, both call for expanding Ofgem’s remit to include long-term planning for a net zero system. Similarly, the National Audit Office is concerned about the lack of a long-term, systems-wide and joined up approach to decarbonisation by the new Department for Energy Security and Net Zero. The time is ripe for change.

Policy recommendations

• Encourage reductions in energy demand, particularly in sectors which are difficult to decarbonise such as aviation and freight.
• Incentivise more flexibility in the electrical system, additional energy storage capacity, and interconnection with Europe.
• Reduce reliance on imported energy by supporting generation of domestic low-carbon energy.
• Create an agency responsible for the UK’s energy resilience, taking a long-term and systems view on energy supply and demand.