UK green issues take political centre stage

By pledging to “max out” oil and gas reserves and criticising “loony” green policies, UK prime minister Rishi Sunak appears to be driving a wedge between his government and the opposition Labour party. Listen to a discussion on the country’s faltering climate goals, why offshore wind farms are proving challenging and the fierce debate around urban low-emission zones (Ulez). And, will Britons really be cooking their turkeys on new nuclear power in 2028 (11 years later than originally planned)?

Host: Richard Sverrisson, Editor-in-Chief, Montel

Guest: Antony Froggatt, Senior Research Fellow, Chatham House

Transcript

Richard Sverrisson, Editor-in-Chief, Montel: 0:19

Hello listeners and welcome to the Montel Weekly podcast, bring You Energy Matters in an informal setting. This week we turn our attention to the uk. The country has set clear net zero targets for 2050, but events in recent weeks have raised questions about the current UK government's commitment to its climate objectives. Prime Minister Rishi Sunna has pledged to max out the country's oil and gas reserves. While the expansion of urban low emission zones U, less for short into suburban London has become a divisive issue. In addition, Sweden's Vattenfall has pulled out of a 1.4 gigawatt offshore wind farm, citing higher costs. The country's nuclear rollout has stalled and local opposition to large scale infrastructure is growing helping me. Richard Sverrisson. To unravel the country's energy policy is Antony Frogger of Chatham House. A warm welcome, Antony.

Antony Froggatt, Senior Research Fellow, Chatham House: 1:13

Thanks very much.

Richard Sverrisson, Editor-in-Chief, Montel: 1:13

Let's start by talking about the UK's energy policy, or would it be better to call it energy mess?

Antony Froggatt, Senior Research Fellow, Chatham House: 1:21

We have a policy. It's certainly troubled. At the current time, and I think that's for a number of reasons. What we saw in particular since the invasion of Ukraine was much more focused on energy security and the UK's desire and need to have energy from a wider variety of sources and the impact that had on consumer prices. So the government had to step in and give really quite significant subsidies. On the one level, you have the whole energy security going up, the political agenda, affordability being. Crucial from a electoral perspective, but also from a societal perspective. But climate change hasn't gone away, and we've seen that over the last months. The continual and growing impacts of climate change. But the conservative government have responded to that is seeking to use climate change as a issue. As what's called a wedge issue, trying to show difference between their party and the main opposition, the Labor party. So climate change has become much more of a political issue at the current time.

Richard Sverrisson, Editor-in-Chief, Montel: 2:18

We will return to that bit later about the opposition. But would you say that the government. Is backtracking on its climate goals? I think they're growing groundswell, isn't there in some parts of the media that you know and it seems to be that the current government is, and with the Prime Minister is listening to them. Would that be a fair assessment? Antony?

Antony Froggatt, Senior Research Fellow, Chatham House: 2:35

I think it's it's clear that they see this as an important political issue. It is a, it was surprising during the election campaign for the conservative leadership. So in, in the uk they have a strange, or the conservatives have a, an unusual electoral system whereby. If only their members get to choose the next. Leader of the party and when the leader of the party is, the current prime minister or the conservative are in power that effectively their choosing the Prime Minister. And it's quite a small electorate. It's 60,000 people and most of which are from a very narrow stream of society that tend to be older, white living in outside of major cities. So they elected the Prime Minister and the Prime Minister had to appeal to them. So during that election campaign, they basically said we wouldn't do any more onshore renewables, for example. So it becomes a politicized issue in terms of energy policy.

Richard Sverrisson, Editor-in-Chief, Montel: 3:27

And what's the opposition doing? What's, its a stance. I see. Maybe we could talk about, the ultra low emission zones here. That seemed to be a big factor in a recent by-election win for the conservators, maybe with a narrow majority. But the Labor Party, the opposition Labor Party, and its leader Kiss Tamma seemed to backtrack a little bit on these kind of Les or Al Ultra low emission zones.

Antony Froggatt, Senior Research Fellow, Chatham House: 3:48

It was a surprise, so it was very unusual. There were three by elections on the same day. There was the conservative expected to lose all three, but they won the one. That they were least expected to win. And so everyone was looking at why was this? And as you said it, it was in the outer edges of London. And the Mayor of London is expanding the current les low emission zone from currently it's within a relatively small area of London to expand it to within the sort of the orbital. Motorway called the M 25, and this affects many conservative held constituencies. So most of Central London is held by the labor and the outer ring is held by the conservatives. And so the there the future parliamentarian campaign very strongly against you, Liz. It's very interesting to note that Les was introduced by the conservative. Boris Johnson, who then became Prime Minister, but that's often not talked about because they won the seat on the basis of that. Many people within the conservative party have said look, that shows that environmental stroke, climate change issues are a vote loser, and if we loosen the regulations in these areas, then we will win more votes. The Labor Party have said, yeah, difficult one, and asked the labor. Current mayor of London to think again. He's said don't really want to change the policy, but have offered more subsidies for consumers in terms of scrappage schemes. So they've reacted to some degree, but it highlights for me at least the extent to which the conservatives, there is a wing of the conservatives that don't like environmental policy and want to see rolling back on environmental policy and see now as opportunity to do that. So you've seen that in other areas. Michael Gove, who is the minister for leveling up, has said maybe we should be not requiring such high energy efficiency standards. There's another question about gas boilers. Should there be a. The government is I think it's 2035, saying we won't be allowed to build houses with gas boilers in. And so they're proposing that potentially be reduced. They've said that they'll stand firm on electric vehicles and the ban on internal combustion engines, but I suspect that will be the next, that will come under significant threat going forward. But so far the government hasn't rolled back on it. On many of its sort of longer term pledges. It's some of the policy and implementation measures that they are wavering on.

Richard Sverrisson, Editor-in-Chief, Montel: 6:11

The Les issue is quite interesting as well because the labor mayor of Manchester, for example, is also a held back introducing similar measures that the former conservative mayor Boris Johnson introduced in London.

Antony Froggatt, Senior Research Fellow, Chatham House: 6:23

Yeah, it's a difficult issue. I had to get rid of my car and it cost a lot. So it's not an easy thing. It affects lots of businesses, but yet it brings air quality benefits as well as helps to speed up the transformation in terms of electric vehicles, which we know are essential if we're going to meet future climate targets. But the other problem is, of course is a budget she won is the local authorities. So within London or within Manchester, may not have the ability to offer scrappy schemes or to be able to support. Other measures fiscally because it's not within their powers. It requires central government involvement. So there is a tension that exists also in this space.

Richard Sverrisson, Editor-in-Chief, Montel: 7:04

Absolutely. And it's it is, electric vehicles are not cheap either. And certainly, a lot of people certainly in outside of the city centers rely on them quite heavily. Let's touch on a few other areas. Offshore wind, I mentioned in the introduction there, VA Vattenfall pulling out. Citing higher costs, basically, inflation, interest rates. The whole environment, financial environment has become very difficult for companies to to build such farms on scale they originally planted. Do you think that's the first step of many? Or what's going on?

Antony Froggatt, Senior Research Fellow, Chatham House: 7:33

I guess everyone is looking in this space. What we've seen over the last couple of years is the higher energy prices have a positive impact for renewables, because obviously they're not being affected by the parcel of fossil fuels in terms of their outcome or output. But clearly the materials that they need are affected by the increased material costs, increased construction costs, inflation, interest rates going up. All of these. For capital, expensive bits of equipment are problematic. And so where you have systems and in particular as you mentioned, offshore wind. So in terms of the process for offshore wind at least within the uk, the government opens up the opportunity for companies to bid. They bid and say, we will build this farm of let's say 500 megawatts. And we agreed to do it at a set price. And that set price obviously is based on what they thought were the construction costs with profit included. If the construction costs go up significantly, then their profit margin is squeezed significantly or sometimes disappears. And so that's what they're pushing for, a renegotiation of the price that was agreed in terms of the production costs. So it's difficult. The UK government is. In terms of, I mentioned before the conservative government is elected by a small band of a relatively small number of electorate who don't like onshore renewables because it's they tend to be outside cities in areas in which they fear the renewables will be built. Therefore, the government has become more reliant on offshore wind in order to meet its targets. And so I think this is, will be extremely problematic for the conservative if they see a slowing down of the renewable development because offshore wind. The costs rise significantly.

Richard Sverrisson, Editor-in-Chief, Montel: 9:18

Can you see that the UK government willing to renegotiate some of these contracts? They're mainly based on contracts for differences, aren't they?

Antony Froggatt, Senior Research Fellow, Chatham House: 9:24

They've said that they're willing to give a little bit more money, but it's a relatively small amount. And so we're talking tens of millions when these things are costing hundreds of millions, if not billions, in terms of the total sector costs. So we haven't seen them willing to open up the checkbook. I think it. It also comes back to the question that we discussed previously about their willingness to be seen to be green and seeing that actually they're trying to label Labor Party as the sort of in with the greeny loonies in some ways. There was a ridiculous letter that went from Grant chaps who's the minister in charge of business and. Energy and he sent a bill to Kier saying the green protestors have painted on the walls of our building. You should pay for this because the Labor Party received money from someone supporting this same group. Total madness that they spend their time writing letters in such. Obscure way, but it's almost quite frivolous. Yeah. And, but it's about them trying to label the labor party. So this is what I mean is they want to say labor is going to destroy jobs because they're Pro-Green. And that's what a element that we will see because we have an election at the end of next year, that may well be an issue that is continued to be revisited.

Richard Sverrisson, Editor-in-Chief, Montel: 10:37

This kind of wedge politics that you're talking about, that tutorial. But does that mean. Are they continuing with their green policies or are they also rolling back from what they're saying? Or are they're being, not so open about, about, about their renewable or their green policy?

Antony Froggatt, Senior Research Fellow, Chatham House: 10:52

I think we're seeing questions being raised about the policies and the targets, and maybe we should put, push back the target by five years. Either because things aren't in place or because of COVID, higher costs, et cetera. So I think there is nervousness amongst many people that they're not putting in place the policies in order to meet the future targets. And I think that is the question that we, yeah, we'll have to see over the next few months. But I think the longer term targets probably won't be addressed. But if you don't put in place the policies to meet them, then effectively you are scrapping them in any case.

Richard Sverrisson, Editor-in-Chief, Montel: 11:25

But it's interesting also to note that the wholesale price of electricity is far higher now than it was when some of these these projects were planned, were launched were signed off. I think that's also is a factor, but maybe not a big enough factor.

Antony Froggatt, Senior Research Fellow, Chatham House: 11:39

Yeah, I guess there's a huge, there's a greater degree of uncertainty. About what the price of energy will be looking forward given in some ways what we have seen is the impact of geopolitics on energy price, like we haven't seen for a decade or two.

Richard Sverrisson, Editor-in-Chief, Montel: 11:52

You talked about the ban on onshore wind and the opposition to onshore wind. Do you think that's ever likely to be revoked or that we will see a rollout of onshore wind again in the uk?

Antony Froggatt, Senior Research Fellow, Chatham House: 12:06

I hope so. It is If we want energy security, if we want cheaper energy, if we want cheaper decarbonized energy, then onshore renewables are obviously the way forward in terms of they can be done quicker. And they are cheaper. It's cheaper to build onshore than offshore. The government keeps talking about reviewing it, but I don't think they'll be in a hurry to review it. So I suspect that what we'll see is a fairly similar situation over the next 18 months. And then. Post-election. One way or another I suspect the policy will change, but the UK is falling behind. To give an example, in terms of solar, what we've seen in the UK over the last six months in terms of solar deployment was 500 megawatts of new solar being put on the grid. So we've just gone to just over 15 gigawatts in Germany over the la, over the same period, over six gigawatts were put in place. Taking them to about 70 gigawatts, so you can see the difference between Germany and the uk. If we then go to China over the last six months, they've employed over 70 gigawatts in six months alone. So nearly, yeah, in a month in China, they've nearly put in place the same as the UK has in total. It's and this is interesting because it's both in China, it's both centralized solar, but also they've changed the planning. So there's much more decentralized. So over half of that is decentralized. So individual shop owners, et cetera, are being able to put in place solar. So there, there is a real pace of change that. The UK is missing out of, and even if we compare ourselves to continental Europe yeah. Other countries are moving much faster.

Richard Sverrisson, Editor-in-Chief, Montel: 13:45

'cause you would've thought in the current climate and the discussions around energy security, solar is, is a no-brainer.

Antony Froggatt, Senior Research Fellow, Chatham House: 13:51

I would agree. I mean it clearly there's problems if you have too much of it in terms of grid balancing and in particular through yeah. Distribution grids, et cetera. We need to plan it, but. What we don't need is planning, slowing down the deployment. What we don't need is planning, delaying the development and access to the grid is clearly a problem in the uk, in Europe and in the United States. For example, one of my favorite facts for from last month in the United States was that there is two terawatts of renewables and batteries waiting to come on the grid, which is more than the current. Total installed capacity and that's planning issues, delaying the development. Not all of them would necessarily go ahead, but you can see that there is a huge number of companies that have said, actually, we want to get on and develop these things. And we have, yeah. So it's grid congestion that is, is delaying the deployment.

Richard Sverrisson, Editor-in-Chief, Montel: 14:46

As you mentioned that, solar does have issues around when there's too much of it. And I think the Netherlands is seeing that quite clearly in terms of negative pricing. And they're trying some, in some areas trying to cope with that with different mechanisms, but. In the UK I see, celebrities come out to who are, who live near proposed big solar farms coming out very strongly against. Is that a problem here that, it's, it is nimbyism but it's also, very prominent people coming out whether they're TV personalities or actors or, in opposition to these solar farms. Is that an issue in the uk?

Antony Froggatt, Senior Research Fellow, Chatham House: 15:19

I think it is everywhere and develop needs to be done with care and respect for the environment. Yeah, we don't want to concrete everything and put solar panels on, but yeah, and it delays costs or delays projects, increases costs, et cetera. We've bashing the government a bit over the last couple of minutes. They have just, yeah, authorized the UK's largest solar. Plant. So I think it's 400 gigawatts. Sorry. 400 megawatts. So some things are taking place and yeah, it has to be done with care, but the u as I said, the UK is. Falling very much behind. And you talk about the Netherlands, they have, I think it's around 22 gigawatts of solar on the grid. So the UK has 14, so we have, yeah, we're a lot smaller in terms of, we're a lot larger in terms of population. Lots larger in terms of landmass, but significantly behind in terms of solar deploy.

Richard Sverrisson, Editor-in-Chief, Montel: 16:08

Absolutely. And I think countries like Poland as well made rapid advances in, in solar. I mentioned an introduction as well Antony about, Rishi Sunnak maxing out the oil and gas reserves. Does that send out mixed signals?

Antony Froggatt, Senior Research Fellow, Chatham House: 16:20

Yes. It's interesting from a number of fact. One is the fact we talked about before in terms of the wedge issue. So the Labor Party have said that they wouldn't stop any existing projects that have been licensed, but they wouldn't license anymore. Yeah, once they come to power. So in some ways what that does is if you're an oil and gas company, you're gonna go we've got a year in order to guarantee that we can get, we can carry on. So they, that's probably sped up an increased concern, but. The conservative party have identified this as an issue that, again, that they can highlight we're different from the Labor Party. I think that's part of what they're doing. I think it's also part of the narrative that they have is it's better that we develop our own resources than import fossil fuels from other parts of the world. Clearly that goes against international consensus. Actually, we should stop exploring. We have enough fossil fuel reserves that we know and they're currently exploiting without doing more. And and that's yeah. A problem and it, so on and it's also a signaling issue. Is, as you talk about in the climate negotiations, trying to change language around stopping phasing down the use of coal or phasing down the use of oil and gas, other countries are turning around saying, uK wants to exploit more, and it also comes in some of the questions. This year's United Nations Framework Convention on Climate Change. The conference of the party, so the big annual event is taking place in the UAE and many people can say UAE, you're a big gas export, you're a big fossil fuel company. And that they turn around and say, look. The UK held the cop two years ago, they're now expanding their oil and gas development. So don't turn around and point the finger at us. It's other countries as well. So it is a, definitely sends mi mixed signals.

Richard Sverrisson, Editor-in-Chief, Montel: 18:10

Do you expect this kind of would you say narrative to be ratcheted up in the coming months ahead of an election as in driving this wedge? Look at, the Labor Party are green loonies. We're the sensible guys here we're using our. Fossil fuel reserves. We're not relying on foreign unstable powers, but also we're, slowly dealing with, building out, rolling out renewables.

Antony Froggatt, Senior Research Fellow, Chatham House: 18:32

I guess we'll have to see. It's very clear that it's being tested. I guess the question is, does it change the polls and they must be doing their focus groups to assess, is this working? Does this. Attract the right voters that we need to, the current indications are, it's not working in terms of that the polling hasn't shifted. Labor are significantly, had to remain significantly had, so it hasn't changed the dial. But that doesn't mean that they don't think the strategy is right. They may just think we need to it harder. So I don't know. But it is, the conservative party was very much seen as the economically responsible party and the confidence in there. Sort of economic competence has diminished. And so this may well be a way in which also they're trying to do this thing. We're not gonna throw away the economy for green issues. It's a way in which that will potentially feed into it. But yeah, we'll have to see.

Richard Sverrisson, Editor-in-Chief, Montel: 19:21

In terms of new nuclear what, what's happening here? We've had, Hinkley point C we are supposed to, the. Bri Britain's was supposed to be cooking their Christmas turkeys on it by 2017. As was famously said, I think by the previous head of the UK's EDF subsidiary. What, what's going on here? What's the situation?

Antony Froggatt, Senior Research Fellow, Chatham House: 19:39

Yeah. Complex question. In terms of Hinkley, costs have risen again, which again is probably not surprising. If we talked before about the cost for the offshore wind. These material costs, inflation costs, et cetera, are affecting the final production prices. Similar with Hinkley. So it's delayed, probably the latest figure now is maybe September, 2028. The total cost is now 32 billion. If you take 2020, that's partly an inflation question. But it's also increased construction costs. So monetary inflation and increased costs. But significant, huge. For a single power plant, that's a lot of money. The government has remains committed to making a final investment decision on a similar design. At sizewell C so it's two 1.6 gigawatt each EDF built reactors. The problem is that EDF and the UK government don't want to finance it. So they've come up with a new means of financing it, or a, a new means in which they can increase the, effectively the subsidy from consumers for it which sort of makes sense. The contracts for difference hinkler are eye wateringly expensive. In 2013 it was 92 pounds a megawatt hour. It's an index linked, so probably by the time it comes online it's gonna be a hundred and twenty, a hundred and thirty, a hundred forty pounds a megawatt hour. Offshore wind was at 50, so you're talking two to three times the cost of offshore wind. So they probably can't repeat that. But. They need to guarantee some sort of income because the government has said it would take 20% share. EDF says it doesn't wanna have more than 20% share, so you've still got 60% that has to come from somewhere. And if you're talking construction costs in the tens of billions, that's quite a lot to raise. So there needs to be investor certainty in terms of a, some sort of fixed price that. Is above what they Yeah. Will give them a good rate of return. Plus they need to attract a significant amount of money. So it's gonna be tough to make a final investment decision. All of those ducks need to be lined up over the next 18 months. So we'll see if they make that. So that's one element of nuclear. And then the other thing that the government is they've launched a thing called Great British Nuclear. So a new vehicle to. They say to help develop the small modular reactors and potentially sometime in the future, build other large reactors. It was delayed for a long time. It has been launched. We'll have to see. Rolls-Royce is very keen to build small modular reactors in the uk. Technically, they're not small. They're 400 megawatts under internet. Other definitions, you must be below 300. 400 megawatts is still a large project, so they're probably less modular than others might be. But we'll see whether or not, again, it's a government gives relatively large amounts of money in the hundreds of millions, but if you're talking building lots of these reactors, you need a lot more than that. So how much the private sector comes in on this is. It's questionable.

Richard Sverrisson, Editor-in-Chief, Montel: 22:46

And providing that investor certainty is the model there. Is it the RAB the regulated asset base?

Antony Froggatt, Senior Research Fellow, Chatham House: 22:51

Yeah, exactly. Yeah. So it's, and it enables them to start raising income. During construction. So if as we have with Hinkley, for example, EDF is bankrolling it along with the Chinese. The Chinese is one of the reasons also that China is pulled out because they're no longer being offered the opportunity to build in the uk. So therefore they're not investing. If you have a 10 year construction period, and it has to be all. Paid for by the companies, then obviously that's quite expensive over that period of time. So being able to charge future users during construction period makes a big financial difference. And so that's one of the things that will be within the regulatory asset base.

Richard Sverrisson, Editor-in-Chief, Montel: 23:31

Yeah, I think it's a fascinating discussion and I'm sure one I would look forward to returning to discuss with you, Antony, but thank you very much for being a guest on the Montel Weekly podcast.

Antony Froggatt, Senior Research Fellow, Chatham House: 23:41

Thanks very much. Great conversation.