How Government focus on green energy will likely change markets and supply chains in the near future

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In the last 20 years, we have witnessed remarkable change in the UK’s use and production of green renewable energy, growing from an incipient sector in the UK, to a global powerhouse for manufacture. Yet, as discussed in our previous paper, ‘UK Government Offshore Initiatives’, the UK’s current position in the global renewable energy markets is yet to see even greater advancements in the near future.

With a collective group of ambitious, broad-spectrum UK Government policies, programmes and investments, our UK markets and supply chains are surely soon to undergo astounding changes and progress in various distinct energy sectors.

  1. Homes & Public Buildings

Under Boris Johnson’s 10 Point Plan, a prioritised ambition of the UK Government is to be able to produce enough offshore wind energy to power every home by 2030. In September 2020, the Government announced a £3 billion investment plan to upgrade the UK’s buildings. Energy use in the home accounts for 20% of the UK’s carbon emissions therefore, increased energy efficiency in this area has a huge potential in helping the UK reach net-zero by 2050.

The core objectives for this investment are::

  • To make public buildings Greener – Schools, hospitals and other public buildings will receive funding to become greener, cheaper and cleaner.
  • Drive greater homeowner responsibility for energy efficiency and use of greener energy – The Green Homes Grant is a scheme to assist homeowners or residential landlords to cover the costs of installing energy efficient improvements and help households to save up to £600 on their energy bills per annum.
  • Drive greater greener energy dependency across social housing – council house tenants and private rental tenants will also be able to contribute to the Green Industrial Revolution as a government consultation has launched plans to upgrade these properties by 2028. The investments will aim to achieve nearly 3 million privately rented homes are upgraded to modern energy efficient standards by 2030. Over £50 million will be dedicated to social housing.
  • Create new work for tradespeople in green construction – This scheme is estimated to support over 100,000 jobs across the UK.

Not only will this investment increase the demands for greener energy resources and thus drive down prices, the investment aims to further boost the appeal and attraction of energy efficient homes to consumers, ultimately changing the housing markets forever. In addition, there will be a more demanding drive for companies to keep pace with competitors, mitigate future regulatory risk and enhance brand value through greater energy efficiency and greener corporate policies. Energy standards aim to be significantly raised across all markets in response.

  1. Electric Vehicles

The Government has set in stone the end of sale of new petrol and diesel cars by 2030 through a two-step phase. This was originally due by 2040, back when it was set in 2017 by Michael Gove, but the date has now been brought forward by 10 years.  After 2035, the only new cars and vans to be sold will be pure electric ones; also disincentivising the retention of used petrol and diesel cars.

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  • The UK Government is investing £1.3 billion into electric vehicle charge points and their fittings into homes, streets and motorways.
  • A Further £582 million will be invested into grants to help individuals purchase or finance electric vehicles and plug-in hybrid electric vehicles.
  • An additional £500 million will be invested into the development and mass production of batteries.
  • On top of this, £525 million is being invested into nuclear power plants to help meet the demand for electricity that the growing number of electric vehicles will bring.

Already, 10 whole years before the banning of the sale of new petrol and diesel vehicles, buyers are inevitably turning to electric vehicles in greater numbers. In 2019, there were 31.8 million cars on the road in the UK, 31.1 million ran on petrol or diesel, 513,000 were conventional hybrids and only 89,500 were pure electric vehicles; the number of electric vehicles on the road, however, has now doubled. This means vehicle sales have already been significantly impacted by the impending ban even at this stage. Electric vehicle sales tripled in October 2020 when compared to the same month in 2019.

In just 9 years, it can be estimated that all vehicle production will have to be fully electric or strongly hybridised with a supply base and infrastructure in place to support it. This will be difficult for UK companies to achieve, even with investments from the UK Government, as at the moment the UK is behind in electrification.

Automotive supply chains are extremely complex and will grow even more complex throughout the ‘Green Industrial Revolution’ as the production of electric vehicles increases, and supply chains evolve and adapt.

There will be a huge demand for the assembly of battery enclosures, thermal management systems, battery maintenance, repair facilities and battery management systems; can UK companies keep up?

Last month (December 2020), the UK’s first all-electric car charging forecourt opened in Essex and the UK’s clean energy firm ‘Gridserve’ has made public its plans for more than 100 sites over the next five years. Large oil companies have recognised the change of direction in the automotive supply chains; BP, Shell and Total have all bought into charging system companies.

  1. Carbon Capture

The UK Government also have ambitious goals for Carbon Capture Utilisation & Storage (CCUS). Since 2017 the Government have invested over £100 million into leading edge CCUS and industrial innovation to drive down costs, showing they are highly committed to becoming an international leader in this sector, as well as other sectors under green energy.

  • The Carbon Capture Utilisation Storage (CCUS) Innovation Programme – The UK Government have again partnered with private companies, this time C-Capture and Drax Group, providing a £5 million grant to invest into the understanding and development of carbon capture technology and to evolve the world’s largest negative emissions power station in the 2020s, which has been estimated to be able to capture and store up to 16 million tonnes of carbon dioxide per annum.
  1. Fusion Energy Technology

Fusion research aims to replicate the process which powers the sun as a new large-scale source of clean energy. This is a new science and technology hub for the UK and the rest of the world.

  • The Spherical Tokamak for Energy Production (STEP) – this programme was a concept proposed by the UK Atomic Energy Authority and funded by the UK Government, aiming to produce enough electricity from fusion to become a global hub for fusion energy across the globe. Initially, the Government funded the programme with £222 million to produce a concept design by 2024, to be followed by a fleet of commercial plants in the years after 2040. If this project is a success, the UK will be the first country to commercialise fusion energy technology. The Government have already made plans to invest over £184 million to new fusion facilities by 2025.

Already, a study by London Economics referenced on the Government website, revealed that the UK economy has gained at least £1.4 billion from the Government’s direct investments in fusion energy over the past decade. Investments over the next decade will boost this sector’s size enormously.

To conclude, the UK Government have funded multiple initiatives that will broadly adapt the UK’s energy markets, but also international markets as UK suppliers and the Government compete against other major economies across the globe, to become international market and supply chain leaders. The investment and time dedicated into projects and companies by the Government will not only provide the UK with hundreds and thousands of job opportunities, but also significantly advance the UK’s knowledge and expertise on renewable, green energy.

Look out for our next post in our Thought Leadership series ‘The Green Industrial Revolution’, where we will be exploring whether the world has taken the COVID-19 Pandemic as an opportunity for a ‘Green Recovery’.

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