It’s not new news to say that we can’t rely on fossil fuels in perpetuity. They are a finite resource.

The UK’s energy journey, from coal dominance (peaking in 1918) to North Sea oil and gas (peaking in 1999-2000), reflects that reality. As those resources decline, renewables must fill the gap; yet the infrastructure and policy frameworks intended to enable that transition are not keeping pace.

The UK’s energy balance and import reliance

In the 1970s, the UK was a net importer of energy. North Sea development briefly reversed this, making the UK a net exporter in 1981. Output later fell and the UK again became a net importer across all major fuels. In 2024, 43.8% of energy used in the UK was imported - a 3.4% increase on 2023, and over 15% of electricity came via interconnectors. The effect of the July 2024 increase to the Energy Profits Levy (EPL) on interconnector reliance is still unfolding.

Grid bottlenecks limiting the UK’s renewable energy transition

The grid is the gating item. Only 63% of potential offshore wind generation reached the grid, and connection delays for renewables projects stretch up to a decade. Currently more than 700 gigawatts of renewable capacity are queued for connection – an amount far exceeding current electricity demand. In short, if the creaking grid was fit for purpose, then the government would be able to meet its manifesto promise of never again being beholden to overseas dictators for its energy needs and making Britain a Clean Energy Superpower.

In northern Scotland, curtailment payments totalled £116m in H1 2025, representing more than four Terawatt hours of wind power being switched off in that period. Across 2025, total constraint payments reached £1.8bn. These are the costs of balancing a system not designed for today’s generation geography.

Connection issues and infrastructure limitations

A ‘first come, first served’ connection regime often blocks shovel ready projects behind less mature ones. While reforms are expected to be finalised this year, they address process rather than the underlying infrastructure deficit. The grid, largely conceived for coal era power stations near demand centres, cannot efficiently move power from modern renewable hubs, especially northern Scotland, to load centres such as London.

Expanding and modernising transmission networks is a time-consuming process, often slowed by regulatory requirements, lack of funding, and public opposition to new infrastructure such as pylons and substations.

The Role of North Sea hydrocarbons in a managed transition

The energy transition is not going to happen overnight. It is not a question of turning off fossil fuels and this is magically replaced by UK-sourced renewable energy sources.

As the UK decarbonises, it will still consume oil and gas. It is just a choice as to whether we produce it ourselves or we import it. North Sea production is in decline: for the first time since the 1960s, no exploration wells were drilled, and investment is forecast to fall 40% by end 2026.

The UK’s fiscal regime—specifically the EPL, which increased to 38% in July 2024—has become internationally uncompetitive. Introduced during genuine windfall conditions, the EPL is now proving to be a regressive policy. The North Sea continues to be one of the least competitive places globally for energy production; we are the only nation that still has a windfall tax as other countries recognise that there is no windfall left to tax. The North Sea oil and gas basin is very similar, in geological terms, to that of Norway. While Norway announced a string of North Sea oil and gas discoveries close to UK waters in December 2025, the UK North Sea has been on a steady decline due to three main factors: the tax regime, lack of new licences, and consenting issues.

The government’s North Sea Future Plan acknowledges that oil and gas will remain important for decades and that a “managed, orderly and prosperous transition” requires continued investment in existing fields, but current conditions are insufficient to sustain it.

No changes were announced to the EPL in the October 2025 Budget, despite strong pre-budget rumours. Waiting four years for reform to the windfall tax has not been well received by the industry. While there is an early termination mechanism, it’s doubtful this will be triggered as it only applies if both oil and gas prices fall below the 2025-26 thresholds, and natural gas prices are not expected to fall to this extent.

The Laffer curve and declining UK energy tax revenues

The EPL, introduced under genuine windfall conditions, is increasingly counterproductive as the tax base shrinks. OBR windfall tax forecasts have proven optimistic. Following the July 2024 rate increase, forecasts were raised but did not fully account for declining taxable profits amid corporate exits and portfolio sell downs (Chevron, ExxonMobil, and reductions by BP and Shell). There’s a notable downgrade in 2026-27 forecasts, with OBR citing the impact of mergers on the tax take. It seems they are assuming that tax losses will be pooled thus sheltering the taxable profits with losses. In October 2025, actual receipts were 59% of forecast with overall EPL revenues falling from £1,114m (Oct 2024) to £888m (Oct 2025).

Government had earmarked expected incremental EPL receipts to fund 75% of GB Energy’s investment; those returns have not materialised. There was no budget update clarifying GB Energy’s revised funding; initial allocations of around £3bn are reportedly being deployed, effectively making the state a shareholder in clean energy projects—but the scale and source of future funding remain opaque.

Policy recommendations to secure the UK’s energy transition

• Targeted EPL reform: provide a clear sunset or trigger based taper; align rates to investment signals and basin maturity to avoid further erosion of the tax base.
• Licensing and consenting clarity: resume pragmatic licensing where consistent with net zero pathways; streamline consenting to avoid multi year delays for low impact developments.
• Grid investment and queue management: accelerate transmission reinforcement from generation hubs to demand centres; move from ‘first come’ to ‘first ready’ queueing; prioritise projects with financing, permits, and construction readiness.
• Curtailment reduction: deploy storage, flexible demand, and locational pricing to reduce constraint costs; expand inter zonal capacity where bottlenecks are most acute.
• Bridging supply: maintain domestic oil and gas during the transition to reduce import reliance and price exposure while renewables scale and grid upgrades are delivered.

Conclusion: aligning North Sea production and renewables

Without reform, capital will continue to leave the UK energy sector, imports will rise and grid inefficiencies will waste clean generation. A pragmatic blend of tax reform, licensing clarity and accelerated grid investment can restore confidence, lower system costs and ensure the North Sea and renewables work together to deliver a secure, cleaner energy system.

How we can help your energy and natural resources business

RSM is a leading audit, tax and consulting adviser to mid-market business leaders. We have extensive experience in the energy and natural resources industry, working with clients in sectors spanning oil and gas, renewables and cleantech and mining and metals.

If you would like to discuss the impact for your energy and natural resources business, please contact Sheena McGuinness or your usual RSM contact.

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