What is needed from the next UK government to support the energy transition?

05 June 2024

As we head towards a general election, energy is unsurprisingly high on the political agenda. Parties are attempting to balance competing concerns around energy security, triggered by the Russian invasion of Ukraine and resulting energy price hikes (which spiralled into the cost-of-living crisis), while also needing to meet stated net zero targets. 

Regardless of which political party is successful in the upcoming general election, what steps should the next UK government take to effectively support the energy transition? Our energy and natural resources industry leads comment on what they are seeing across the industry.  

Massive scale-up of investment in renewables and cleantech

At COP28, 130 governments pledged to triple the world’s renewable energy capacity by 2030. According to the World Economic Forum, the world must install over 1,200 gigawatts of renewable energy capacity annually by 2030 to meet these goals. Global investment in the energy transition reached $1.8tn in 2023, a 17% increase from the previous year. China currently leads in energy transition investment, with $676bn spent in 2023, 38% of the global total. The US, in second place with $303bn, is closing the gap due to slower growth in Chinese investment and the impact of the Inflation Reduction Act (IRA). This historic legislation includes $369bn in tax cuts, grants and other measures to stimulate investment in domestic clean energy and manufacturing. It has put competitive pressure on Canada, which subsequently announced an investment of over $80bn in cleantech and energy.

In terms of investment in renewables in 2023, the UK invested just $23.1bn which equates to 3.5% of global investment. 

In addition, the growth in UK renewables capacity has slowed in the last 3 years to an average of 4.45% compared to the global average of 9.67%.

Adequate incentives to boost investment

Sheena McGuinness, head of renewables and cleantech, comments:

‘The UK has slipped from its previously strong position in terms of incentives for the renewables and cleantech industry, which risks impacting investment decisions for those in the sector. Reversing this with a range of incentives to boost UK innovation and investment is the most important role the next government can play.’

Need for a clear and consistent energy strategy

Despite warnings from the Climate Change Committee (CCC) about ‘worryingly slow’ progress, UK government action and policies haven’t always been consistent with its previous commitment to meeting net zero targets. For example, on 31 July 2023, the Government announced hundreds of new oil and gas licences will be granted in the North Sea and plans for the first new coal mine in Cumbria in 30 years have been approved. In addition, Rishi Sunak controversially postponed the ban on new petrol and diesel cars from 2030 to 2035.  

Grant Morrison, head of oil and gas, comments:

‘Our clients are expressing a clear need for strong, consistent direction from the next government in terms of energy strategy. It is essential for the UK to remain an attractive location for energy businesses.’

Supply chain rationalisation

Government policy needs to support the rationalisation of the entire supply chain to effectively reduce carbon emissions. Even cleantech solutions may have a significant carbon footprint, making clean energy production an exercise in futility. For example, the manufacturing process of electric vehicles and the transportation of people and parts are massive pollutants.

Sheena McGuinness comments:

‘I was privileged to be part of the judging panel at this year’s Humber Renewables Awards. It was encouraging to see the range of innovative approaches aimed at reducing carbon emissions in the supply chain, such as low-carbon solutions for transporting crew to offshore sites.’

David Hough, co-head of energy and natural resources, comments:

‘To maximise the reduction of carbon emissions, businesses must focus on innovation as they develop new technologies to increase the efficiency and lifespan of their assets.’ 

The OEUK also believe supply chain-led innovation is key to delivering the ambitions of the North Sea Transition Deal and that innovative solutions can be transferred across multiple segments of the energy sector. 

Grant Morrison, head of oil and gas, comments:

‘The oil and gas industry has long relied on problem-solving, innovation and technical excellence for its development and growth. In the UK, the sector has trained and developed multiple generations of talent equipped with these core skills. These are instrumental to the evolution we see from our clients as part of the energy transition, supported in part by the UK government’s innovation reliefs and incentives.’

Positive outlook for the future

Despite current concerns about the lack of clarity and incentives in the sector, we continue to see an ongoing commitment to support the energy transition across our client base, from oil and gas, renewables and cleantech, to mining and metals.

With an estimated £450bn of investment within the UK across oil, gas, wind, hydrogen, and carbon capture, utilisation and storage (CCUS) projects, the future outlook for the industry remains positive.

David Hough comments:

‘The UK has a great opportunity to lead the net zero economy through government-backed incentivisation for investment in infrastructure and new green technology. However, the UK is falling behind other nations and a clear energy strategy for the future is needed now.’

For further information, please contact Sheena McGuinness, David Hough, and Grant Morrison.

David Hough
David Hough
Partner, Co-head of energy and natural resources
Sheena McGuiness
Sheena McGuinness
Partner, Co-head of Energy & natural resources  
Grant Morrison
Grant Morrison
Partner, head of oil and gas
David Hough
David Hough
Partner, Co-head of energy and natural resources
Sheena McGuiness
Sheena McGuinness
Partner, Co-head of Energy & natural resources  
Grant Morrison
Grant Morrison
Partner, head of oil and gas