UK Energy Market Update January 2025
The recent EIC members update was an exploration of the UK energy market. The energy landscape is undergoing a transformative shift, driven by the country's ambitious net-zero targets and the growing prominence of renewable and clean energy technologies. As the government continues to refine its policies and support mechanisms, the energy sector is navigating a complex landscape of challenges and opportunities.
In this market update, we look into the key developments across the UK's energy sectors, from the growing renewable and clean tech industries to the evolving upstream oil and gas landscape. We examine the progress made, the obstacles faced, and the outlook for the future, providing a comprehensive overview of the dynamic energy landscape. From the rapid growth in solar and onshore wind to the challenges in meeting offshore wind targets and the uncertain future of hydrogen and carbon capture, this report offers a detailed analysis of the trends shaping the UK's energy future. By understanding the current state of the market and the emerging trends, industry stakeholders can better position themselves to capitalize on the opportunities and navigate the complexities ahead.
Renewable and Clean Tech Sector
The UK renewable and clean tech sector is seeing significant growth, with the government setting ambitious targets for sectors like solar, onshore wind, and sustainable aviation fuel (SAF).
In the SAF market, the UK has set progressive targets for aviation fuel suppliers to increase SAF blending from 2% by 2025 to 22% by 2040. However, the industry is skeptical about meeting the target of 5 commercial SAF projects under construction by 2025 due to delays in implementing a revenue certainty mechanism.
The solar sector is booming, with 357 projects totaling nearly 30GW in the pipeline. The government has set a target of 70GW of solar by 2030, a 540% increase from current levels. Reforms to the planning process for large-scale solar projects are underway to accelerate deployment.
Onshore wind has also seen a resurgence, with 301 projects totaling 21.6GW in the pipeline, primarily in Scotland. The lifting of the ban on onshore wind in England is expected to drive further growth in this sector. Energy storage is a critical enabler for the renewable transition, with 31 projects over 20GW in the pipeline, mostly in battery and pumped hydro storage. The co-location of storage with solar and wind projects is a key trend.
Transmission and Distribution
The UK's transmission and distribution network is undergoing significant investment and reform to support the renewable energy transition. Over 30 projects are in the pipeline, with a tenfold increase in the connection queue over the past 5 years.
Initiatives like the establishment of the National Energy System Operator and the accelerated strategic transmission framework aim to fast-track approvals and streamline the connection process for new projects.
Offshore Wind
The UK's offshore wind sector is set to play a crucial role in achieving the country's net-zero goals. The government has increased the 2030 target from 50GW to 55GW, with 5GW coming from floating offshore wind. However, the current pipeline of offshore wind projects, both fixed-bottom and floating, is lagging behind the ambitious targets.
Challenges such as rising costs, grid availability, and delays in project announcements and final investment decisions (FIDs) are hampering the sector's progress. Upcoming CfD auctions and policy changes, such as the introduction of a phased approach for floating offshore wind and a clean industry bonus, aim to address these challenges and support the sector's growth.
Upstream Oil and Gas
The UK's upstream oil and gas sector has faced a steady decline in new discoveries, despite the headwinds from the new government's policies and the Energy Profits Levy. However, there are still opportunities, with 60 projects under development and the potential for $26 billion in capital expenditure if all projects proceed. The government's recent announcement of a consultation on new exploration licenses in the Dorset area suggests a willingness to engage with the industry, though the long-term outlook remains uncertain.
Hydrogen and Carbon Capture
The hydrogen and carbon capture sectors are experiencing mixed progress. Hydrogen projects saw significant growth in 2023, driven by green hydrogen developments, but only 1.7% of projects have reached FID. The carbon capture sector faces challenges, with only a few projects under construction and many still in the early stages of development. Achieving the UK's targets for these critical technologies will require continued policy support and investment.
Overall Outlook
The UK energy market presents a mixed picture, with significant opportunities in renewable and clean tech sectors, but also challenges in meeting ambitious targets and overcoming barriers such as rising costs, grid availability, and policy uncertainty. Continued collaboration between industry, government, and stakeholders will be crucial to navigating the energy transition and achieving the UK's net-zero goals.
Thank you to the EIC and the market intelligence team for this insightful update. At Spencer Ogden we look forward to continuing to keep you up to date on the local and global energy sector trends, with further pieces to come. Follow us on LinkedIn for more.
