DNV: UK in need of comprehensive energy transition roadmap to usher in low-carbon future

The gears in the energy transition machine are constantly turning but not fast enough to meet the decarbonization targets that the United Kingdom (UK) has set, according to DNV’s latest report. The Norway-based energy expert and assurance provider claims that Britain is in danger of missing its Nationally Determined Contribution (NDC) commitment and legally binding mid-century net zero targets unless bold and prompt action is taken by the government to boost policy support for a low-carbon and clean energy future.

With this at the forefront, DNV pointed out in its ‘2024 UK Energy Transition Outlook (ETO)’ report that Britain’s government should make long-term policy clarity and consistency a priority to create an investable marketplace for energy transition financiers to accelerate the move away from fossil fuels. The latest data indicates that the energy transition momentum is stalling, thus, the country is not on track to meet either its legally binding 2050 decarbonization targets or its NDC commitment to reducing emissions by 68% by 2030 under the Paris Agreement.

With the latest wind allocation round results, uncertainty around decarbonizing home heating, and the role of hydrogen in the UK, DNV is adamant that swift policy action is needed to propel decarbonization forward. The Norwegian energy expert and assurance provider’s forecast shows that the UK’s annual emissions will amount to some 125 million tons of carbon dioxide equivalent (MtCO2e) in 2050. This represents an 85% reduction relative to 1990 levels, but it is not the 100% reduction by mid-century that the UK has pledged to achieve.

If the right incentives are put in place, DNV is confident that the transition can still be accelerated through the rapid deployment of technologies such as wind, solar PV, smart grids, electric vehicles, and mitigating technologies such as carbon capture and storage (CCS) and hydrogen. Currently, the UK hydrogen market appears to be in particular need of significant support, based on the report, which outlines that by 2030, hydrogen production will reach 1 Mtonnes/year, only 60% of which will be low carbon, equivalent to roughly 5 GW of low carbon hydrogen versus the government target of 10 GW.

Hari Vamadevan, Executive Vice President and Regional Director, UK & Ireland, Energy Systems at DNV, commented: “The evidence in our 2024 UK ETO is clear – without immediate action the UK will fail to deliver on its climate commitments, fall behind in the global race to decarbonize and miss out on many of the benefits that switching to a low-carbon system will bring. But, by putting the correct policy levers in place, there is still time for industry and government to deliver a transition that is good for business, good for consumers and good for the planet.”

Therefore, DNV came up with a recommendation for the UK government, advising it to adopt a whole systems thinking approach to the energy transition and act across all its dimensions to counter system inertia. Policymakers are urged to provide clear incentives to crowd in private capital for the buildout of green generation on the supply side and facilitate planning and permitting for the delivery of critical infrastructure on the transmission and distribution side.

Simultaneously, DNV highlights a need for extensive engagement on the demand side with society at large to embed low-carbon solutions and ensure a just transition by making sure downside social impacts are minimized. The report predicts annual energy infrastructure CAPEX spending will go up from an annual average of £26 billion (over $32.95 billion) in previous decades to around £38 billion (nearly $48.16) per year over the next 30 years.

Even though this is a significant jump in absolute terms, DNV emphasizes that the share of GDP devoted to energy CAPEX expenditure remains relatively stable at just above 1% of GDP across the 2000-2050 period, but big wins for the British public are expected to be in store. This is due to the energy transition enabling domestic consumers to benefit from an almost 40% reduction in household energy costs by 2050 in comparison with 2021 prices.

Bearing this in mind, DNV highlights that the decarbonization of the UK economy is “affordable, with a substantial green prize awaiting households in the form of cleaner, more efficient and less expensive energy.” Currently, close to 80% of all UK primary energy comes from fossil fuels, of which just over 50% is produced nationally, with renewables (13%) and nuclear energy (7%) covering the remaining share.

Despite the expected ramp-up of renewables, Britain’s heavy reliance on fossil fuels is anticipated to remain in effect for the next decade, only reducing to 70% by 2031. This picture is forecasted to shift and be significantly different by 2050, with low-carbon supply sources meeting nearly 65% of the UK’s energy needs, more than half of which will be via variable renewables such as wind and solar while the remainder will be split between bioenergy and nuclear.

In light of this, DNV underscores the need for a step-change in historical electrical grid investment levels to ensure the grid will be the enabler, not the blocker, of the energy transition, which will require an overhaul of the way networks are planned, built, and operated. To this end, the report notes that policymakers and regulators need to accept that the levels of risk associated with delivering this step-change will be different from risks that were previously deemed acceptable.

Vamadevan concluded: “The required climate objectives and decarbonization targets are in place, but the onus is on the UK Government to put a clear, ambitious strategy in place to make them a reality. What the UK desperately needs is a detailed transition roadmap to chart the country’s journey to the low-carbon energy system of the future – only then can businesses invest with confidence to drive the energy transition. The UK Government has always claimed to be a leader in the global net zero transition; now it is time to deliver on those claims. The ball is in the court of the policymakers.”

Britain is determined to come to grips with the double whammy of energy security and sustainability by slashing its emissions footprint and enabling investments in a new wave of projects to ensure the security of supply. During this quest, the North Sea basin is expected to play a key role in helping the country to reach its net zero goals.

An analysis from the North Sea Transition Authority (NSTA) showed last year that the carbon footprint of domestic gas production was around one-quarter of the carbon footprint of imported LNG.