Labour Looks to Balance Oil and Gas Revenue With Green Energy Expansion

Following the Labour Party's landslide victory in the U.K. at the beginning of July, several changes are expected to be introduced in the country's energy sector. Environmentalists hope the change in government will bring greater support for green energy projects and help curb fossil fuel activities, as it moves in a different direction from the Conservative Party. However, there are several challenges facing the Labour government when it comes to the energy transition, including local support for energy projects and investment in transmission infrastructure. 

This is the first time in 14 years that Labour has taken power from the Conservatives in the U.K., suggesting that change is in sight. During Prime Minister Kier Starmer's election campaign, he pledged to support the energy transition, opposing several of the pro-fossil fuel energy choices of the Conservative Party, to solidify the U.K.'s reputation as a clean energy superpower. In its party manifesto, Labour stated, "To deliver our clean power mission, Labour will work with the private sector to double onshore wind, triple solar power, and quadruple offshore wind by 2030." It also pledged to keep a reserve of gas-fired power plants as backup and ensure a "phased and responsible transition" for the North Sea oil industry. 

While there is great optimism around the future of green energy under the Labour Party, it is unlikely to move away from oil and gas entirely, as it views it as a key source of revenue to fund the expansion of the U.K.'s green transition. The Conservative Party was already collecting massive fees from oil and gas companies in the form of a windfall tax, levied against oil and gas companies at a time when fossil fuel profits were soaring. The Labour government will require around $30 billion in investment to fund its plans for a green transition, meaning that it will continue to be reliant on taxes from oil and gas for several years to come. However, heavy tax duties and no tax relief will likely drive many oil and gas companies away in the coming years, as they look elsewhere to carry out operations. 

While the Labour government will continue to back oil and gas to a certain extent, it has big plans for Britain's renewable energy industry. Firstly, the Labour government will undo a de facto ban on onshore wind projects introduced by the Conservative Party through two footnotes to the National Planning Policy Framework (NPPF), which required such strong evidence that there was no local opposition that it made it impossible to build wind turbines considering that there is always some form of local resistance to new energy projects. The new draft NPPF does not include these footnotes, which is expected to encourage greater investment in onshore wind. 

Labour is also discussing the possibility of making large windfarms "nationally significant infrastructure projects", which would allow for them to be approved by the energy secretary, Ed Miliband, without approval needed from local councils. Research from the environmental organisation Friends of the Earth showed that using less than 3 percent of the land in England for onshore wind and solar power could help produce 13 times more green energy than that currently being generated, and enough to power all U.K. households twice over.

In a policy statement, officials wrote: "Delivering our clean power mission will help boost Britain's energy independence, save money on energy bills, support high-skilled jobs and tackle the climate crisis… We are therefore committed to doubling onshore wind energy by 2030. That means immediately removing the de facto ban on onshore wind in England in place since 2015. We are revising planning policy to place onshore wind on the same footing as other energy development in the National Planning Policy Framework."

However, there are still several challenges facing Labour when it comes to energy. There is a major backlog for connecting new energy projects to the grid, with some developers having waited around 15 years to produce power. To tackle this issue, National Grid announced major plans to develop the U.K. grid infrastructure last year, with an investment of $52 billion in infrastructure. However, this has deterred several companies from commencing operations, as it could be years before they are connected to the grid. This makes Labour's aim to double onshore wind, triple solar power, and quadruple offshore wind appear extremely challenging.  

Analysts at the investment bank Jefferies believe "Labour's goal to have a net zero grid by 2030 appears to be an unrealistic target, even with steady progress". While one energy expert it consulted suggested that "even if the new government executed every project in the pipeline, had linear interconnector growth, and electricity demand on the lowest end of the range, the country would still miss the target by 25 percent." 

There are high hopes for a green transition under the U.K.'s Labour government, following several years of slow sectoral growth and ongoing support for oil and gas. However, energy experts believe that Labour's green energy objectives may be too ambitious for the short term, with greater investment in infrastructure required to support the massive planned increase in green energy capacity. 

By Felicity Bradstock for Oilprice.com

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