‘Warning lights flashing’ as UK risks missing out on £450bn energy market
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The UK could miss out on an offshore energy market worth nearly half a trillion pounds if it doesn’t urgently shore up policy frameworks, a leading energy body has warned.
Based on a report released today, titled 2024 Business and Supply Chain Outlook, Offshore Energies UK (OEUK) believes that the UK’s record low energy production, estimated to be around 40 per cent, and fragmented policy framework will dramatically suppress economic growth.
“The UK has a £450bn domestic energy opportunity that could transform the economy and support jobs – but warning lights are flashing,” the report said.
“This report shows how, with the right conditions, the UK’s offshore energy sector could invest
in oil, gas, wind, hydrogen and carbon capture and storage (CCS) projects by 2040, but without a stable environment that allows a fair return, no one will.”
David Whitehouse, chief executive of Offshore Energies UK, added: “A homegrown energy transition, and its benefits, is a choice to unleash the UK’s potential and power its future, we ask policymakers to choose this path.”
OEUK has long supported the continued importance of UK oil and gas firms in the UK’s energy mix and today said that any argument for windfall taxes on oil and gas firms has disappeared with energy prices having returned to pre-Russia-Ukraine war levels.
The report also argues for the need for regular oil and gas licensing rounds and investment, while keeping emissions in check, to facilitate this progress.
The body has also previously expressed significant concern at the prospect of a Labour government that portends to not only ban new licenses but also extend and increase the windfall tax on oil and gas firms.
This, it has claimed, could cost over 40,000 jobs and £26bn in economic value.
The government increased the burden on firms in November 2022 from its initial 25 per cent rate to 35 per cent, bringing the overall rate on North Sea oil and gas producers to 75 per cent, ranking it as one of the highest in the world.
These taxes, which Chancellor Jeremy Hunt recently extended for an additional year to 2029, are expected to raise an additional £1.5bn, but OEUK argues this is not only harming UK development from within but shutting out potential investors.
“The UK needs to have a sign above its door which clearly says it is open for offshore energy business,” Whitehouse said.
Output from UK renewable sources is eight times what it was in 2010, and now accounts for a tenth of all the nation’s energy production.
This increase has mainly come from offshore wind and OEUK predicts the trend will continue.
By 2030 it is likely that renewables will have overtaken oil and gas production, with an estimated annual decrease in oil and gas production by eight per cent.
Another key element of the report’s proposals centres around carbon capture and storage, a sector in which OEUK said the UK has the largest offshore storage potential in Europe at 78 gigatonnes.
The publication of the UK’s CCS Vision paper in December 2023 outlined how the government expects the CCS sector to evolve from the current subsidy-based model to a self-sustaining market from 2035.
However, OEUK said this process needs to be supported through the development of the sector to the capacity of 50m tonnes per year by 2035.
The government is currently targeting a capture rate of 20-30m tonnes per year by 2030.
The report comes one day after Labour leader Sir Keir Starmer appeared in North Wales to back his party’s Great British Energy plan, a publicly-owned company with an £8.3bn budget that will fund the construction of floating offshore wind farms.
OEUK today said that fixed wind projects will likely dominate the offshore wind sector this decade but floating projects will pick up sharply from 2030.
The Conservatives have blasted Labour’s plans as “unfunded” and warned that the estimated £116bn bill to de-carbonise the electricity grid by 2030 will hit customers hard.
This week marks a pivotal moment in the UK’s offshore wind sector’s future, with Auction Round Six, backed with a £800m government injection, expected to open for bids on Wednesday.