UK: The Challenge Of Energy Infrastructure: Energy, Security, Decarbonisation, And Affordability

Last Updated: 18 June 2014
Article by Clare Hatcher

The UK energy system faces a number of challenges as existing infrastructure closes, domestic fossil fuel reserves decline, and the system increasingly requires adaptation in order to meet low carbon objectives.

Changes are required to ensure that the UK has a secure energy supply in years to come and, already, the threat to supply security has been brought to the top of the agenda this year due to the political troubles in the Ukraine.


The UK government has recognised that changes are critical to maintain security of supply and deliver the energy people need, where they need it. In its own words "Large-scale investment is required in order to achieve security of supply as the UK makes the transition to a lower – carbon economy"1.

This is reflected in the fact that GBP 147 billion of the total GBP 375 billion required investment in the National Infrastructure Plan (NIP) is earmarked for electricity generation. In fact there is a view that this may not be enough. A joint report by the London School of Economics (LSE) and nPower suggests that the energy sector needs record levels of investment of up to GBP 330 billion by 2030 if security of supply is to be achieved while carbon emissions are reduced. This in turn would enable the UK to achieve the EU's long term 2030 emissions reduction target.

Where is the energy investment required?

HM Treasury's "National Infrastructure Plan: finance update March 2014" (Treasury Update) accepts that the historical model of large utilities financing electricity generation on balance sheet is unlikely to deliver the scale of investment required. This is particularly the case when the traditional utilities are seeking to reinforce their balance sheets through asset sales and cuts in capital expenditure2. As a result, the way forward must include project specific investment in the electricity sector with finance through separate vehicles where the return is directly related to the performance of specific electricity assets.

The Treasury Update gives a useful summary of where investment is required and the total value of projects (by technology type) which are in the pipeline for the period up to 2020 (excluding those in construction or already part of an active programme.)


It is no surprise that a sizeable chunk of funds are required for Hinkley Point C, which is the first nuclear plant in the nuclear renewal programme regarded as essential to ensuring that the UK has a secure and low carbon electricity supply. In order to give investors the confidence to commit the billions necessary, the UK government has provided price certainty through contracts for difference for the power off-take at what is generally regarded as a very generous strike price. It also intends to provide support through the UK Guarantees Scheme.

Off-shore and on-shore wind

The off-shore wind sector potentially offers the largest investment opportunity pre-2020 with an estimated value of GBP 18.3 billion. On-shore wind, which is thought to have an existing established investment model using debt markets, is expected to generate projects with a value of up to GBP 10.4 billion. There is also help for developing offshore marine renewable energy (both tidal and wave) through demonstration projects such as the publicly owned Wave Hub in Cornwall.

Other renewables

While large scale renewable projects may provide suitable investment opportunities for project specific finance, small scale renewable projects (including solar, wind and anaerobic digestion), are generally considered too small individually to be suitable for a project finance solution unless bundled up into a portfolio sale. The government intends to continue the support for smaller scale projects through measures such as feed-in-tariffs. However large scale renewables (including solar) which have historically been supported through the Renewables Obligation regime, will continue to receive support as part of the government's Electricity Market Regime (EMR) policy through 'contracts for difference'.


There is a GBP 900 million potential opportunity for investment in biomass where the government has supported conversion of one engine at Drax, the UK's largest coal power station, to biomass by providing a GBP 75 million UK Guarantee.


One of the key issues facing the UK energy market is the extent to which gas-fired capacity will be developed and a "dash for gas" will slow down the need for structural changes which are required to reduce carbon emissions. Although the construction of combined cycle gas turbines (CCGT) could result in short term price gains by switching from coal to competitively priced gas (while initially achieving moderate reductions in greenhouse gas emissions), this delays the long term investment required in low carbon plant if required emissions reductions are to be achieved.

It is interesting in this context to see that the government regards investment in CCGT as part of the energy mix. The Department of Energy & Climate Change's (DECC) EMR policy is to create a capacity market with 15 year capacity agreements available which should provide sufficient certainty to unlock investment in new gas plant. The government's recognition of the continued importance of fossil fuels as an important source of the electricity generation mix is also implicit in the allocation of GBP 1 billion of public funding to help develop Carbon Capture and Storage through a commercialisation competition.

Will investment be made?

The reality is that the government's energy and climate change policy has three competing objectives: energy security; decarbonisation; and affordability. These are enshrined in the Energy Act 2013 (Energy Act) which contains the legal framework for the government's EMR policy for long term support for low carbon electricity generation.

The conflict is reflected in the factors the government must take into account under the Energy Act when setting its decarbonisation target range. While the impact of climate change is relevant it must also consider the need for economic growth and the cost to consumers. There is no easy way to reconcile the fact that it costs more at the moment to provide power from low carbon technology than from traditional fossil fuel sources. The Labour opposition has politicised energy prices making it difficult to retain the current green levies which add a substantial amount to the cost of household bills. However some sting has been taken out of this debate by Ofgem's referral of the energy market to the Competition Markets Authority (CMA) who are unlikely to report until after the next election.

Given that the CMA's main focus will be to assess whether the "big 6" suppliers should be broken up, there are significant concerns that this will put a halt to the investment needed in UK power generation.

Despite this, there are a number of hopeful signs that investment to create green growth has started. A recent EY Renewable Energy Country Attractiveness Index3 indicates that the UK is now the fifth most attractive place in the world for renewables, the second for biomass and the first for off-shore wind. Further, according to Bloomberg, Britain saw record levels of investment in renewable energy in 2012 to 2013 which rose 59% to GBP 7.3 billion; placing the UK third in the world behind China and the US.

Finally, in late April, the DECC announced the first tranche of support under the new legislative framework for eight major new renewable projects ranging from off-shore wind to the conversion of a unit at Drax to biomass which will attract around GBP 12 billion in private investment. This will be followed by auctions for 'contracts for difference' to assist the low carbon transition. The UK is also now benefitting from some foreign direct investment in its renewable supply chain with ABP and Siemens making a GBP 310 million investment in Hull in two new factories to make turbine blades and assemble off-shore wind turbines.

The future of UK energy depends on continued investment. This in turn depends on ensuring the investment environment is favourable and one of the key conditions that must be satisfied to enable development is regulatory certainty. With more clarity emerging on the detail of EMR and the announcement of the first awards for support, there may now be a base on which investors can rely to unlock their funds.


1 HM Treasury and Infrastructure UK: National Infrastructure Plan: Finance Update, 19 March 2014.

2 Industry Outlook, EMEA Electric and Gas Utilities. Moody's Investors Service, 20 November 2013.

3 Ernst & Young: Renewable energy country attractiveness index, February 2014

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.