Global Energy Policy Should Speed Up Capacity Addition and Stimulate Demand

By:? Rebecca Groundwater ,?Head of External Affairs at the Energy Industries Council (EIC)

Sound government policies are needed to accelerate the development of additional capacity across the supply chains of the energy industry from nuclear and hydrogen to offshore wind and carbon capture as a mix of these technologies will play a key role in tackling the pillars of the energy trilemma: sustainability, security, and affordability.

The EIC, one of the world’s largest energy trade associations, reached this conclusion, among others, after producing numerous reports throughout 2022 and engaging in consultations with policymakers and our member companies across the energy supply chain. This needs to be actioned in 2023 to ensure that we have the capacity to deliver the wider ambitions for net zero.?

Down the line, 2022 will probably be remembered as the year of high energy prices and historic rises in the cost of doing business (and living for that matter), all triggered by Russia’s invasion of Ukraine, which continues to ravage the country with estimates of 200,000 people killed and half of the energy infrastructure destroyed. For the energy industry, it’ll probably be remembered as the time when policymakers had to take a more realistic and vigilant approach to energy.?

Energy sustainability preoccupied the minds of policymakers as governments rolled out one initiative after another in support of net zero targets. But the shocks of 2022 placed energy security and affordability at the centre of attention. European governments, for example, scrambled to find alternatives to Russian gas, building floating receiving terminals, signing deals with LNG exporters, firing up coal plants, and treating gas a form of clean energy.?

The UK announced plans to grant as many as 130 new oil and gas drilling licenses in the North Sea as it looked for ways to secure long term energy supplies, a move that was welcomed by the industry and supply chain companies, including our members, whose calls for a more inclusive approach toward an industry responsible for energising the planet for many decades were met with silence just a month before the crisis hit.

But soon after, the UK government raised the levy imposed on the profits of energy operators to 75%. We immediately warned that this would harm our supply chain businesses as investors start to look to relocate their capital into more business-friendly environments, something we have already seen happen.?

Staying in the UK but moving to address the issue of capacity, the nuclear industry’s supply chain received good news with the government’s confirmation in November that it would invest ￡700 million in the Sizewell C nuclear plant in Suffolk, which was the first time taxpayer money was being funnelled into the industry in decades.?

We were pleased the voice of our members was heard as the announcement came on the back of a consultation process around the government’s Nuclear Regulated Asset Base (RAB) model, in which they participated. Following this, the EIC then gave evidence before the Parliament’s BEIS Select Committee.?

We were keen on sharing our expertise on the subject together with the feedback of our members as we knew well that reviving the nuclear industry in the UK would result in boosting the capacity of the country’s capable supply chain and thus allow businesses to cater to increased domestic demand for their goods and services while also competing internationally.

This collaborative approach to policy is much needed to ensure that energy projects pipelines, including clean energy, are delivered in time without negatively impacting other industries. This approach can also address any potential imbalance between capability and capacity in the one hand and supply and demand on the other.

We have three examples of industries the current state of which highlights the need for policy that is formulated by working closely with industry: offshore floating wind, hydrogen, and carbon capture.

Offshore floating wind is moving fast with an expected installed capacity of more than 140 gigawatts by 2035. That’s discounting upcoming leases and future targets. But no one will have the capacity to deliver on these projects without introducing sweeping changes, including building the capacity to deliver the equipment followed by speeding up the delivery and increasing the quantities of hardware needed to build turbines and related infrastructure.

There needs to be policy interventions—always wrought through close cooperation with the industry—to provide necessary funding for supply chain companies so that they can grow and participate in projects. At the same time, major developers need to develop robust models that utilise the strength of domestic supply chain that can assist with reaching these ambitious targets with their knowledge of the local market and experience in the industry. This doesn’t only apply to floating wind. It’s true across industries.

Hydrogen has its own set of challenges. While global supply chain capacity certainly needs to be ramped up to meet the ever-elongating pipeline of projects—there are over 400 hydrogen production projects in planning and development stage to come online by 2030, according to EICDataStream database—there is a risk that in a few years demand will outgrow supply, putting businesses across the industry at risk due to possible sharp falls in the prices of hydrogen.

Policy intervention is key here to stimulate demand for hydrogen. There is certainly a need not only to support this nascent industry, but also to have a credible pipeline of activity that supports the production and consumption of hydrogen cells. The hydrogen supply chain needs all the support it can get to develop the needed capabilities and capacity and also direct their resources to where hydrogen is more likely to be produced and marketed successfully.?

That means in parallel with hydrogen production, uptake should also be encouraged to grow. The sky is the limit when it comes to possible policy innovations and tactics that stimulate hydrogen demand. Each country will have a policy that work for their supply chain. India, for example, has plans for mandatory quotas for green hydrogen for certain industries, which could be enforced as early as 2023.

In the case of Carbon Capture, Utilisation, and Storage (CCUS), policy interventions are also imperative to develop robust, continually growing capacity across the industry’s supply chain to meet the planned supply of projects. We expect CCUS capital expenditure to nearly double, from current level, to $41 billion by 2035.?

But for this vital energy transition industry to grow, policies are needed to be in place to shore up supply chain capacity and stimulate demand. Policies should also aim to reduce the costs of executing projects and making materials, which can be done through a mix of public investment, standardisation of materials and equipment, and the introduction of standards that reward companies that install carbon capture in carbon emitting plants and facilities.

These examples clearly show the need for concerted efforts to formulate different policies that address the unique requirements and challenges of each of the industries, but they also point to common issues across industries, mainly the need to ramp up capacity that help execute projects and create demand where it’s needed. These policies will be relevant this year and the years ahead as we move toward achieving net zero targets across the globe through the deployment of an innovative mix of energy technologies.

The EIC will continue to work with our members and policymakers globally to develop the capabilities and capacity of the supply chain across the energy sectors while also highlighting where supply chain businesses can deploy their capital, experience, and export potential.

To read other EIC articles, please visit:?Blog (the-eic.com)