Renewables and the Powering Up Britain blueprint: challenges and opportunities for the insurance industry?

Published 14 abril 2023

The new Department for Energy Security and Net Zero has released its blueprint for securing energy supplies in the United Kingdom, while also achieving a net zero economy by 2050.

The Powering Up Britain overview, to be read alongside the Energy Security Plan and Net Zero Growth Plan, explains how the government intends to “decarbonise and domesticate energy production by investing in renewables and nuclear.”

These documents are a response to the recommendations made in the Independent Review of Net Zero (IRNZ) report chaired by Chris Skidmore, released in January 2023. In addition, the Net Zero Growth Plan is stated to meet the government’s obligation under the Climate Change Act 2008. The government’s previous Net Zero Strategy was found not to have met these obligations in the case of Friends of the Earth v Secretary of State for Business, Energy and Industrial Strategy.

The government’s new plan aims to:

• Respond to the Climate Change Committee’s 2022 Progress Report to Parliament; and
• Provide a Carbon Budget Delivery Update that sets out a package of proposals and policies that will enable the UK to meet carbon budgets.

So, what do the plans say about the increased use of renewable energy?

The Net Zero Growth Plan highlights that in 2021, the share of generation from renewables reached 40%, with 15% from nuclear generation. In order to increase this share, the government proposes to implement a number of cross-cutting changes including investment in renewables, planning reforms, and developments of skills, infrastructure and supply chains. More specifically, proposals include:

• Launching the Floating Offshore Wind Manufacturing Investment Scheme to generate investment in port infrastructure investments to reduce the costs of offshore wind power generation.
• Launching a new consultation on how to develop local partnerships for onshore wind generation.
• Establishing a government-industry taskforce for solar power as recommended by the IRNZ, and publishing a roadmap setting out a development trajectory aiming for generation of 70GW via solar by 2035.
• The publication of the Biomass Strategy prior to the end of 2023.

Beyond those elements, the government will also look to drive the use of carbon capture, use and storage (CCUS), such as direct air carbon capture and storage, and bioenergy with carbon capture and storage, to balance residual emissions from hard to abate sectors. The government will be issuing a call for evidence in respect of the future policy framework for CCUS in spring 2023 too. The government also stated intentions for the deployment of electricity storage and demand side flexibility.

From an insurance perspective, the Powering Up Britain documents provide no acknowledgment of the significant challenges that these proposals will create for the insurance market.  The 2023 Green Finance Strategy did seek to highlight the positive involvement of the insurance industry in improving access to liquidity for green investments, including investments, and providing a broad range of insurance products.

On the underwriting side, it was emphasised that “the products the industry develops that mitigate risk for companies, investors, and consumers can significantly speed up the pace of deployment, particularly for nascent technologies and business models.”

While this is clearly a significant opportunity for the insurance market, the reference to nascent technologies and business models also flag the need for caution in underwriting these new risks.  It is not clear to what extent the government consulted with the insurance market regarding their proposed strategy, but coordination between key stakeholders will be critical as these projects develop.