Overlay

Energy security and the Just Transition

There’s an alignment of moves to increase energy security alongside social policy, with finance playing an important role.

By Caroline Biebuyck

6 minute read time

The UK government is aiming to reduce British dependency on international oil and gas, as outlined in its British Energy Security Strategy policy paper that was launched in April this year. The strategy set out in the paper aims to protect individuals from energy price volatility while accelerating the move to clean energy sources.

Four key themes emerge from the paper, says Bradley Davidson, ESG Lead at RBS International: energy efficiency, renewable energy supply, innovation, and green finance and investment. He says: “My view is that consistent policy and green finance are the key enablers to a successful transition that not only protects communities from the increasing negative impacts of climate change but also delivers societal value at a time of uncertainty.”

The development of renewable technologies to deliver energy security by creating sustainable energy sources offers a remarkable opportunity for companies and investors to focus on the triple bottom line: profit, planet and people.

Thom Kenrick, Head of Social Strategy and Impact, NatWest Group, considers the transition towards renewable energy as part of a circular system, with knock-on impacts reverberating through the economy and society. “You cannot think of the climate on its own because it is inextricably linked to massive social and economic impacts: it’s all about the integration between the three.”

Consider physical health. Burning fossil fuel is a significant contributor to air pollution, which is the largest environmental risk to public health. The UK government estimates that the annual mortality of human-made air pollution in the nation is roughly equivalent to between 28,000 and 36,000 deaths per year.

Everyone has now become much more aware of the damage that vehicles, especially those powered by diesel, can do, says Kenrick. “The change to electric vehicles over the next decade or two will have a very significant positive impact on the population’s health.”

Human health is inextricably linked with the health of our natural systems. Part of the transition from fossil fuels is the recognition we need to increase biodiversity, Kenrick says. “Our natural systems and biodiversity have a hugely beneficial impact on air and water quality, and in terms of human health and well-being.”

 

Energy sources

The journey to net zero requires careful navigation. Ambitions to expand offshore wind require planning regulations to be reviewed. Onshore wind is one of the cheapest forms of renewable energy, but expansion may be limited due to “not in my backyard” opposition to local developments.

 

 “The path to energy independence has the embedded aim of protecting families from the volatility of the energy market. That aim and protection should be extended to workers in the industry”

Bradley Davidson, ESG Lead, RBS International

 

Low-carbon nuclear energy already supplies 15% of the UK’s electricity, with plans for this to expand to 25% by 2050. Nuclear is land-efficient and proven to work at scale, says Davidson, but there is plenty of debate whether it can be defined as sustainable due to the waste issue. “As we scale nuclear energy, close attention will need to be paid to the handling of nuclear waste to ensure the costs do not outweigh the benefits as we explore wider environmental factors.”

He points out that hydrogen has captured the attention of investors over the past five years, particularly for use as aviation or heavy vehicle fuel. Hydrogen fuel can generate water vapour rather than carbon: the production processes involved form green hydrogen, where renewable energy is used to separate elements; and blue hydrogen, which requires carbon capture and storage.

“However the scale-up of hydrogen energy remains uncertain due to the social concerns of the reactive element and the need for nickel, currently in demand for electric vehicles, to create safe containment,” Davidson says. “While nuclear energy will be required as the efficacy of new technologies is explored, the falling costs of wind and solar infrastructure should encourage further investment in the short to medium term.”

Large-scale battery storage is vital to decarbonise the energy grid given the variability in supply of renewable sources such as wind and solar throughout the year. The distribution and storage of energy would allow the UK to overcome the intermittency of renewable energy so that seasonal supply can meet seasonable demand and replace fossil fuel ‘peaker plants’.

Although lithium-ion technology has not changed much in decades, the drive towards electric vehicles over the past few years has reignited interest in battery storage with many large-scale facilities now online. “While the price for utility battery storage continues to fall, demand for key metals such as lithium, nickel and cobalt is expected to increase five-fold by 2050,” says Davidson.

 

Security for all

In his book “There Is No Planet B”, Mike Berners-Lee estimates that solar panels covering an area of 228 miles by 228 miles could meet 2020s global energy needs, using existing current technology.

“People think that moving to renewable energy is an impossibly large requirement but I really don’t think that’s true.  There’s plenty of energy available form renewables: making the transition is about will and technology, focus and prioritisation, as well as getting over incumbency and inertia,” says Kenrick.

Much of the focus today is on transition costs and associated risks, whether it’s households retrofitting insulation and installing heat pumps or companies buying a new fleet of vehicles or larger organisations replacing diesel generators.

The question, Kenrick says, is how to enable those shifts not just to be something that wealthy people or cash-rich companies can do but to make it possible for everyone. “That’s a societal challenge we have to grapple with to accelerate the transition. People who are less able to afford the transition will face greater financial and health costs in the long term. Typically, any of these social impacts are unequally weighted towards people who are in lower paid, more manual jobs: we saw this with Covid and are seeing it with carbon transition.”

This is part of the ‘Just Transition’, which promotes social implications for workers, communities and regions while delivering on climate ambitions. Tackling health and social inequalities is part of this; so is employment.

Consider the many workers who currently earn a living from the fossil fuel industry, says Davidson. “It’s important that we work not only to reduce our reliance on fossil fuels but also outline how we can support those communities and workers to transition to alternative work. The path to energy independence has the embedded aim of protecting families from the volatility of the energy market. That aim and protection should be extended to workers in the industry; formal training programmes to support moves to deployment of renewable infrastructure may be an option to ease friction,” he explains.

The shift to renewables can also result in more local microgeneration, greater use of battery storage and connected grid systems. This can help boost local economies while increasing the resilience of the overall national power supply. On a macro level the variety of potential energy sources, both large- and small-scale, can lead to greater energy security while delivering fundamental environmental and societal improvements.

“The UK has such abundant access to wind energy,” says Kenrick. “If we can crack the storage side there is huge opportunity for resilience and independence around energy to deliver massive social, economic and environmental benefits.”

Keywords:

Latest insights

Factors influencing alternative funds in the coming months

What lies ahead – anticipated factors influencing alternative funds in the coming months.

20 Feb 2024

Digital banking Insight: themes for 2024

A series of roundtable discussions with RBS international clients revealed key drivers of digital transformation in the year ahead.

09 Feb 2024

Navigating change – what lies ahead for fund finance

Even if interest rates are just around the corner, it’s unclear how quickly they’ll fall or at what level they’ll eventually settle.

01 Feb 2024