Energy policy of the United Kingdom

energy use in practice

The energy policy of the United Kingdom refers to the United Kingdom's efforts towards reducing energy intensity, reducing energy poverty, and maintaining energy supply reliability. The United Kingdom has had success in this, though energy intensity remains high. There is an ambitious goal to reduce carbon dioxide emissions in future years, but it is unclear whether the programmes in place are sufficient to achieve this objective. Regarding energy self sufficiency, UK policy does not address this issue, other than to concede historic energy security is currently ceasing to exist (due to the decline of North Sea oil production). The United Kingdom historically has a good policy record of encouraging public transport links with cities, despite encountering problems with high speed trains, which have the potential to reduce dramatically domestic and short haul European flights. The policy does not, however, significantly encourage hybrid vehicle use or ethanol fuel use, options which represent viable short term means to moderate rising transport fuel consumption. Regarding renewable energy, the United Kingdom has goals for wind and tidal energy. The 2007 White Paper on Energy set a target that 20% of the UK's energy must come from renewable sources by 2020. The current energy policy of the United Kingdom is the responsibility of the Department for Energy Security and Net Zero (DESNZ), after the Department for Business, Energy and Industrial Strategy was split into the Department for Business and Trade and the Department for Science, Innovation and Technology in 2023. Energy markets are regulated by the Office of Gas and Electricity Markets (Ofgem). Areas of focus for energy policy by the UK government have changed since the Electricity Act 1989 and the Gas Act 1986 privatised these utilities. The policy focuses of successive UK governments since the full liberalisation of gas and electricity markets in 1998 and 1999 have included managing energy prices, decarbonisation, the rollout of smart meters, and improving the energy efficiency of the country's building stock.

Though energy policy is an area reserved to the UK government under the Scotland Act 1998 that established devolved government for Scotland, the Scottish Government has an energy policy for Scotland at variance with UK policy, and has planning powers to enable it to put some aspects of its policy priorities into effect.

In 2021, the UK Government published its Net Zero strategy to reduce the country's emissions to net zero by 2050 compared to the 1990 baseline. The strategy sets out a path for sectors and industry in the UK to reach net zero, including power, fuel supply & hydrogen, industry, transport, heat & buildings, and removal of greenhouse gas emissions. The purpose of the policy relates to climate action, where countries must bring down their greenhouse gas emissions to meet the Paris Agreement target of stopping planetary scale warming to prevent dangerous climate change. The policy is an update to the 2008 Climate Change Act.

A Research and Markets review estimated the 2006 total market value of UK inland energy consumption was £130.73bn. Consumption by the energy sector was valued at £28.73bn, while the value of consumption by the non energy sector was £128.2bn, with transport being the largest component of the non energy sector. The UK is currently proposing wide ranging reforms of its electricity market, including measures such as contracts for difference for generators and a capacity market to ensure security of supply in the latter half of this decade.

The UK's electricity demand stabilized in 2017, with consumption reaching 307.9 terawatt hours (TWh), marking a 12% decrease from 2007. Consumption was evenly distributed among the residential, commercial, and industrial sectors, with each accounting for roughly one third. The industrial sector experienced a significant reduction of 18% in consumption, dropping from 113 TWh in 2007 to 93 TWh in 2017. Meanwhile, residential sector consumption decreased by 14%, influenced by higher prices and the adoption of energy efficient appliances, whereas the commercial sector saw a more modest decline of 4%. Ironbridge ceased operations in late 2015. Then in 2016, three power stations closed at Rugeley, Ferrybridge and Longannet. Eggborough closed in 2018 and has been granted consent to convert into a gas fired power station. Lynemouth power station was converted to run on biomass in 2018 and Uskmouth is being converted. It has been announced that Cottam will close in 2019 and Kilroot will also close imminently. In May 2016, for the first time solar power produced more electricity than coal, producing 1.33TWh over the month compared to 0.9TWh from coal. On 21 April 2017, for the first time since the 19th century, the UK had a 24 hour period without any generation from coal power. As of 2018, the use of coal power is decreasing to historic lows not seen since before the Industrial Revolution. Coal supplied 5.4% of UK electricity in 2018, down from 7% in 2017, 9% in 2016, 23% in 2015 and 30% in 2014.

During the 1980s and early 1990s, there was a massive expansion in gas fired generation capacity, known as the Dash for Gas. The rapidity of construction of gas fired plants (compared to coal fired or nuclear plants) was especially attractive due to the high interest rates of the period. Natural gas looks set to take a smaller part in providing future UK energy needs. Domestic production from the North Sea gas fields continues to lessen. And despite investment to enhance pipelines and storage of imported natural gas (mostly from Norway) there is a reluctance to allow too great a reliance on Russia and its gas exports for energy needs. By 2021, North Sea oil and natural gas production is predicted to slip 75 percent from 2005 levels to less than one million barrels per year. Oil and coal reserves for all of Europe are among the most tenuous in the developed world: for example, Europe's reserves to annual consumption ratio stands at 3.0, perilously low by world standards. A new "dash for gas" was announced by energy secretary Amber Rudd in November 2015. This is required to fill the gap between the closure of all coal fired power stations by 2025 and the delayed opening of new nuclear power stations.

Following the UK Government's January 2008 decision to support the building of new nuclear power stations, EDF announced that it plans to open four new plants in the UK by 2017. It is unlikely that more nuclear power stations will be built in Scotland as the Scottish Government is opposed.

Under the Conservatives during the 1980s and 1990s, government policy was one of market liberalisation linked to the privatisation of state controlled energy companies and the dismantling of the Department of Energy. As a consequence, government no longer has the ability to directly control the energy markets. Regulation is now carried out through the Office of Gas and Electricity Markets (Ofgem) in Great Britain, and the Northern Ireland Authority for Utility Regulation (NIAUR), while energy policy is largely limited to influencing the operation of the market. Such influence is exerted through taxation (such as North Sea Oil Tax), subsidy (such as the Renewables Obligation), incentives, planning controls, the underwriting of liabilities (such as those carried by the Nuclear Decommissioning Authority), grants, and funding for research.

The UK Government continued to make reforms throughout the 1990s in the interests of creating a competitive energy market. VAT was first applied to domestic energy in 1994. By the mid 2000s, the market was dominated by what became known as the Big Six energy suppliers, consisting of British Gas, EDF Energy, E. ON, Npower, Scottish Power, and SSE. Parliament also passed the Warm Homes and Energy Conservation Act 2000, a private member's bill introduced by Conservative MP David Amess, which set out the government's Fuel Poverty Strategy – defining "fuel poverty" as any household living on a lower income in a home which cannot be kept warm at reasonable cost – with a commitment to eliminate fuel poverty by 2016. In 2008, Ofgem launched its Energy Supply Probe as its first major investigation of competition in the electricity and gas markets since the full liberalisation of the two markets. The probe found there were a range of features in these markets that weakened competition, but found no evidence of a cartel or that retail energy price rises could not be justified by wholesale costs.

In the run up to the 2010 election, the Labour Government passed the Energy Act 2010. Among other reforms, this introduced the Warm Home Discount scheme, which came into effect in 2011, and which placed a legal obligation on larger energy suppliers to deliver support to people living in fuel poverty or in a fuel poverty risk group. This replaced a number of other schemes giving reduced tariffs to some low income customers. Partly in response to increasing concerns about the pricing of energy tariffs by suppliers, Ofgem followed up its Energy Supply Probe with a Retail Market Review, which it launched in November 2010. The review found that complexity in the gas and electricity markets was a barrier to consumers and competition. It found that 75% of consumers were on their supplier's standard "evergreen" tariffs (also called "Standard Variable Tariffs" or SVTs), the more expensive default option than fixed term tariffs that would save them money over a set period of time. It also found that energy prices tended to rise in response to wholesale cost increases more quickly than they fell with decreases, and that competition was weakened by significant barriers that were preventing new suppliers from entering the market. They proposed a series of measures including changing some license conditions of suppliers, to make pricing more transparent and reduce barriers for new suppliers to compete for customers, as well as working to improve consumer trust in price comparison websites. Advocates for further reform included the consumer group Which? and Consumer Focus (later Consumer Futures), the statutory body formerly known as Energywatch. The government later announced its intention to force energy suppliers to offer their cheapest tariffs to consumers, and subsequently made amendments in the Energy Act 2013 to give Ofgem greater powers. On 24 September 2013, the Leader of the Labour Party and former Secretary of State for Energy, Ed Miliband, announced plans to freeze energy bills for 20 months if Labour won the next general election, saying the move would save average households £120 and businesses £1,800. The announcement was criticised by energy suppliers, and labelled "Marxist" and potentially "catastrophic" by the government, but was supported by around two thirds of the British public. By the end of the year, the government acknowledged that there was largescale dissatisfaction among the British public about the perception that the large energy suppliers were overcharging their customers. After working with the Office of Fair Trading and the newly established Competition and Markets Authority (CMA), to again assess competition in the energy market, on 26 June 2014, Ofgem referred the energy market in Great Britain to the CMA for an investigation. An interim report by the CMA, published in 2015, claimed that energy suppliers were overcharging customers by as much as £1.7 billion. The CMA's findings and proposed remedies, published in 2016, included a price cap for energy customers who were on prepayment meters – but were widely criticised for not going far enough. By March 2017, Citizens Advice, which had taken on the funding and responsibilities of Consumer Futures to advocate for energy consumers, was calling for the government to extend the prepayment meter cap to more low income households.

In response to the marked increase in the default tariff cap from April 2022, on 3 February the Chancellor, Rishi Sunak, announced measures to support domestic gas and electricity customers in England, Wales and Scotland. There would be a £200 discount on energy bills, to be given in the autumn and paid back by customers in later years. In addition, from April a non repayable £150 council tax rebate was given to households in England in tax bands A to D (estimated to be 80% of homes), and local councils received £144million to provide discretionary funding to other residents. The devolved administrations received around £715million so they could provide comparable support, and there was an expansion of the Warm Homes Discount scheme. With further price rises expected in October, Sunak announced a further package on 26 May. The bills discount was doubled to £400 and changed to a non repayable grant, instead of a loan; other "cost of living" support included a £650 payment to households on means tested benefits, £300 to pensioner households and £150 to individuals receiving disability benefits. The £400 discount would be paid to domestic electricity customers in England, Scotland and Wales as six monthly rebates (or vouchers for non smart prepayment meters) of £66 or £67, from October 2022 to March 2023 inclusive. Following her appointment as Prime Minister on 6 September 2022, Liz Truss announced on 8 September 2022 that a new "Energy Price Guarantee" effective from 1 October 2022 to 30 September 2024 would pay a subsidy to energy and gas suppliers, in order to limit typical household energy costs to £2,500 per year. Comparable support would be offered to businesses, public sector organisations (under a six month scheme running to 31 March 2023) and to households who do not pay directly for electricity or mains gas, such as those in park homes or on heat networks. The cost of this package of support was uncertain since it depended on future wholesale prices, but was estimated at over £100bn per year by the Institute for Fiscal Studies. On 17 October, cost saving measures indicated by incoming chancellor Jeremy Hunt included limiting universal assistance to six months, ending on 1 April 2023, with support beyond then to be determined by a Treasury led review. On 17 November 2022, Hunt announced in his autumn statement that the subsidy would be reduced from April 2023, increasing the costs for a typical household to £3,000 per year, but in his March 2023 budget the chancellor reversed this decision and kept the subsidy at the £2,500 level until the end of June.

The UK Government published its white paper on energy ("Our Energy Future – creating a Low Carbon Economy") in 2003, establishing a formal energy policy for the UK for the first time in 20 years. Essentially, the white paper recognised that a limitation of carbon dioxide ( – the main gas contributing to global climate change) was going to be necessary. It committed the UK to working towards a 60% reduction in carbon dioxide emissions by 2050, and identified business opportunities in so doing: a recurrent theme throughout the document was "cleaner, smarter energy". It also claimed to be based on four pillars: the environment, energy reliability, affordable energy for the poorest and competitive markets. The White Paper focused more on analysing the issues than in providing detailed policy responses. Some detail began to filter through in a series of follow on documents, including an Energy Efficiency Implementation Plan (April 2004) and the DTI Microgeneration Strategy "Our Energy Challenge" (March 2006). Nonetheless, most of the policies were a continuation of business as usual, with emphasis on market led solutions and an expectation that consumers act rationally, for example in installing energy efficiency measures to make running cost savings. In November 2005 it was announced that the government, under DTI leadership, would undertake a full scale energy review, and over 500 organisations and individuals made detailed submissions as part of this review. Officially, the review was to take stock of the outcomes to date of the white paper, which a particular focus on cutting carbon (emissions of which remained stubbornly high) and to look in more detail at security of supply, as the UK's oil and gas production from the North Sea had peaked, and Russia was seen as being a high risk supplier of gas. Unofficially, it was widely felt that the real reason behind the review was to allow nuclear power back into the energy debate, as it had been sidelined in the 2003 white paper. That document had said "This white paper does not contain specific proposals for building new nuclear power stations. However, we do not rule out the possibility that at some point in the future new nuclear build might be necessary if we are to meet our carbon targets. Before any decision to proceed with the building of new nuclear power stations, there will need to be the fullest public consultation and the publication of a further white paper setting out our proposals." The energy review was therefore to be this public consultation.

In the light of a fast changing world energy context, increasing dependence on oil and gas imports, concerns about carbon emissions, and a need to accelerate investment in electricity infrastructure and power stations the UK Government undertook the 2006 Energy Review. One aspect of the 2006 Review dealt with development of nuclear power. Greenpeace challenged the government's process of consultation on proposals to develop nuclear power and following a judicial review requested by Greenpeace, on 15 February 2007 the consultation process was ruled 'seriously flawed', and 'not merely inadequate but also misleading'. As a result, plans to build a new generation of nuclear power plants were delayed while the UK Government reran the consultation process in a way that complied with the court's decision. See Nuclear power in the United Kingdom for details.

The 2007 energy white paper: Meeting the Energy Challenge was published on 23 May 2007. The 2007 white paper outlines the government's international and domestic strategy for responding to two main challenges:

On 13 March 2007, a draft Climate Change Bill was published following cross party pressure over several years, led by environmental groups. The Act puts in place a framework to achieve a mandatory 80% cut in the UK's carbon emissions by 2050 (compared to 1990 levels), with an intermediate target of between 26% and 32% by 2020. The Bill was passed into law in November 2008. With its passing the United Kingdom became the first country in the world to set such a long range and significant carbon reduction target into law, or to create such a legally binding framework. The Committee on Climate Change, whose powers are invested by Part 2 of the Act, was formally launched in December 2008 with Lord Adair Turner as its chair. In April 2009 the Government set a requirement for a 34% cut in emissions by 2020, in line with the recommendations of the Committee on Climate Change, and announced that details of how this would be achieved would be published in the summer.

Published on 15 July 2009, the UK Low Carbon Transition Plan details the actions to be taken to cut carbon emissions by 34% by 2020, based on 1990 levels (of which 21% had been achieved at the time of publication). As a result, by 2020 is it envisaged that:

Over 1.2 million people will be employed in green jobs. The efficiency of 7 million homes will have been upgraded, with over 1.5 million of them generating renewable energy. 40% of electricity will be generated from low carbon sources (renewables, nuclear power and clean coal). Gas imports will be 50% lower than would otherwise have been the case. The average new car will emit 40% less carbon compared to 2009 levels.

The Energy Bill 2012–2013 aims to close a number of coal power stations over the next two decades, to reduce dependence on fossil fuels and has financial incentives to reduce energy demand. The construction of a new generation of nuclear power stations will be facilitated, helped by the establishment of a new Office for Nuclear Regulation. Government climate change targets are to produce 30% of electricity from renewable sources by 2020, to cut greenhouse gas emissions by 50% on 1990 levels by 2025 and by 80% on 1990 levels by 2050.

The Energy and Climate Change Select Committee reported on 15October 2016 on upcoming challenges for energy and climate policy. The committee recommended investment in energy storage on the supply side and in efficiency technologies that smooth out demand peaks, by switching devices off and on and running them at lower power during times of stress, for example.

Salix Finance Ltd. provides government funding to the public sector to improve energy efficiency, reduce carbon emissions and lower energy bills. Salix is a non departmental public body, owned wholly by the government, and funded by the Department for Business, Energy and Industrial Strategy, the Department for Education, the Welsh Government and the Scottish Government.

Government supervision of the coal, gas and electricity industries was established in the 19th century. Since then, specific departments of state and regulatory bodies have had responsibility for policy implementation, regulation and control.

The supply of energy in the nineteenth century – in the form of coal, gas and electricity – was largely by private companies and municipal gas and electricity undertakings. Public control of these supplies was generally in the hands of local authorities. Such control was exercised through limiting prices and dividends and by encouraging competition. State intervention was through legislation such as the Mines and Collieries Act 1842, and the Gasworks Clauses Act 1847 which restricted company dividends to ten per cent. +Government ministry / department with responsibility for energy mattersRegulatory bodyEstablishedAbolished / statusPolitical partyTenure fromTenure toNotesBoard of Trade–ContinuedVariousc. 18471942Gas and electricity industriesHome Office–ContinuedVarious18421920Coal industryMinistry of Transport1919ContinuedVarious19191941Electricity supply onlyBoard of Trade (Secretary for Mines)19201942 transferred to Ministry of Fuel and Power, Board of Trade continuedVarious19201942Board of Trade (Secretary for Petroleum)19401942 transferred to Ministry of Fuel and Power, Board of Trade continuedNational19401942Board of Trade–October 1970 became DTINational19411942Ministry of Fuel and Power3 June 194213 January 1957 renamed Ministry of PowerNationalJune 1942July 1945LabourAugust 1945October 1951ConservativeOctober 1951January 1957Ministry of Power13 January 19576 October 1969 merged with Ministry of TechnologyConservativeJanuary 1957October 1964LabourOctober 1964October 1969Ministry of Technology (MinTech)18 October 196415 October 1970LabourOctober 1969June 1970ConservativeJune 1970October 1970Department of Trade and Industry (DTI)15 October 1970January 1974 transferred to DoE, DTI continuedConservativeOctober 1970January 1974Department of Energy8 January 197411 April 1992ConservativeJanuary 1974March 1974LabourMarch 19744 May 1979ConservativeMay 1979April 1992Department of Trade and Industry(11 April 1992)June 2007 transferred to BERR, DTI continuedConservativeApril 1992May 1997LabourMay 1997June 2007Department of Business, Enterprise and Regulatory Reform28 June 2007October 2008 transferred to DECC 2008, BERR continuedLabourJune 2007October 2008Department of Energy and Climate Change3 October 200814 July 2016LabourOctober 2008May 2010CoalitionMay 2010May 2015ConservativeMay 2015July 2016Department for Business, Energy and Industrial Strategy14 July 2016currentConservativeJuly 2016February 2023Department for Energy Security and Net Zero7 February 2023currentConservativeFebruary 2023current

In addition to the above ministries and departments a number of regulatory bodies have been established to regulate and supervise specific aspects of energy policy and operation. These include:

The first targets for renewable energy, 5% of by the end of 2003 and 10% by 2010 'subject to the cost to consumers being acceptable' were set by Helen Liddell in 2000. The UK Government's goal for renewable energy production is to produce 20% of electricity in the UK by 2020. The 2002 Energy Review set a target of 10% to be in place by 2010/2011. The target was increased to 15% by 2015 and most recently the 2006 Energy Review further set a target of 20% by 2020. Subsequently, the Low Carbon Transition Plan of 2009 made clear that by 2020 the UK would need to produce 30% of its electricity, 12% of its heat and 10% of its fuels from renewable sources. For Scotland, the Scottish Government has a target of generating 100% of electricity from renewables by 2020. Renewables located in Scotland count towards both the Scottish target and to the overall target for the UK. Although renewable energy sources have not played a major role in the UK historically, there is potential for significant use of tidal power and wind energy (both on shore and off shore) as recognised by formal UK policies, including the Energy White Paper and directives to councils in the form of PPS 22. The Renewables Obligation acts as the central mechanism for support of renewable sources of electricity in the UK, and should provide subsidies approaching one billion pounds sterling per annum by 2010. A number of other grants and smaller support mechanisms aim to support less established renewables. In addition, renewables have been exempted from the Climate Change Levy that affects all other energy sources. The amount of renewable generation added in 2004 was 250 megawatts and 500 megawatts in 2005. There is also a program established for micro generation (less than 50 KWe (kilowatt electrical) or 45 KWt (kilowatt thermal) from a low carbon source) as well as a solar voltaic program. By comparison both Germany and Japan have photovoltaic (solar cell) programmes much larger than the installed base in the UK. Hydroelectric energy is not a viable option for most of the UK due to terrain and lack of force of rivers.

The government has established a goal of five percent of the total transport fuel that must be from renewable sources (e. g. ethanol, biofuel) by 2010 under the Renewable Transport Fuel Obligation. This goal may be ambitious, without the necessary infrastructure and paucity of research on appropriate UK crops, but import from France might be a realistic option. In 2005 British Sugar announced that it will build the UK's first ethanol biofuel production facility, using British grown sugar beet as the feed stock. The plant in Norfolk will produce 55,000 metric tonnes of ethanol annually when it is completed in the first quarter of 2007. It has been argued that even using all the UK's set aside land to grow biofuel crops would provide less than seven per cent of the UK's present transport fuel usage.

Reducing occurrence of fuel poverty (defined as households paying over ten percent of income for heating costs) is one of the four basic goals of UK energy policy. In the prior decade substantial progress has been made on this goal, but primarily due to government subsidies to low income families rather than through fundamental change of home design or improved energy pricing. The following national programs have been specifically instrumental in such progress: Winter Fuel Payment, Child Tax Credit and Pension Credit. Some benefits have resulted from the Warm Front Scheme in England, the Central Heating Programme in Scotland and the Home Energy Efficiency Scheme in Wales. These latter programs provide economic incentives for physical improvement in insulation, etc.

Oil and gas production peaked in 1999, but in 2023 licensed more oil and gas exploration was licensed.

A 2016 paper argues that current UK energy policy is a contradictory mix of free market policies and government interventions, with an undue emphasis on electricity. It concludes that the government needs to develop a clearer strategy if it is to address the three goals of economic effectiveness, environmental protection, and energy security. In its 2022 Net zero Review the government was criticised again, with the main issue identified being a lack of consistent policy commitments and a start stop approach to various schemes.