Energy in focus in UK after Labour takes power

Labour's victory July 5 in the UK's general election has divided opinion in the domestic energy industry between fossil fuel producers and renewables market participants.

The new government under incoming Prime Minister Keir Starmer will be under pressure to move swiftly on ambitious green policy commitments, including a net zero power system, an accelerated ban on new internal combustion engine car sales and a quadrupling of offshore wind, all by 2030.

At the same time, oil and gas producers in the North Sea fear Labour will quickly impose higher taxes on drilling.

Following the results, RenewableUK CEO Dan McGrail said the scale of the Labour majority "gives them a clear mandate to deliver their clean energy mission."

Among near-term priorities should be a lifting of the effective ban on onshore wind in England and increasing the budget for this year's Contracts for Difference auction, McGrail said.

The bulk of this year's auction budget of GBP1.025 billion ($1.3 billion) was focused on offshore wind, which could support 4-6 GW of new capacity, assuming strike prices from GBP50/MWh to GBP60/MWh.

On Labour's commitment to triple solar capacity by 2030, the government would need to take "a long hard look at planning headaches and take bold action to purge planning inefficiencies", said Sarah Spencer, land manager at renewable energy developer Balance Power.

The party has pledged to strengthen the presumption in favor of sustainable development in national planning and significant infrastructure statements.

"Historically every UK government has struggled to square the circle between national policy and the localized approval process, with onshore wind and transmission infrastructure being the most obvious casualties of real or perceived local opposition in recent years," analysts at S&P Global Commodity Insights said.

Upstream concerns

Moving upstream, industry group the Carbon Capture and Storage Association said momentum was crucial on the CCUS cluster sequencing program, with final investment decisions imminent on the HyNet and East Coast Cluster projects expected in September.

"The negotiations have almost concluded and now ministerial sign off is required," CCSA chief executive Ruth Herbert said.

Representing North Sea oil and gas, Offshore Energies UK said it was committed to working with the new government to safeguard energy security, jobs and skills, and create "an irresistible investment environment".

It remained, however, "deeply concerned over Labour proposals to impose a further windfall tax and end new licenses. These policies, if poorly managed, and without industry input will threaten jobs and undermine the decarbonization of the UK economy. The details matter."

The new government plans to increase the existing Energy Profits Levy to 38% from 35% and backdate it to the start of 2022.

OEUK chief executive David Whitehouse noted Labour's leadership had recognized North Sea oil and gas "will be with us for decades to come and committed to managing this strategic national asset in a way that does not jeopardize jobs."

UK oil production was expected to fall below 600,000 b/d by 2030 from 710,000 b/d in 2023, according to Commodities Insights analysts.

On June 28, Commodities Insights' analysts forecast Dated Brent crude oil prices to average $85.71/b in Q3 2024, declining to $81.71/b in Q4. Platts, a unit of Commodities Insights, assessed Dated Brent at $88.96/b on July 4.