THE cost of energy is a key political issue at the moment with an energy price cap in the Conservatives’ manifesto. Politicians are wrestling with the UK’s energy trilemma – balancing security of supply, the impact on the environment and affordability for consumers. Not a simple equation to solve, but the North has a key role in doing so.
While the question of how to price energy for consumers dominates the discussion right now, the longer-term issue is how the UK’s energy sector will innovate to address the trilemma. I want policy-makers to recognise, and in fact get excited about, how critical the North’s energy assets and skills are to achieving this. Additionally, it’s clear that growing the area’s energy capabilities will generate significant economic benefits for the North and therefore the country.
KPMG is a member of the Northern Energy Task Force because we see the energy sector as a critical strand of the economic renaissance represented by the Northern Powerhouse vision. We are keen to see proactivity and innovation resulting in productivity gains and national economic rebalancing.
The task force has published a report, Leading, Adopting or Drifting, which looks at the future of the energy sector in the North. It argues that with support and strategic oversight the North can be key to solving the UK energy sector’s trilemma by pioneering the implementation of new approaches.
This future of the North as an energy exporter is exciting and worthwhile. However, the report warns that equally, without the necessary investment and commitment, the area risks becoming an energy drifter, with an increasing national dependence on imported energy and related technology.
The Northern energy sector is well equipped to drive the country’s energy evolution given its abundance of sites for new power and heat generation, and its ability to use its economic assets and legacy of sector skills.
The report argues that the North is particularly well placed, given its geography and geology, to develop technologies which will create most social and economic value. This recognises the fact that with the decline in traditional power production, the North’s share of energy GVA has fallen from a third to less than a quarter since 1997.
Low-carbon energy production will be key. The UK has committed to dramatically reducing carbon emissions from our economy by 2050 and achieving this will require innovation in new energy generation, efficiency and systems.
Given the decarbonising of energy and reducing demand are global challenges, the companies and regions that develop the technologies forming part of the solution will have significant overseas markets to exploit.
Great technological advancements in the sector are being driven in the North, from optimising the energy network to the trialling of smart grid technology, electric vehicle batteries and hydrogen grid conversion. In fact, the region has more low-carbon goods and services jobs per 1,000 employees than anywhere else in England, so it has a somewhat developed sector as the start point, albeit with plenty of capacity. Sir John Harman, who chairs the Northern Energy Task Force, refers to this as the untapped potential of the North.
As for the economic rebalancing that investment in the sector should yield, not only would the North see a productivity boost but, as energy assets are often located outside the cities, growth in this sector could offer prospects to those areas that most need the benefit.
Such outcomes will require considerable co-ordination at the regional level, in terms of large-scale infrastructure project management and the necessary spatial planning; the development of pan-North skills and innovation programmes and the provision of resources that support commercial development as well as a new approach to benefit appraisal schemes. This would put significant onus on the regional governance bodies to work collaboratively for the greater good.
The next step for the Northern Energy Task Force is to develop a strategy for how the north of England will become a leading centre for energy excellence globally. This will consider factors including national and international policy-making; the impact of Brexit; the potential of Northern energy assets and skills, and the role of devolved regions.
The objective is to see a Northern economic renaissance in energy, giving the region the opportunity to export technology, skills and knowledge globally and driving national prosperity and energy security while contributing to the decarbonising of the energy supply – and the driving down of costs for consumers – through efficiency and innovation.
Richard Evans is KPMG’s North Energy Sector lead and a member of the Northern Energy Task Force.