Executive summary

Why is energy dominating the headlines?

Energy is the lifeblood of the global economy — it is hard to remember a time when it had a higher profile than now. To better understand the state of the energy sector, we undertook a survey which informs this report.

Global energy prices sharply rose when COVID-19 lockdown restrictions lifted and economies started returning to normal.

Prices have risen further since Russia invaded Ukraine. Europe has looked for alternative energy sources to reduce imports from Russia, which has increased market competition and prices. Russia has also constrained natural gas supply, causing price spikes.

High energy prices are impacting daily life, contributing to the spiralling cost of living. Extreme weather over the summer further highlighted the need to transition to net zero carbon as soon as possible.

In 2021, the International Energy Agency said, “Nothing short of a total transformation of our energy infrastructure is required” as the “energy that powers our daily lives produces three-quarters of global emissions”.

It is, therefore, no wonder that over half of respondents to our energy survey said clean/sustainable energy is the most important priority for the energy sector.

What is the right energy mix?

Replies to our survey indicated that renewables such as wind, solar and hydropower will play a key role in the energy mix. The intermittent nature of renewables means that energy storage is needed to manage electricity generation variations and increase resilience.

Alongside renewables, we will also need gas with carbon capture, usage and storage (CCUS) and nuclear power as part of the energy mix to keep electricity prices low and to meet demand.

How can the level of investment needed, be achieved?

Launched in April, key parts of the British Energy Security Strategy include the acceleration of new nuclear power to install up to 24GW of total capacity by 2050, along with increasing offshore wind power to 50GW by 2030, 5GW of which will be floating offshore wind. There is also some support for solar, hydrogen and heat pumps. Obviously, a huge financial commitment is needed to meet these targets.

Nearly 30% of survey respondents have noticed increased activity and/or confidence in the energy sector since the strategy’s launch. However, only one in ten think that there is sufficient government support to achieve the objectives set.

The COVID-19 pandemic had an enormous impact on public finances — UK public sector net borrowing for the financial year ending 2021 is estimated to have reached 14.4%, the highest ratio since the end of World War Two.

The energy price guarantee support from the government is expected to lead to further significant borrowing, along with funding also required for defence and to adjust to the needs of an ageing population, amongst other challenges.

Kwasi Kwarteng's mini budget saw significant tax cuts which, although intended to support growth, have raised questions over their potential funding. Government borrowing costs have also increased in the wake of the announcement.

Within this context, it’s clear that to deliver the pipeline of energy projects needed, private project financing will be required — which 54% of our survey respondents felt was “very important” for delivery.

However, our survey showed only one in five felt there is sufficient appetite from the private sector to be involved with energy projects.

To encourage private investment in the energy sector, there will need to be confidence in the return on investment. Attractive return on investment encourages competition, creates a thriving market and will increase supply. How can the energy sector overcome challenges and speed up delivery?

There are many threats to delivering much-needed energy projects in the current climate.

Results of our survey ranked the top threat as changes in political strategy/policy. Labour availability and material and labour cost escalation were also considered key issues for delivery.

To help achieve the UK’s offshore wind targets, amendments will be made to the upcoming Energy Bill. For priority cases where quality standards are met, the relevant secretary of state can set shorter examination timescales for project approval due to an amendment to the Planning Act 2008.

Robust procurement principles and encouraging collaboration are also seen as important for successful delivery.

The digital transformation of construction and increased use of data analytics can help speed up delivery of energy projects whilst ensuring quality isn’t compromised.

At such a key time for the sector, we look forward to supporting clients and teams around the globe in powering up.