Can the UK solve its energy problem?

Jenna Glass: Welcome to the Insight in 15. I'm your host, Jenna Glass. And I'm joined today with Clare Maio, our Group Sector Lead for Energy and Natural Resources at KPMG UK. The Iran conflict has launched energy policy back into the spotlight and with a new Government, there's lots to discuss. Welcome to the podcast today, Clare.

Clare Maio: It's great to be here.

Jenna: So what has the Iran conflict revealed about UK's vulnerabilities in the energy space?

Clare: Yeah, I think it's been really interesting because we've now seen directly how events in far flung parts of the world have a really immediate effect on what we're paying for our petrol, for our heating and what businesses are paying for energy. So it's really thrown into kind of stark reality, the fact that we are so reliant still for so much of our energy in the UK from other places in the world. And that started to make people question again, what should the right policy be? How much oil and gas should we import from overseas? How much should we produce domestically? What we should be thinking about in terms of other sources of energy. So renewable energy, nuclear. And how do we start to feel more secure as a country that we're not as exposed to those big shocks coming from other countries that have been impacting us in the wake of this conflict?

Jenna: So speaking of policy, we have a new Prime Minister. And what do you think should be the Government's primary focus over the next year?

Clare: I think what we've seen over the last few Governments for the UK is a lack of certainty around long-term energy policy, and actually what we need more than anything in energy is that secure policy direction, secure planning rules, secure tax regime so that we can bring the right investment into the UK to do what we need to do. So I think my biggest request for this new Government is that they really think about defining that as quickly as possible.

Jenna: So historically there's been this focus on net zero by 2030. But lately we've been seeing more of a discussion around the balance between affordability, security and sustainability. Can you talk a little more about that?

Clare: Just a bit of a clarification. The UK's Clean Power 2030 strategy is all about clean power for our energy grid, for our electricity grid. So that's about how do we get to almost 100% clean electricity by 2030? Our net zero target is actually for 2050. And that's looking at how does the economy, the whole economy, become a net zero economy by 2050. And I think in terms of the clean power strategy, we're making good progress.

The most recent data from the Government shows that we were around 61% clean energy for our electricity grid, which is great progress, it's fantastic. But electricity is only part of the story when we think about net zero. So a huge amount of our energy use is through transport and also home, home heating and hot water, where the majority of houses still today use gas to do that. So we have about 65% of our energy use on a day-to-day basis in those two areas. So transport and home heating, and that's predominantly gas and oil products that go into doing that. So, unless we can electrify transport and homes, we're not going to get where we need to get to for the 2050, certainly the 2050 net zero strategy. So we need to really think about how we do that and how we balance that with the affordability and the security questions that you raised at the start. We call it the energy trilemma.

Jenna: So currently, do you think there is more of a focus when we're looking at this trilemma? Is there more of a focus on affordability, which is offsetting the focus on security and sustainability or how is that balanced out at the moment, would you say?

Clare: Yeah, I mean, affordability for businesses and customers always looms large for politicians, obviously, because, you know, the people that vote for them are the people experiencing some of these challenges. So I do think it is at an increased level of focus, particularly compared to kind of three or four years ago, when we first started to see this elevated, elevated energy bills for the UK. But I don't think it's alone in being high profile. I actually think all three aspects have become more high profile and probably, you know, the energy trilemma is more talked about than it has ever been talked about. The kind of the nuance needed for what is a very complex problem can get lost in the political diatribe quite, quite easily.

And I think we're seeing that play out, particularly when we look at the conversation around the North Sea. You would think as a normal everyday user of energy that if we're producing it in the North Sea, it should help us with affordability and security. But because it's a global market and these products are traded globally, it doesn't really help us with affordability or security. So it's a really complex argument. And I think it will be a journey for politicians to take the public on to make that argument a bit more nuanced.

Jenna: So talking about it being a global commodity traded globally, there was a new report that was issued by the CBI and UK Energy Taskforce, and in there they talked about affordability. Did that report provide any additional insight? Did it give the answer to how to crack that nut? Because currently I believe the UK has the highest energy costs. Is that correct?

Clare: UK businesses pay the highest energy bills out of all of the countries that subscribe to the International Energy Agency. So yes, very high prices comparatively for UK businesses, despite a number of things the Government has done over the last couple of years to try and bring some of those prices down. One of the key drivers of that price is that UK businesses pay more through their power bills for things like policy cost and network cost, compared to other countries where those costs are paid through different taxation and different mechanisms. So there's work that the taskforce are looking at to see how some of those costs could be restructured and not directly attributed to the power that is purchased by business.

But there's also work going on to look at, you know, what else could we do, not just to help businesses be competitive today in the international market, bearing in mind that they pay high prices, but also how do we become competitive in, you know, into 2030, 2040. We know that energy cost remains one of the top boardroom discussion points for most of our chief execs across the UK. And increasingly, what we are recommending to organisations is that that discussion around energy and energy procurement should not just sit with your procurement function, it should sit in the boardroom, because there is so much complexity in how that then plays out into decisions around where you site operations, how you access different innovation funds and reliefs, etc.. So it's a really strategic issue for companies to deal with.

Jenna: So let's move on to the sustainability piece. What's the deal with renewables?

Clare: Yeah. So I think if we think about what we're trying to do with sustainability. So we want, what we want to do with sustainability is to help the UK move towards its net zero target. So, you know, building more solar, building more offshore wind gives us more generation, clean electricity generation capacity. So they do that. They therefore also help us with a little bit of that security problem. So if we have more domestic generation in the form of renewables, we are less reliant increasingly on importing, whether it's oil or gas in the form of LNG or natural gas into the UK to burn, to create electricity. So they help us a bit with the security point of view, and eventually they should therefore also help us with the affordability problem.

Because although renewables have come into some criticism about the how expensive they are to build and some of the electricity strike prices, we would say, that are required to encourage developers to build them, what they do is start to reduce the demand, the amount of reliance we place on gas for our electricity system, and gas is what sets the price for our electricity in the UK at the moment. So my answer to your question is, absolutely, renewables remain a key part of that journey. But they're not a system on their own. And this is the challenge with renewables. You can't just build a wind farm. You need to build a wind farm and a network and a connection and storage and and and... So they need to be part of a whole system.

And that's where we are increasingly looking to organisations like NISO to look at that whole power plan for the UK, and how all of those things will fit together so that we can solve all three of those problems.

Jenna: Yeah, I think when we were talking earlier, you mentioned it's not necessarily, in some cases, it's not necessarily having a shortage of renewable energy sources, but how that energy then, you know, makes it into the grid is what has been a challenge over recent years.

Clare: Yeah, absolutely. I mean, I think the cheapest megawatt-hour is the one we already generate, but we can't move to the right place to use it. Yeah. So I mean, many headlines earlier in the year when it was reported that grid constraint costs were 1.5 billion in 2025. So grid constraint cost means when we have to pay a generator to stop generating, and then we have to typically pay another generator to start generating in a place where we need the demand. And that problem is caused by the fact that at the moment, our grid isn't working as efficiently as it needs to for the whole country.

So we typically generate a lot of renewable energy in Scotland. But we have a lot of our demand centres in the South. And effectively we need a bigger pipe to get the electricity that we generate in Scotland down to the demand centres in the South, and are able to use that energy more efficiently and not have to pay for curtailment of some of those wind farms and other generators where we can't consume that energy. But we don't just need to kind of make the pipe bigger. We also need to think about some other solutions. We need to think about how do we incentivise big users of electricity, or in fact, households with EVs and batteries, to be flexible about when they use energy? So how can we incentivise people to use energy where we have too much of it and kind of flatten that demand a little bit? So we're not asking the the grid, the grid connection to do quite as much work because we're flattening demand.

What we also need to invest in much more in the South and where the demand centres are is in long-term storage so that they can save energy when it's being generated and they don't need it, so they can use it when they do need it without relying on, you know, a fresh supply coming down the pipe from Scotland. So there's lots we could do in the UK to make better use of what we already generate. And in fact, some estimates say that if we could really effectively manage demand and do more with storage, we could reduce by about 60% predicted demand up to 2030. So that would be a huge saving for the country, great for the environment and great for bills, because we wouldn't have to pay for all of this expensive infrastructure to be built.

Jenna: So where does nuclear fit into the mix? Is that the missing piece to the puzzle?

Clare: Yeah. It's interesting how we're having this kind of nuclear renaissance at the moment globally. So I think what we're seeing now is this emergence of the SMR. So the small modular reactor and the hope that a smaller reactor that is more modular, hence the name, so more standardised, could be a cheaper, more efficient way to deliver nuclear. Because yes, I do think there is a missing piece in the jigsaw. We need what you might hear referred to as baseload. At the moment, that's gas for the UK network because we need to know that when we need it, there is electricity. That helps us balance the grid. It helps keep the lights on. So we need baseload in the grid. That can come from gas, it could come from nuclear, it can come from other sources as well.

Jenna: So no shortage of considerations when looking at how to solve or perhaps optimise energy policy within the UK and globally. So what would be the one big takeaway that you would like to leave our listeners with in terms of the future?

Clare: I think if you are, if you are one of the organisations that are in the thick of this, you're involved in delivering new grid infrastructure, you're involved in power generation, this is a really exciting time, but hugely challenging. We're asking your organisations to do more than you have been asked to do previously. So really think about how do you pull together the capability of your organisation to grasp these challenges around, you know, workforce, around technology, data, modern capital project delivery.

And to businesses who are grappling with affordability of energy themselves and how that impacts their strategy, I would say bring energy out of procurement into the boardroom, be thinking about how you make the best decisions around where you have your operations, what you invest in, how you can think about innovative alternatives to traditional energy purchasing, and really make it a strategic asset for you, rather than just a cost that you have to manage on a quarterly basis. And I guess just to wrap up, I think, you know, the UK has amazing potential in this space. We have fantastic heritage from North Sea in terms of skills and infrastructure.

We've got world class offshore wind, we've got great networks and engineering skills. We just need to now bring that together and move from ambition into delivery of this and make the difference for the country.

Jenna: Thanks, Clare. Our 15 minutes are up. You can catch all of our episodes on Spotify, Apple Podcasts and YouTube. See you next time on The Insight in 15.