3. Energy

Part 3: Energy - part of The Country That Works For You series ← 2. Food Security · Series index · Next → 4. Industrial Strategy

The thing about gas

Here is a fact that rarely makes it into energy policy discussions: roughly half of the nitrogen fertiliser used in UK agriculture is produced from natural gas. When gas prices spike, fertiliser prices spike. When fertiliser prices spike, food prices spike. Energy policy is food policy, whether anyone in Westminster wants to admit that or not.

We covered the food security angle in Part 2 of this series. What follows here is the energy side of the ledger, and it is not reassuring.

The UK currently imports roughly 45% of its natural gas. The North Sea fields that once supplied the bulk of domestic demand are in decline, dropping by roughly 6% to 8% per year. The new licensing rounds have been slow, contested, and insufficient to reverse the trajectory. Meanwhile, the interconnectors to Norway and the continent are running flat out. The strategic picture is one of increasing dependence on a global LNG market that is now, thanks to Hormuz disruption, under genuine pressure.

This is the baseline. Let us work from it.

Immediate: now through end of 2026

North Sea licensing: emergency round, now

The Chancellor should convene an emergency licensing round for the North Sea. Not a consultative process, not a review, not a committee. An actual round, with firm deadlines for applications and decisions within 90 days.

The licensing regime already exists. The issue is political will and bureaucratic speed. Each month of delay is another month of decline in domestic production. The fiscal terms for new fields are not the obstacle: the composite tax rate for new developments is manageable, and the industry has capital available. What it needs is certainty that the regulatory process will not be weaponised by activist litigation.

There are an estimated 15 to 20 viable undeveloped discoveries in UK waters that have stalled due to policy uncertainty. Unblock those. Fast-track the ones with existing infrastructure connections. Do not wait for a comprehensive energy strategy. The situation does not allow for that luxury.

Strategic Petroleum Reserve: stop talking, start buying

The UK SPR holds roughly 5 to 6 million barrels. That is approximately 3 to 4 days of net imports at current rates. Compare that to the US SPR at 375 million barrels or the IEA minimum of 90 days of net imports.

This is not a glamorous policy. It does not generate headlines. But in a disrupted global market, having actual oil in storage that you control is the difference between managing a crisis and being managed by one.

The government should be buying on the open market now, at volumes sufficient to bring the SPR toward the IEA 90-day minimum. The cost is real but manageable. The cost of not doing it, when the next supply shock arrives, is not manageable.

There will be objections about the fiscal cost. Those objections deserve to be ignored. Fiscal caution is appropriate when the alternative is resilience. It is not appropriate when the alternative is dependency.

Fuel poverty direct payments: the winter buffer

The UK has roughly 6.5 million households in fuel poverty, defined as spending more than 10% of income on energy. That number has been climbing. The energy price cap provides some protection, but it is a blunt instrument that does not distinguish between a household that is just managing and a household that is genuinely struggling.

The immediate instrument is a means-tested direct payment, administered through existing benefit infrastructure (Universal Credit, Pension Credit, Child Tax Credit). Payment values should be calibrated to the gap between the energy price cap and what a sustainable energy burden actually looks like for low-income households.

This is not a long-term solution. It is a bridge. But it is a bridge that needs to be built before October.

There is a second reason to do this now, which connects to the food security discussion in Part 2. A household that cannot afford to heat is also a household that is making tradeoffs at the food bank. The Winter Fuel Payment is a partial predecessor but it is universal, not targeted. Direct means-tested payments are more efficient and more defensible. Target the money at the people who need it.

Grid stress: winter preparation

National Grid's winter outlook has been pointing at tight margins for the past two winters. The margin is not zero, but it is thin enough that cold weather, unplanned outages, or reduced interconnect flows could produce controlled load shedding.

The government should be working with National Grid now on a winter stress-test protocol. This includes:

Acceleration of any deferred maintenance on transmission infrastructure
Pre-positioning of mobile generation assets in vulnerable regions (the north, Scotland, rural Wales)
Clear communication to industry on demand reduction requests, with enough lead time for businesses to plan

Demand reduction is not popular with businesses, but a voluntary agreement backed by fiscal incentives is better than emergency rationing. Get the framework in place now, not in January when the cold arrives.

Medium-term: 2027 through 2028

Nuclear: Sizewell C and what comes after

Sizewell C is the only large-scale nuclear project currently in active development in the UK. It is a 3.2 GW project, two reactors, estimated completion 2029 to 2031, and it is already running behind its original timeline and over its original budget. The estimated cost is north of GBP 20 billion, though the final figure will depend on the contract for difference arrangement.

The government should proceed with Sizewell C. Not enthusiastically, not as a celebration of nuclear power, but as a practical matter. The alternative is a grid that runs on gas and hopes. Hopes are not a energy strategy.

What comes after Sizewell C is the harder question. The UK has effectively lost the ability to build nuclear quickly. The supply chain, the regulatory capacity, the engineering talent base, the public inquiry process: all of these have atrophied. Rebuilding that capacity takes a decade at minimum, and it requires sustained political commitment across multiple electoral cycles.

The realistic medium-term nuclear programme is:

Sizewell C completed on the fastest viable timeline
Begin site identification and early development work for the next tranche (potentially Bradwell B or a new site)
Maintain the nuclear regulatory and safety capacity as a national capability, not just a project-specific resource

There is no shortcut here. Anyone telling you that the UK can have a rapid nuclear build programme is selling something. The timeline for meaningful new nuclear capacity beyond Sizewell C is the late 2030s at earliest. Plan accordingly.

Renewable build rate: the connection queue problem

The UK has a surreal situation. There are renewable energy projects representing roughly 80 to 100 GW of capacity sitting in the grid connection queue, waiting for transmission infrastructure to be built. Some of these projects have been waiting for more than five years.

Meanwhile, the government has set targets for renewable deployment that require significant new capacity. The gap between target and delivery is not primarily a technology problem or a finance problem. It is a queue management problem.

The root cause is the connection queue process, which was designed for a smaller, simpler grid and has not kept pace with the volume of applications. The system treats all applications equally regardless of how close they are to being ready to generate. Projects that are shovel-ready sit behind projects that are conceptual. The result is that transmission upgrades are planned for a queue that does not reflect actual project readiness.

The fix requires administrative action, not new legislation:

Prioritise connection agreements for projects that have site control, planning permission, and financing in place
Implement a "readiness threshold" below which projects cannot hold queue position
Accelerate the National Energy System Operator's transmission planning capability

These are not glamorous. They will not generate press releases. But they are the actual bottleneck and addressing them could bring 10 to 15 GW of renewable capacity forward by two to three years.

The hydrogen strategy: timeline problems

The UK hydrogen strategy, published in 2021 and updated since, sets targets for 10 GW of hydrogen production by 2030. That target is not credible given current progress. The electrolysis capacity currently operational or under construction is a fraction of that figure.

The problem is not the targets. The problem is the gap between targets and delivery mechanisms. Hydrogen production at scale requires:

Cheap, abundant low-carbon electricity (currently expensive and constrained)
Significant infrastructure: pipelines, storage, import terminals
Demand-side offtake agreements that give producers confidence there will be a market

The government has been strong on targets and weak on the enabling infrastructure. The medium-term priority should be:

Commit to hydrogen-ready infrastructure for all new gas-fired power stations (this is already policy, but implementation has been slow)
Accelerate the cluster development programme for industrial hydrogen use cases (Teesside, Merseyside, Holyhead)
Clarify the revenue mechanisms for green hydrogen production. The current cap and floor mechanism is not sufficiently attractive for the capital required

The hydrogen timeline matters for industrial strategy, which we will address in a later post. For now, the key point is: be realistic about what 2030 looks like. The 10 GW target is unlikely to be met in full. A more defensible target is 3 to 5 GW, focused on industrial clusters and backed by genuine infrastructure commitments.

The grid connection problem: more detail

This deserves its own section because it is the single most tractable constraint on UK energy security, and it receives a fraction of the attention it deserves.

The connection queue stands at roughly 100 GW. Projects sit in it for years. The queue is not managed on commercial readiness, so shovel-ready projects wait behind projects that may never reach FID. Transmission infrastructure is planned against the full queue, which means upgrades are sized for projects that will not proceed, delaying upgrades for projects that will.

The administrative reforms needed are not complex:

A readiness threshold for queue entry: projects must demonstrate site control, planning, and financing before they can hold a position
Queue management on commercial milestones: projects that miss development milestones lose their queue position
Faster DNO (Distribution Network Operator) capacity assessments, with a mandated timeline of 90 days for standard connections

These changes could be implemented within six months. They would not require primary legislation. They would, however, require the government to be willing to tell some projects that their place in the queue is not guaranteed. That requires political will.

Fuel poverty: designing for the food-energy overlap

The connection between fuel poverty and food insecurity is not coincidental. It is structural. Households with limited budgets make tradeoffs. When energy prices rise, the tradeoff shifts from "heat or eat" to "heat less and eat less." Both outcomes are bad. One is a policy failure. The other is a public health crisis.

The fuel poverty instruments currently in place are not designed for this overlap. They are:

The Energy Price Guarantee: a blunt subsidy to all households, expensive and poorly targeted
The Winter Fuel Payment: universal, not means-tested, and worth less in real terms each year
The Warm Home Discount: a compulsory rebate on energy bills for low-income households, ring-fenced but limited in scope

A better design would:

Consolidate the Winter Fuel Payment and Warm Home Discount into a single, means-tested energy support payment, calibrated to actual energy costs and household income
Integrate the eligibility framework with food support (Free School Meals, Healthy Start, food bank referral pathways) so that households in either programme are automatically flagged for the other
Include a winter fuel payment for households with children under five, calibrated to the heat loss of a typical young child's bedroom

The administrative infrastructure for this already exists. The integration is a data-sharing problem, not a new systems problem. The barrier is political: nobody wants to be the minister who took the universal winter fuel payment away from pensioners who are not in fuel poverty. But the fiscal case for targeting is strong, and the equity case is stronger.

The Hormuz assumption

This analysis assumes that Hormuz remains disrupted through 2026 and into 2027. That is the central scenario, not the worst case.

If Hormuz reopens and LNG flows normalise, the immediate pressure on UK gas prices eases. That changes the cost calculus for the interventions described above. It does not change the structural argument: North Sea decline continues, the connection queue remains broken, nuclear takes fifteen years regardless of global gas prices.

The policy response should be designed to be robust across scenarios. The emergency North Sea licensing is defensible in both cases. The connection queue reforms are defensible in both cases. The fuel poverty direct payments are defensible in both cases.

The strategic petroleum reserve purchases are more conditional. If Hormuz resolves and prices fall, buying becomes cheaper. If Hormuz remains disrupted, buying at higher prices is still better than being caught short.

The nuclear programme is completely independent of Hormuz. The fifteen-year timeline for new capacity does not change because of a shipping lane in the Persian Gulf.

What this costs vs what inaction costs

Let us be direct.

The interventions described above, implemented fully, would cost in the range of GBP 5 to 8 billion per year over the 2026 to 2028 period. This includes:

Strategic petroleum reserve purchases: GBP 1 to 3 billion per year, depending on volumes and market prices
Fuel poverty direct payments: GBP 2 to 3 billion per year, replacing and consolidating existing payments
Grid connection queue reform: minimal direct cost, primarily administrative
North Sea licensing acceleration: minimal direct cost, primarily regulatory

This is not a large number relative to the UK government budget. It is roughly 0.3% to 0.5% of GDP. It is also substantially less than the cost of a single winter energy crisis, which the Bank of England estimates would reduce GDP by 0.5% to 1.5% depending on severity and duration.

The cost of inaction is not theoretical. It is the winter of 2022, when the energy price cap cost the government GBP 40 billion in emergency support, and households still faced real-terms cuts to heating and lighting. That crisis was manageable because gas prices normalised by spring 2023. A similar crisis in a disrupted global market, with no spare LNG capacity and reduced North Sea production, would be considerably harder to manage.

Five to eight billion pounds per year is the cost of optionality. It is the cost of being able to respond to shocks rather than being ambushed by them. That is money well spent.

Interdependencies

Energy policy does not sit in isolation. Here is how it connects to the rest of this series:

Food Security (Part 2): The energy-food nexus is direct and immediate. Natural gas prices drive fertiliser prices. Fertiliser prices drive food prices. Energy policy decisions made in 2026 will appear in food price data in 2027 and 2028. The fuel poverty discussion in this post and the food security discussion in Part 2 share the same population: households making impossible tradeoffs. These need to be addressed together.
Industrial Strategy (Part 5, forthcoming): The hydrogen strategy, nuclear programme, and grid connection queue are all industrial policy as much as energy policy. The UK cannot have a serious industrial strategy without a serious energy strategy. These posts need to be read together.
Fiscal Framework (Part 6, forthcoming): The spending figures quoted in this post need to be set in the context of fiscal rules, borrowing headroom, and the tradeoffs between energy investment and other spending priorities. The GBP 5 to 8 billion per year figure is manageable in current fiscal conditions, but the case for that needs to be made rigorously, not assumed.

The series will return to these connections. For now, the energy foundation is laid. What a UK government should actually do on energy is: act like the situation is serious, because it is.

Part 3: Energy - part of The Country That Works For You series

Previous: 2. Food Security · Series Index · Next: 4. Industrial Strategy