A version of this working paper will be forthcoming in Oxford Review of Economic Policy in autumn 2023.
1. Introduction
The UK is, like its peers in the EU, just under 80% dependent on fossil fuels.[1] It has come down just over 10% since the 1970s, a period when the UK had major energy-intensive industries, most of which are now gone. Decarbonisation of the UK economy is a herculean task, and its net zero legally binding target for 2050 dictates that there are fewer than 27 years left to achieve a very substantial reduction, with the rest offset by natural sequestration and carbon capture, usage and storage (CCUS).
It is widely recognised that, since the economy is electrifying anyway, an important staging post is to decarbonise the power sector, and with this in mind a target has been set to reach net zero for electricity in the UK by 2035.[2] The government is committed to: “take action so that by 2035, all our electricity will come from low carbon sources, subject to security of supply” and to “deliver 40GW of offshore wind, including 1GW of innovative floating offshore wind by 2030”, to “implement the Dispatchable Power Agreement (DPA) to support the deployment of first of a kind power CCUS plant(s)”, and to “secure a final investment decision on a large-scale nuclear plant by the end of this Parliament”. All of this and to “ensure that consumers pay a fair, affordable price for their energy”.[3] Not to be outdone, the Labour Party is committed to achieve net zero in the power sector by 2030.[4] The government has since doubled down on this 2035 target, the offshore wind target, and the CCUS target, publishing “Powering Up Britain” in March 2023, adding an additional target to have the lowest wholesale price for electricity in Europe.[5]
This paper sets out the scale of this challenge and in the process demonstrates how implausible its achievement already is. It begins with the moving feast of the multiple current policies, strategies, ambitions and other interventions (section two). It then turns to the other objectives that have to be met simultaneously – security of supply and affordability – and illustrates their impact with reference to the energy crisis of 2022/23 (section three), setting the scene for analysing what would need to be done if the target for 2035 is to be met (section four). One of these measures – the major investments in energy networks for transmission and distribution – is core (section five). To make all this happen in good time, there needs to be a revolution in regulation and planning. Both regulation and planning at present stand in the way of the 2035 target. This reform is necessary but not sufficient, and network investments are largely “no regrets”, in that they not only advance decarbonisation of the electricity sector but also increase security of supply and help with economic affordability. All this investment needs to be funded and financed (section six). The paper sets out the likely gap between these requirements for the 2035 target to be met and what is likely to happen, and some of the consequences of both failure to deliver and the expectation of that failure (section seven). The conclusions are directly relevant to the Labour Party’s 2030 target (section eight).
2. The net zero policy framework
The Climate Change Act 2008 set a unilateral UK target for territorial carbon emissions to be reduced by 80% by 2050.[6] This was amended in 2019 to 100%.[7] The target excludes emissions from DRAX’s wood pellet electricity generation, and under-measures emissions from soils and peats, and agriculture more generally.[8] It excludes carbon embedded in imports too. Carbon consumption in the UK is significantly higher than carbon production and seriously understated.[9] To “no longer cause climate change”, the transformation would have to be an order of magnitude greater.[10]
The 2008 Act established the Committee on Climate Change (CCC), charged with producing five-year carbon budgets set for a rolling 15 years ahead,[11] which are presented to Parliament. The government may reject these proposed carbon budgets but must come up with an alternative budget with the same effect.[12] The CCC has grown its role and ranged far and wide, including commenting on specific policy announcements and preparing reports on a range of issues, in addition to the budgets.[13]
As the five-year carbon budgets have unfolded, the CCC has also focused on a number of specific sectors. This has encouraged governments to adopt additional intermediary targets, including for the ending of the sale of petrol and diesel cars by 2030[14] and the fitting of new gas-fired household boilers for heating by 2035.[15] Partially in response, there has been a Ten Point Plan, a Net Zero Strategy, and a series of updates and restatements, culminating in Powering Up Britainin March 2023.[16] Each and every major technology, existing or emerging, has its own government strategy, alongside specific targets for offshore wind, nuclear, hydrogen and CCS.[17] The Net Zero Strategy document, at over 300 pages, lists out many of these, though more are being added on a monthly basis. This has since been expanded to the 1,000 pages in Powering Up Britain.[18]
The consequence is a dense mass of overlapping aspirations, strategies and targets over more than 10,000 pages of reports, consultations and white papers. They sit on top of an already dense mass of interventions in the energy market, as documented in 2017 in the Cost of Energy Review.[19] It is now beyond any minister or civil servant to name them all, let alone understand how they interact with each other, and the resulting complexity is the prime route to enabling lobbying by vested interests, and the consequent capture of each of the technology-specific interventions. Trying to pick winners in a context of asymmetric information, rather than adopt a simpler, technology-neutral set of policies, generally raises costs.[20] The Treasury and the CCC estimates for the costs of net zero assume that all policies are efficiently implemented, an assumption for which there is no supporting evidence.
Sitting on top of all these, the government has set 2035 as the date by which the power sector should meet net zero in terms of territorial emissions.[21] This is but one part of the net zero strategy. As Prime Minister in the run-up to the 26th UN Climate Change Conference (COP26) in 2021, Boris Johnson explained this overall strategy and its 2035 target for power decarbonisation: “as we set an example to the world by showing that reaching Net Zero is entirely possible, so the likes of China and Russia are following our lead with their own net zero targets, as prices tumble and green tech becomes the global norm.”[22]
A further twist is that the Labour Party has proposed that this 2035 target should be met by 2030.[23] The government’s target has 12 years to go; Labour’s has 6 years. By any measure, 2035 is a stretching target, and 2030 requires an even greater national effort, given the planning and construction timescale for most relevant capital investment and the constraints on the necessary supply chains, most of which are overwhelmingly dependent on foreign manufacturing, now in the content of competing demands from the US and the EU. At best, Labour’s accelerated target is non-credible. At worst, it will further raise costs within supply chains, undermine the coordination of investments in networks and low-carbon generation, and reduce the credibility of all associated targets and policies.
All this investment must meet not only the existing demands for electricity, but the additional demand that comes from electrifying transport and much of heating, as well as the growing demand for electricity to power the digitalisation of the economy, data centres and broadband services.[24] Since savings must equal investment in the context of significant and structural trade deficits, domestic consumption must give way to savings for investment, or taxation must shift from consumption spending to investment, or foreigners must lend the money to the UK.
3. The other objectives of energy policy – security of supply and affordability
The 2035 target is stretching even if it is the sole objective of energy policy. But it is not. As noted in the Introduction, security of supply and affordability remain core objectives in the Net Zero Strategy, and as witnessed in the 2022/23 energy crisis, they trump net zero in the short term.[25] The latest paper, Powering Up Britain, claims that the three are mutually reinforcing; that decarbonisation improves security of supply and reduces the cost of energy. Hence, the trade-offs in the energy trilemma no longer need to be made. Even better, if renewables are the cheapest and most secure form of electricity, then there is no need for major policy interventions at all.
The origins of the 2022/23 energy crisis are multiple and developed prior to the Russian invasion of Ukraine. The causes include the growing vulnerability to volatility in gas markets as the intermittency of renewables undermined the economics of gas-fired power stations. The UK’s fast exit from coal generation (the major cause of its falling emissions), becoming the most gas-dependent electricity market in major industrial economies, compounded by the closure of much of the nuclear capacity, makes the UK especially reliant on gas-fired electricity generation.[26] At the global scale, as economies opened up again after COVID,[27] energy demand rose whilst investment in new fossil-fuel supplies during the pandemic had slowed, aided by pressure to disinvest promoted through ESG (environmental, social and corporate governance). This exposed a fossil-fuel supply constraint, increasing the market power of OPEC+ and the gas liquefied natural gas (LNG) suppliers.
With gas prices rising sharply, at the global and European levels, the Russian invasion of Ukraine in February 2022 made the crisis much worse and more immediate as Russia slowed gas pipeline supplies to the EU and Nordstream 1 and 2 pipelines were blown up.[28]
Faced with sharp rises in gas prices, peaking in August 2022 at over €300/MWh across the EU, there was a return to coal power generation, and a slackening of the pace for its phase-out, notably in Germany. In the UK, coal power plants were kept on the system. In the most challenged countries, notably in the former Soviet Union European countries, wood burning increased as people struggled to heat their houses, and peat digging for fuel in the Scottish Isles rose too. None of these energy security measures is consistent with decarbonisation.
Such crisis measures should not be surprising. The UK was particularly hard hit, as it has almost no storage[29] and its gas supplies have become almost entirely spot-based.[30] With greater dependency on gas, coupled with the intermittency of wind, the price shocks in the UK were correspondingly amongst the highest in Europe, notwithstanding the UK’s import of only around 4% of its gas from Russia.
What the energy crisis revealed was that any transition to net zero generally, and particularly for the power sector, has to match the growth of intermittent renewables and the phase-out of coal with a strategy to keep the lights on, and that gas has become central to this endeavour. The UK’s electricity supply is the most dependent on gas in Europe. There is no short-term decarbonisation without a significant contribution from gas. This problem is compounded by the impact of intermittency of wind on gas, making it intermittent too. This means that contracting by gas power stations is more complicated: it depends on when the wind blows and the sun shines too. In due course, the growth of offshore wind and solar will render nuclear intermittent too, radically changing the economics of nuclear power.
Belatedly the UK and the EU member countries are all rushing to put together security of supply policies, including long-term contracts for gas supplies from Qatar and the USA, with Germany leading. In addition, Germany rapidly (within 200 days) built a new LNG terminal, and is adding more. Italy is developing its fossil-fuel contracts with Libya. France has the luxury of around 70% of its electricity generation coming from nuclear, and hence very low relative carbon emissions, such that closing the gap in power generation to net zero in France is a much easier prospect. For the UK, with around 45% gas share of electricity generation, as well as gas as a major fuel for heating and industry, the task is much greater. The closure of all the existing nuclear power stations except Sizewell B puts its nuclear exit on a rough par with Germany’s deliberate closures.[31] Hinkley C is the only new nuclear power station under construction in the UK, which means that the nuclear share of electricity generation will decline through to at least 2035, and even further if Sizewell C and small modular reactors (SMRs) are not constructed.[32]
Security of supply is a trump objective for energy policy. Power cuts not only undermine economic activities and threaten the welfare of citizens, but they may even topple governments. Security of supply is more important now as the economy digitalises, and as broadband and communications systems depend upon a continuous electricity supply. A recent example is provided by Storm Arwen, which, in 2021, damaged the electricity distribution network, leaving some in Wales, the North of England and Scotland without broadband or telephony for up to ten days.[33] An interruption in electricity supply is now much more economically damaging. The result is that, as the security of the electricity supplies deteriorates, companies invest in their own back-up generation. It is reminiscent of the 1970s, when the threat of miners’ strikes led to widespread investment in small private generators, making up over 17% of capacity.[34]
As gas prices rose in 2022, and Russia threatened European supplies, government ministers and many lobbyists argued that getting out of gas is the best way to ensure security of supply and hence fast-track decarbonisation is the route to greater security.[35] Whilst it is true that low-carbon nuclear in France does provide security (provided the power stations are actually operational), in the UK more wind generation does not solve the intermittency problem. While new ways of handling intermittency – notably, paying people to stop using electricity at peak times[36] – have a role, there are as yet no battery technologies that can handle cold, low-wind, high-pressure cloudy weather systems in Northern Europe in winter, extending over several days. Greater interconnection between North Sea wind farms and its multiple customers, and with hydro, offers an opportunity, notably with Scandinavia. But as the drought in 2022 demonstrated, hydro is not entirely secure, as Norway reserved its hydro for its own uses. Access to interconnectors bringing back-up from Europe can help, but post-BREXIT in a crisis this may not always be forthcoming. France for example threatened to interrupt supplies to Guernsey over a fishing dispute in 2021.[37]
Security of supply has a price and an affordability dimension. In theory there is always a price at which supply equals demand. The UK discovered this in 2022. Provided the country was prepared to pay the highest global price for spot contracts for LNG, it could get ships diverted to the UK. The result partly explains why the UK has had amongst the highest prices in Europe for its gas, and the consequential clash with the other objective of energy policy on the path to net zero – affordability.
Some advocates of net zero suggest a fast-track decarbonisation path would improve affordability. It is argued that renewables are cheaper than fossil-fuel electricity generation, and hence that having more renewables equals a lower price. If this is true, then a very fast track to net zero for power would be an urgent requirement on affordability grounds, and the advance to a 2030 target would in principle be one that met both the climate and the affordability objectives, and it would all be “British” too, delivering energy independence. The UK’s energy would then be “cheap, clean and British”.[38]
It sounds too good to be true—indeed, if it were true, it is not clear that there would need to be any major government intervention. Developers of wind and solar project could offer suppliers lower prices, and suppliers could then cut customers’ bills. Renewable subsidies could be abolished for all new projects, and gas generators would go out of business.
It is notable that no renewables generators are demanding the abolition of subsidies despite claiming that the contracts-for-differences (CfDs) upon which they rely are not subsidies, which they so obviously are. On the contrary, there are demands for more subsidies to address rising costs and renewables lobbyists actively (and very successfully) campaigned against the uniform Equivalent Firm Power auctions proposed in the Cost of Energy Review.[39] What seems to be too good to be true is indeed too good. Only if the marginal cost of renewables generation, at the point of generation, is the correct measure of the cost of renewables could it possibly be true. If it is not, renewables need to recover the sunk and fixed capacity costs too. Meeting customers’ needs also requires at least two extra things to happen: there needs to be transmission and distribution networks to take low-density, geographically peripheral electricity to customers, and these customers need to have continuous supply, both of which are not paid for by renewables generators. The renewables are not firm power and the network costs are significant. Add the fixed and sunk costs, and these two dimensions to the cost comparisons, and it is clear why the renewables projects still need subsidies.
But remarkably the renewables generators claimed lower costs are not reflected in the price of most renewables to consumers. On the contrary, most renewables generators are paid the wholesale electricity price, which in the UK system is determined largely by the marginal cost of gas. As the price of gas went up, so did the revenues to the renewables generators, even though the costs of renewables (and nuclear) had not changed. Not surprisingly across Europe and in the UK there was a debate about applying windfall taxes to renewables.[40]
The right cost comparisons for renewables – gas and nuclear – are on the basis of Equivalent Firm Power, as set out in the Cost of Energy Review.[41]
There is one further twist to the affordability dimension to the net zero transition for the power sector by 2035. It is widely agreed that it will require a large step change in investment. But it is also widely assumed that this is not a cost to consumers, since it will be financed by debt.[42] On this argument, there is no connection between affordability and the costs of investment. We can have lots of investment, but that investment is not going to have any impact on our consumption and standards of living. As we shall see in section six, this is quite wrong: investment has costs in forgone consumption, and in interest, dividends and capital repayments.
The upshot of these considerations is that a tightening of the net zero target from 2035 to 2030 is likely to further raise the costs to consumers, and these in turn will be further increased by the forced switching to electric cars and to heat pumps and other non-gas-boiler heating. A faster transition will also exacerbate supply chain constraints and labour costs given the time period required to train the relevant skilled workforces.[43]
None of this suggests that the target should not be 2035 or indeed 2030, but it does raise the need to explain why costs will rise in the short run, and in a context within which achieving the UK 2030 or 2035 targets will make no noticeable difference to global climate change. Indeed, as and when the costs in the UK rise in the absence of a carbon border adjustment, this may lead to further carbon leakage, and hence further displace domestic emissions for imported emissions. To offset these effects, there may need to be further subsidies to industry and a carbon border adjustment mechanism (CBAM), raising prices to consumers.[44]
4. What would have to happen to meet the 2035 target?
What would have to happen to get from 2023 to a power system that is net zero in 2035 (or 2030)? How would the demand for energy be met with low-carbon generation, and how much offsetting would be necessary?[45]
(i) The demand side
The scale of the challenge depends on electricity demand and how much it might rise. Energy demand has always been difficult to forecast, not least because of changes in GDP and the composition of the economy. The performance of models has always been poor, and there is some evidence that it is getting worse. Indeed, the poor modelling performance was one of the criticisms that led former Chancellor of the Exchequer, Nigel Lawson, to push for the abolition of the Department of Energy in his famous 1982 speech.[46] Forecasting GDP even six months ahead has proved challenging. Further out, the forecasting becomes absurd, as witnessed in the Skidmore report with the prediction that net zero will add 2% to GDP in 2050.[47]
Forecasting energy and electricity demand is made doubly difficult when there is considerable structural change in the economy. Net zero policies are designed to accelerate some of these structural changes, and hence models today are probably not well equipped to address the demand for energy and electricity over the coming periods to 2035 and 2050. Active demand management is a major structural shift from a history of passive demand, for example. An active storage market and self-generation options add to the scale of this structural shift.
The best that can be done is to make the shaky assumption of continuation of the current economic structures, and then add in the most likely and significant changes to the demand for electricity. This baseline case can take the GDP–energy demand relationship as given, and then run forward say three scenarios for GDP through to 2035, taken from the Office for Budget Responsibility and Bank of England for what they are worth. What these will show is how sensitive under the current structure of the economy the demand for energy is to GDP economic growth.
Current demand projections reflect our decades of deindustrialisation. From 1980 onwards, the UK gradually exited steel, cement, fertilisers, petrochemicals, and aluminium production, and more generally manufacturing has been replaced with services. So great have been these changes that the 1980s are a foreign country in such exercises. The UK has also diverged from Germany and France in its share of manufacturing and energy-intensive industries.[48] It is also manufacturing virtually none of the key inputs for renewables, nuclear, electric cars and batteries, heat pumps, and is heavily input-dependent on the key minerals: cobalt, lithium, nickel and copper.
For this reason it is not surprising that GDP has become less energy-intensive since 1980. But it is also the case that there is not much more energy-intensive manufacturing to go, since there is so little left. The remnants of the steel industry, the Grangemouth petrochemical plant, the two remaining fertiliser plants, and allowing BREXIT to significantly reduce the car industry (which had recovered in the post-1990 period as an EU car manufacturing base) are amongst the last big industrial contributors to energy demand that may go overseas. Their products will be imported back into the UK but conveniently not be included in the territorial net zero target. Cheap shale oil and gas in the US, plus the added attraction of the Inflation Reduction Act of 2022 (IRA), may exacerbate the exodus.
To these conventional demands for electricity, there are several large-scale additions. Some of these are the result of extrapolating structural shifts in the economy already under way. The most important of these are data and digitalisation, and the requirements for robots, streaming services, big data and artificial intelligence (AI) for industry and other dimensions of computing. These are the fastest-growing sources of electricity demand.[49]
To these, others need to be added, including the demand for electricity for transport and for heating. The government has a target to stop the sale of petrol and diesel cars by 2030. The shift to electric cars assumes that the charging network will be developed in good time, and that the underlying electricity networks will be simultaneously invested in for this new source of demand. (We return to this in the next section.)
Lorries and tractors are less amenable to direct electrification and there are other options such as hydrogen. Tractors and agriculture may also go down the hydrogen route. However, the hydrogen has to be produced, and if it is via low-carbon electrolysis (and possibly nuclear after the 2035 target date), this will increase the demand for electricity too, not least because of their inherent inefficiency. The phase-out of new diesel engines from most lorries is targeted for 2035.
Heating is the most significant source of UK carbon emissions, and although the 2035 target is for electricity and not gas, the switch from gas heating to heat pumps and direct electricity heating will also add to demand. Given that the ban on the sale of new gas boilers has been pushed back to 2035, the initial impacts on electricity demand will probably be muted. In due course it may be huge.
Taken together, these three main sources of extra demand mean that the overall electricity demand in 2035 is likely to be higher, and perhaps significantly so. It is not hard to construct a high-GDP-growth scenario with added demand from the information technologies and a radical switch in transport.[50]
Some argue that this will be offset by a reduction in demand due to energy efficiency and the application of smart technologies to its use. There can be little doubt that the potential for greater energy efficiency is considerable,[51] and that smart meters and smart technologies are in their infancy. The move from passive to active demand is still a matter of future progress rather than a reality for the base case.
The claim that electricity demand will fall because of steep rises in energy efficiency is challenged by both theory and evidence. The theory is that a fall in the cost of energy services will lead to both a positive income and a negative substitution effect, and both of these increase demand. Increased efficiency lowers the relative price of the services energy provides, and hence increases demand. This is “Jevons law”: “It is a confusion of ideas to suppose that the economical use of fuel is equivalent to diminished consumption. The very contrary is the truth.”[52]
The theory is supported by empirical evidence: energy efficiency has been rising for at least two centuries and so has energy demand. This is reflected in household behaviour. The average winter household temperature has risen from around 13⁰C in 1970 to between 18⁰C and 21⁰C in 2022 as people prefer warmth and can now afford it (subject to short-term fluctuations, such as those witnessed in the current energy crisis).[53] The demand for energy for streaming services continues strongly upwards.[54] Energy efficiency leaves more room in household budgets to spend on energy-hungry new technologies. Energy efficiency gains tend to be irreversible, with the paradoxical impact that the upwards shift in the Jevons demand effect gets locked in too.[55]
If the aim is to make reasonably sure that the 2035 target is met then it is reasonable to assume a rise in electricity demand over the next 12 years, and to expect that energy efficiency will make little difference to energy demand.
There is one other way in which the demand for electricity could be reduced – price – provided governments do not subsidise energy and step in to offset price shocks for affordability reasons. The price and income elasticities of demand for electricity have arguably been structurally changed by the shock of the 2022/23 energy crisis (as they were, at least temporarily after the 1973 oil price shock, and then especially after the 1979 oil price shock). Scenarios through to 2035 therefore need to be adjusted for price scenarios – high, low and medium. The obvious energy trilemma applies: high prices mean less affordability.
Too often in the desire to persuade people to take the net zero route, it is assumed that fossil-fuel prices will keep going up. Not long ago these advocates were prominent in arguing that peak oil would be imminent, and that oil prices would lead the other fossil fuels, moving towards $200 a barrel. There is a paradox here too: if the 2035 path is followed, the price of the supports and subsidies may well be passed through to customers, raising the price of electricity. Making electricity more expensive helps to reduce demand and make the net zero 2035 target easier to achieve. But if the decarbonisation is globally successful, the price of oil should fall, since lower demand for oil means that production can go back down the cost curve. Saudi Arabia could produce a great deal of oil below $10 a barrel, and the costs in Russia are probably around $20 a barrel. This creates a competition to “produce the last barrels” and hence improves the relative price of fossil-fuel energy sources over renewables and nuclear.[56] For oil and gas, prices should be falling and generally less volatile – the opposite of the assumption made by ministers and opposition.
(ii) The supply side
On the supply side, given the lead times for specific investments, the options are narrowly defined. To replace the fossil fuels, with their high energy density and ease of transportation, the necessary equivalent firm power options are nuclear, wind (offshore and onshore) and solar. The contribution from derived forms of electricity to the 2035 and 2030 targets, like hydrogen via electrolysis, are likely to be small, and in any event largely from gas rather than low-carbon electricity. The timescale is just too short to make much difference in the 12 years. Added hydro, tidal barrages and tidal power more generally will have no significant additional role to play before 2035.
The contribution from nuclear is limited too. There should be the addition of Hinkley C by 2035, and probably by 2030, with some 3.2GW, but there will be the subtraction of all the rest of the nuclear fleet except Sizewell B, making a total contribution of less than 5GW by 2035 (just Sizewell B and Hinkley C).[57] Further large-scale nuclear stations, like the proposed Sizewell C, will be at best post-2035, whilst small modular reactors (SMRs) are but a concept at present and require regulatory design clearance as well as site permission and then the development.[58]
In addition to the overall reduction in the nuclear contribution, there is the question of DRAX and proposed bioenergy carbon capture use and storage (BECC) schemes. Notwithstanding the sustained lobbying, there are considerable net zero grounds for questioning whether DRAX should be generating by burning wood pellets. The carbon trail is complex, and there have been serious claims about the damage of its activities to biodiversity.[59]
As noted, DRAX’s emissions do not count towards the UK’s territorial emissions on the grounds that new trees are being grown in the US and elsewhere to offset the carbon from the burning of wood pellets in the UK.[60] They should, and the 2035 target should be revised to at least take this into account. The supply chain has several questionable dimensions from a carbon perspective. First there is the primary material: wood. DRAX claims this is primarily waste wood,[61] though the concept of “waste” from a biological and carbon perspective is highly suspect. There have been claims, which DRAX denies, that it uses primary forest trees.[62] Whatever the supply, this wood is a low-density energy source. It has to be trucked to processing sites to be turned into wood pellets. The trucks are energy-intensive, as is the pelletisation. The wood has to be dried, and then transported to ports where it is loaded onto ships and sailed to the Humber, where it is unloaded, put on a train, taken to a storage facility at DRAX power station, and cooled (to prevent spontaneous combustion, as happened at Tilbury power station). The wood pellets are then burned, emitting not just the unassigned carbon emissions in the UK, but also PM2.5 particles. The latter are so serious from a health perspective that the government is trying to limit the use of wood-burning stoves in homes. The irony is that customers are subsidising DRAX at just under £1 billion per annum, when DRAX is analogous to a giant wood-burning stove.
Going forward, DRAX proposes to grow biomass, sequestering carbon, burn it, and then put the emissions of carbon under ground via CCUS. BECC schemes are the lobbyists’ dream concept – negative emissions. BECC schemes treat as a process two quite separate bits: biomass and CCUS. Biomass has lots of question marks over it, whether from trees or from other biomass materials like energy crops. Notwithstanding the proposals of the CCC,[63] the role of BECC schemes in addressing climate change is likely to be minimal. CCUS can be applied to any source of carbon emissions, and it does not have to be in relation to biomass.
From a UK perspective and the 2035 net zero target, it would probably be better to apply CCUS technology to gas power stations. Once these considerations are taken into account, DRAX’s future might be very limited. The reason why it might nevertheless be promoted by government is political (jobs in Yorkshire), presentational (as long as DRAX’s emissions are not included in UK territorial emissions), and because it can balance the system like a gas- or coal-fired power station (notwithstanding that there are other options). A gas-fired power station with CCS might be better from a properly measured carbon contribution, and better at balancing.
Other forms of biomass have a contribution to make, including anaerobic digestion (AD) and waste-to-energy plants. However, in the former case, the growing of maize and ryegrass for AD has a lot of ancillary environmental impacts, and in the maize case there are large associated carbon losses from the soils. Overall, the contributions are likely to be small.
That leaves wind and solar. The government proposes to add 40GW of offshore wind to the system by 2035 (making with current offshore wind a total target of 50GW). This requires a very fast, planned build-out, and the associated transmission and distribution assets to take the electricity to market. As we shall see in the next section, the networks are not being developed in harmony with this overall 50GW target.
The contribution of onshore wind is likely to be important but relatively small before 2035, for the very good reason that onshore will raise lots of questions about community acceptability and how this plays out in the planning system.[64]
Solar has much to offer over the next 12 years. There are a large number of roofs for buildings and houses which together would make up a significant additional renewables capacity. Some of this can be own-generation, and some sent to the grid. Solar farms are quicker and easier to build, but they run into serious land-use questions, notably when developed on prime agricultural land. There may also be some resistance from an aesthetic perspective, complicating the planning processes. It should also be borne in mind that the solar panels are overwhelmingly made in China, energy-intensive to make, using coal-based electricity, and with Uighur labour involvement.
The total capacity to reach the 2035 target on the supply side for low-carbon generation will have to be supported when the wind does not blow and the sun does not shine, notably in winter under high-pressure weather systems, compounded by these weather systems being associated with low temperatures and with cloudy grey skies, reducing solar generation. Whereas the total derated capacity required to meet peak demand is of the order of 75GW, when intermittency is taken into account, over 100GW and rising of total generating capacity is required.[65]
Though there are smarter ways of managing this intermittency problem – including smart active demand measures and batteries – there is as yet no convincing way of achieving security of supply over longer periods in winter without gas back-up, complicated, as noted above, by it (and nuclear) also being rendered intermittent. Again, the energy trilemma trade-offs remain: decarbonisation can exacerbate security of supply considerations.
(iii) Sequestration
The emissions from electricity generation will not be zero by 2035, nor need they be for the net zero target, provided there is enough sequestration. This can be either natural sequestration or CCUS.
Natural sequestration is essential for moderating the concentration of carbon in the atmosphere. It is the other half of the climate equation. The trouble is that not only have emissions been going up, but the potential for natural sequestration has been reduced, notably by the burning of rainforests and by modern agriculture. The UK has already destroyed much of its forests, and the remaining Atlantic rainforest is under threat.[66] UK agriculture is a very significant emitter, having debased soils (which may hold perhaps four times the carbon of the atmosphere).[67]
These considerations mean that, from a 2035 net zero perspective, first the emissions from soils and peats would need to be properly added in to attain a credible baseline, and, second, the primary focus should be on limiting the emissions before added sequestration is taken into account as a carbon-emissions offset for the electricity industry. There are almost no opportunities to sequestrate more carbon from the restoration of peat bogs, and many so-called tree-based carbon offsets are less than they seem, once the baselines are properly measured and the counterfactuals are taken into account – for example, what could have happened to the land otherwise? There are also the carbon emissions associated with tree planting, the capital maintenance of the forests, and finally the end-of-life solutions (which should not be DRAX-style burning to count as an offset). From the perspective of 2035, there are few if any new natural sequestration options that can deliver in time, and in particular not trees. In the lifetime of a natural offset, a period of 12 years is too short to make much difference.
That leaves CCUS. There is considerable scope to develop CCUS, and it has the advantage over natural sequestration offsetting in that it can happen quite quickly, and hence is not exposed to the discounting that is applied to trees and other natural offsets that may take decades to materialise. CCUS is a well-understood science: the separation of carbon emissions is old science, piping it to a storage well is straightforward technically, and the wells themselves have been modelled in the process of their depletion. The wells do not have to be completely leak-proof. A few tonnes of carbon leaking out does not negate the bulk that is contained. Monitoring and securing the wells are also straightforward.[68]
The problem in developing CCUS in time for the 2035 target is rather a structural one: bringing together the existing pipes into a coherent CCS grid, establishing the operating company (for example, “British CCUS plc”) and putting in place a regulatory and funding framework. A leisurely approach to a series of pilot projects has some merits, but not if there is an urgent contribution to make to the 2035 target.[69]
(iv) Bringing the demand, supply and sequestration together to hit the 2035 target
It is of course perfectly possible to achieve the above transformation. Economies can be rapidly reconstructed in the face of war, and it is perfectly possible to construct a scenario within which the UK achieves its 2035 target or even Labour’s 2030 target.
It would, however, require an urgency that is largely absent from the current energy policies. Instead of strategies for each and every component, such a 12-year demanding target needs a plan, and the institutional structures to ensure it is delivered. Wars are not fought on the basis of separate strategies for tanks, aircraft, ammunition, manpower and so on, bottom-up.
Delivery requires a guiding mind to force through the necessary measures in the name of the greater national emergency. Though the war analogy may seem far-fetched, it is worth recalling that the Second World War involved a switch from civilian to military activities, with the same energy technologies, and in particular fossil-fuel electricity generation and the internal combustion engine. It is true that the jet engine and nuclear weapons were added. The current 12-year transition is a switch in the energy technologies.
To achieve this, there needs to be a system plan, a system regulator and a system set of auctions for the required investments. These are set out in the Cost of Energy Review.[70]The system plan needs to ensure that the security of supply is at all times met with a comfortable margin, and this means that there is sufficient excess firm power on the system, built in a timely fashion.
The Energy Security Bill[71] provides for the setting up of a Future System Operator (FSO) to be created by splitting out of the system operator from National Grid. This institution has the possibility of directing the necessary structural transformation. However, its design, in response to political and other opportunist and short-term pressures, is deeply flawed. It is to combine the system planning, architecture and auctioning of requirements, on the one hand, with the day-to-day operation of the electricity system separated from National Grid on the other.
The result is predictable: day-to-day problems and crises will most likely dominate the new organisation (analogous to the way flood defence operational activities dominate the Environment Agency). This is made worse by a second design flaw. It is to be a public corporation, not a government agency. One reason for this corporate form is that it avoids civil service pay structures, but it does have the consequence of causing the third flaw: the new body will be regulated by licence by Ofgem. This is a recipe for confusion and complexity when a more simple and direct chain of command is needed for the 12-year period. An alternative institutional structure is set out in the Cost of Energy Review.[72]
5. The centrality of the energy networks
To decarbonise power, relying on mostly intermittent wind and solar, requires a major upgrade and investment in the grid and in distribution networks. Having enough transmission and distribution in advance of the addition of multiple low-density, intermittency and geographically dispersed generation is a necessary condition for meeting the 2035 target. There needs to be an offshore grid, interconnected fully with the onshore grid, including Hinkley and Sizewell new nuclear connections, and the links to bring the intermittent nuclear generation (when the wind blows) to hydrogen plants.
So far Ofgem has been pushing hard against these requirements. It has promoted competitive bilateral links for offshore wind through its offshore transmission owners (OFTOs); it has resisted an offshore grid; and so far its five-year periodic reviews of the transmission and distribution networks have stood strongly against investment in advance of demand.[73]
The need for a major investment in the networks derives not just from the new locations of generation relative to demand, but also the much greater complexity that the new generation mix and active demand dictate. The existing grid was developed in the public sector in the late 1920s and 1930s to bring electricity from the power stations close to the coal fields in South Wales, the Midlands and the North East to the centres of demand in the major cities, and especially to the South. Power stations were located close to coal fields because of the bulky nature of coal and the costs of its transportation versus those of transmitting electricity.[74]
Though much of the infrastructure was damaged during the Second World War, the coal-based generation mix continued right through to the late 1980s and only in 1990 did it become legal to burn gas in power stations in the EU (and also the US). Up until then, gas was regarded as a premium fuel primarily for the petrochemical industries.
The national grid linked up and supplied in a vertically integrated framework to the distribution networks that had been built up by local municipalities to serve local needs from the end of the nineteenth century. Some of the early oil-filled cables, notably in London, survived to the end of the twentieth century. Generation was spatially planned alongside the grid within the Central Electricity Generating Board (CEGB). When both national and local transmission were privatised, it was regarded as a steady-state infrastructure, requiring little new investment.
Net zero changes all this. The grid now not only has to service the upstream offshore wind and solar generators, but it also has to be capable of handling the electric car-charging networks, and local distribution networks have to take decentralised generation from homes and buildings on to their systems, address heat pumps and electric heating demands, as well as cope with the local active demand management, and all with the smart meters located in supply and not (as they should be) in distribution.
When these networks were privatised, the idea was that they would now be passive, and their job was to connect up power stations wherever the developers wanted. There was no spatial planning. The regulators focussed on rolling back the monopolies, splitting out metering, introducing OFTOs, and generally trying to minimise the residual roles of the grid and the DNOs.[75]
Not surprisingly, the result has been that many of the new generation facilities are in the wrong places from a system perspective, there is no offshore network, no integration of car-charging networks with the grids and local networks, and the data in respect of the smart meters lies with suppliers. It is hard to design a system less able to manage a fast-track switch to renewables and nuclear and the 12-year timetable to 2035, let alone by 2030.
Ofgem’s recent periodic review for the distribution companies[76] illustrates much that is wrong with economic regulation, and how great the mismatch is with net zero. In the struggle to come up with a politically acceptable “no increase in bills” to present to the public, Ofgem fixed the five-year cap to 2028. It could not easily admit to the scale of the investment required and the consequent increase in bills this would have entertained, and so instead came up with a freeze on real prices, but they added in 30+ “uncertainty mechanisms”.[77] In belated recognition, the government announced in March 2023 that it is commission a review of networks, with a view to a decision in late 2023. A new plan will presumably override the Ofgem period reviews, but none of this is likely to be in time to deliver on the 2035 target.
This neatly illustrates some of the main inhibitors to achieving the 2035 target: the unwillingness to tell the public that the necessary costs will mean higher bills; that net zero is going to be costly and not the free lunch many advocates and politicians tell them; and that there needs to be a plan for 2035, not five-year regulatory periods.
6. Funding and financing net zero
To build the generation capacity and the networks, there will need to be a lot of investment. This is described in the Skidmore report as “the economic opportunity of the 21st century”.[78]
One of the convenient illusions of those advocating net zero targets is that this investment is not going to cost current consumers (and voters); on the contrary, it is argued, investment causes growth, which raises incomes, and hence the economic growth will pay out over and above the costs of investment. Voilà! All we need to do is borrow the money and the growth premium will pay it back.
Imagine if this principle were generalised. Suppose we took every project with a claimed positive net present value (NPV), and several of those that may not have a positive NPV (some of which are included in the net zero programme) and, irrespective of the aggregate investment required, did them all. HS2 supposedly passes this test;[79] so too does Crossrail 2, the upgrading of the sewers, upgrading of roads, and so on. Even defence might pass the test, given the objective of being defended. Would it matter if the total came to 10% GDP, or 20% or 100%? As long as the result is assumed to be “growth” and as long as the aggregate is NPV-positive (strictly social NPV-positive), then it would be self-financing.
On this logic it is a wonder that the world as a whole is not transforming itself to net zero at a very rapid rate from the current 80% dependency on fossil fuels, with massive investment.
There is of course an obvious flaw in this argument, of particular relevance to the UK investment required to achieve the 2035 net zero target. The flaw starts from the identity: savings equals investment. Savings is forgone consumption. Someone has to reduce consumption to increase their savings to provide the funds for investment. We could drive ourselves to the breadline to make room for investment, as the UK population did during the Second World War. We could, as then, ration food, tax at say 98%, and then use the surplus extracted from consumers to fund the war investments and even current spending. A recent study does indeed recommend rationing to achieve the net zero target.[80] For the purposes of this argument, it does not matter whether the investment is via forced savings from the taxpayers or forced savings via consumer bills.
For the period from the Second World War until the privatisations of the late 1980s and 1990s, the way much investment in electricity was funded was pay-as-you-go. Current customers paid for current investment out of their energy (and water, and telecommunications) bills. There was also an element of taxation-for-investment too. The savings rate was higher once these numbers are included. It was compulsory savings for energy investments.
Now comes the current problem. Not only has privatisation moved the funding of investment to pay-when-delivered and taxation-for-investment has largely been abandoned, but it has done so in a circumstance in which, as noted, there is very little saving at all. Indeed, from 2022 through to June 2023, all customers received subsidised energy bills.
For all the great post-Second World War global economic growth “miracles”, large-scale investment has been accompanied by large-scale domestic savings. Think Germany, Japan, South Korea and Taiwan. Investment was funded by forgone consumption, leaving aggregate demand constant, and hence without significant inflationary implications. Many of the major investments of these growth transformations had positive NPVs, even if there were many long-term infrastructure projects that would be economic only over many decades.
The net zero “economic opportunity of the twenty-first century” runs like this: it requires a big investment push, and it needs a flow of savings to fund it, with long-term returns. Where is the UK going to find the money for its great investment in net zero in electricity by 2035, and in 12 years (or 6), and again for the rest of the 27-year period to 2050?
Domestic savings are grossly inadequate. UK citizens are living beyond, not within, their means, as witnessed by the trade figures. UK industry invests little, and notably retained earnings play a very small part. Even for the water industry, its large investment programme has been funded since 1990 by borrowing such that profits equal dividends. So too for the electricity networks. The third component is savings by government (through taxation-for-investment), and these are in aggregate negative and likely to remain so for the rest of this, and probably the next decade. The government is a net “dis-saver”.
Why would foreigners lend us the sorts of sums needed to get to net zero by 2035 for the power sector? The answer is that they would expect not only to get their money back, but also to earn profits and have interest paid. Up until the recent windfall taxes, and until there is coherent and widespread market reform, it has been a pretty good bet. Australian and Canadian pension funds, sovereign wealth funds and overseas investors more generally have had a good deal.
One reason it has worked so far, and the UK has been able to sell off the family silver successfully[81] and foreign investors have underpinned not only specific offshore and onshore energy projects and bought shares and debt in the main networked utilities, is that the UK regulatory regime enshrines the principle that investors are entitled to a reasonable rate of return determined by “independent” regulatory offices. Most of these costs to consumers lay further out. To the extent that some of these costs are being paid for now, they have been in a benign context: falling fossil-fuel prices, and especially gas in the last decade, and particularly since 2014, and a falling cost of capital. There has been room in customers’ bills to pay for the various renewables, DRAX and other subsidies to these mostly foreign investors.
That is not likely to be true from now on, and especially now governments have got a taste for subsidising energy bills, and for windfall taxes and interventions to prevent companies recovering full costs, for example in the case of pre-payment meters.[82]
What will happen? There are likely to be two coincidental impacts on the cost of capital, and hence on the costs to consumers to service the investments and eventually pay them back. The first is the general macroeconomic turn towards higher nominal interest rates, and in due course as the peak of inflation subsidises higher real interest rates (or rather less-negative real interest rates). It is likely, too, that there will be a macroeconomic post-BREXIT cost of capital premium, all to be set against the enhanced investment opportunities provided by the US Inflation Reduction Act and the EU’s Green Deal Industrial Plan.[83] As has been witnessed in broader household bills, and in particular mortgages, the change in macroeconomic circumstances quickly bumps up against the ability to pay. Yet again, the energy trilemma trade-offs remain.
The second is the project costs of capital. The higher risk comes over and above the higher cost of debt (and probably equity generally) from the country risk of the UK. Instead of looking at just whether households can afford (and will vote to be forced to pay for) the specific extra costs from specific projects in the net zero investment programme, foreign investors will have to take account of the aggregate impacts of the household bills, including higher water, broadband, rail and eventually car transport costs, and higher mortgages and higher taxes. A return to country risk is already taking place, and this means that the cost of capital goes up, just as consumer (and voter) pushback is coming into play.
This explains the gap between the bold Keynesian-style macroeconomic claims and the possibility that this is a great investment opportunity, on the one hand, and the ability to credibly borrow from foreigners to pay for it, on the other. The implication is stark: if the UK wants to carry out economy-wide major upgrades to all its infrastructure generally, and complete the net zero transitions on target, domestic savings have to go up, either directly or through higher taxes that then extract money from consumers and divert it to investment.
Whether this is a politically feasible route determines whether consumers are willing to live within their net zero (and other investment) means.
7. What may actually happen and the costs and consequences of failure
Current energy policy starts with the present and is designed to inch forward in a piecemeal fashion, taking each strategy one at a time. The urgency of the net zero 2035 target requires that the starting point is 2035 (or 2030) and policy then works backwards to ensure that the energy networks and the generation projects that depend upon them are in place in good time, and allows for a phased over-achievement of the target to provide a cushion for unforeseen events. The war in Ukraine and its impact on the UK energy market is just one such event. With the timespan so close, it is best to assume that these unintended events will be negative.
It is reasonable to assume on the current path that the 2035 target will not be met and the 2030 target is simply implausible. This need not stop the 2050 legally binding target being achieved, but if and when the conventional assumption becomes that the 2035 target will not be met, then a series of decisions by companies and agencies involved starts to make that failure inevitable. If it is assumed that the target will not be met, then the development of the necessary network infrastructures becomes less urgent. If the ban on petrol and diesel car sales is assumed to slip (as it probably will), then the economics of building private car-charging networks points to delay. Why build a new wind farm if it is not going to be connected to the grid on time?
If the expectation problem is serious, then an important part of the 2035 target is the government making credible commitments to deliver its side of the investments, and a direction to Ofgem to reopen and redetermine the network price caps out to 2035 now, and with a requirement to ensure investment in advance of demand.[84] The government might similarly act in respect of the offshore CCUS pipelines and the car-charging networks. In other words, the government needs to credibly commit to the core net zero infrastructures, to the 2035 timetable, and do so very quickly.
This credible commitment may require reinforcement by financial guarantees to the private companies and the direction of subsidies to ensure investors’ returns irrespective of the customers’ ability to pay. Given the lack of private savings noted above, the government may have to use forced savings through higher taxes to switch consumption through taxation into public investment, making current customers pay for current investment, as in the days of the CEGB, howbeit through taxation-for-investment rather than pay-as-you-go.
Net zero needs a coherent infrastructure strategy, a policy framework to deliver in, and financial guarantees and public money. The very real problem is that the voters do not want to pay. They have been sold the promise that it is not going to cost them much, if anything, and when they find out the reality, the above approach may become politically infeasible. Add to this the wider global failures on climate change, made so painfully public at COP27, and witnessed in the rising of global demands for fossil fuels and the increase in the parts per million of carbon in the atmosphere (with oil now in excess of 100mbd, and the carbon concentration in the atmosphere over 420 parts per million), and add to that the fact that the UK’s unilateral commitment to territorial net zero will neither stop it causing further climate change, nor make any discernible difference to climate change, and it is not hard to see the risk that the public loses enthusiasm. Whilst opinion polls show great public support for climate change policies when they are told it will not cost them, they may take a different view as voters have to start living within the new and more expensive means, and notably start forced savings for investment. The investors in turn might start to be more wary of lending to this UK, for fear that they may not get their money back.[85]
8. Conclusions
On present policies there is little prospect that the 2035 target will be met (and almost none that the 2030 Labour Party commitment will). It could be, but not on the current path and not without quite a lot of consumer and taxpayer pain. It will take much more intervention by government to turn this around.
This begs the question of whether it matters, whether meeting the 2035 target makes much difference. From a unilateral UK perspective, there are two implications. First, that in trying to achieve both the 2035 and 2050 targets, the UK should focus on the dimensions of the required investments that are no regrets, and, better still, help simultaneously to achieve the security of supply and affordability objectives. These include most notably investment in the energy networks.
The second is that the UK should concentrate on those investments that best help address global climate change mitigation. The two most obvious examples are CCUS and offshore wind. In both cases the UK has some of the best locations to develop these technologies in the world – the shallow North Sea and its depleted oil and gas wells, and the associated pipelines.
If by 2035 major grid and distribution network enhancements have been achieved, if there is an integrated and universal car-charging network, and if there is an integrated offshore pipeline system for CCUS, the UK will be somewhat better off in security terms, and it will have in place infrastructures that will in any event be needed. However, bills will have gone up, and savings will have risen too. These steps make sense from a unilateral perspective irrespective of their impacts on climate change.
[1] See https://www.statista.com/statistics/418202/fossil-fuel-dependence-united-kingdom/. See also Office for National Statistics (2016).
[2] HM Government (2021c), p. 78.
[3] HM Government (2021c).
[4] Labour Party (2023). See also https://labour.org.uk/stronger-together/britain-2030/green-and-digital-future/.
[5] Grant Shapps, Secretary of State for Energy Security and Net Zero, has set the target of having the lowest marginal costs in Europe. See Shapps (2022). See also HM Government (2023b), p. 3. In subsequent speeches, Grant Shapps has a habit of dropping the “wholesale” bit, but instead referring to the lowest electricity prices in Europe, as for example at the Spectator Energy Summit, 26 April 2023.
[6] Climate Change Act 2008.
[7] Climate Change Act 2008 (2050 Target Amendment) Order 2019.
[8] See The James Hutton Institute (undated); Defra (2021); and Tiemeyer et al. (2020).
[9] See https://www.gov.uk/government/statistics/uks-carbon-footprint/carbon-footprint-for-the-uk-and-england-to-2019, updated in 2022. The government figures exclude aviation and shipping. Once added back the carbon consumption figures show little progress. See https://www.carbonindependent.org/23.html#:~:text=The%20UK%20average%20carbon%20footprint,%2Fexports%2C%20aviation%20and%20shipping.
[10] Contrary to the claim by the UK Committee on Climate Change (that “by reducing emissions produced in the UK to zero, we also end our contribution to rising global temperatures”), the current UK net zero target will not result in the UK no longer causing climate change. See Climate Change Committee (2019), Foreword.
[11] Climate Change Committee (2020a).
[12] In 2014, the Conservative Chancellor, George Osborne was minded to reject the fourth carbon budget, but in the end submitted the CCC’s version to Parliament.
[13] For example, the letter on North Sea licences in 2022: Climate Change Committee (2022).
[14] Department for Transport, Office for Low Emission Vehicles, Department for Business, Energy & Industrial Strategy, The Rt Hon Sir Alok Sharma KCMG MP, and The Rt Hon Grant Shapps MP (2020).
[15] HM Government (2021b).
[16] HM Government (2021c); (2020), (2023), “Powering Up Britain”, March, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1147340/powering-up-britain-joint-overview.pdf.
[17] On wind, see HM Government (2022), “British Energy Security Strategy”, https://www.gov.uk/government/publications/british-energy-security-strategy/british-energy-security-strategy; on nuclear, see HM Government (2018), “Industrial strategy: Nuclear sector deal”, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/720405/Final_Version_BEIS_Nuclear_SD.PDF, 27 June; on hydrogen, see HM Government (2021a), “UK Hydrogen Strategy”, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1011283/UK-Hydrogen-Strategy_web.pdf, August, CP475; and on CCS, see HM Government (2017), “The Clean Growth Strategy Leading the way to a low carbon future”, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/700496/clean-growth-strategy-correction-april-2018.pdf, October.
[18] HM Government (2023), “Powering Up Britain”, March, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1147340/powering-up-britain-joint-overview.pdf.
[19] Helm, D. (2017), “Cost of Energy Review”, Independent Review for the Department of Business, Energy and Industrial Strategy, October.
[20] See Helm, D. (2006), “Regulatory Reform, Capture, and the Regulatory Burden”, Oxford Review of Economic Policy, 22(2), pp. 169–185.
[21] HM Government (2021c), “Net Zero Strategy: Build Back Greener”, October, https://www.gov.uk/government/publications/net-zero-strategy, p. 78.
[22] Department of Business, Energy and Industrial Strategy (2021), op. cit., p. 9.
[23] Labour Party (2019), “Labour conference commits party to 2030 net zero carbon target”, press release, https://labourlist.org/2019/09/labour-conference-commits-party-to-2030-net-zero-carbon-target/. Labour Party (2023), “5 Missions for a Better Britain: A ‘Mission-Driven’ Government to End ‘Sticking Plaster’ Politics”, https://labour.org.uk/wp-content/uploads/2023/02/5-Missions-for-a-Better-Britain.pdf.
[24] See Helm, D. (2017b), Burn Out: The Endgame for Fossil Fuels, Yale University Press, chapter 11.
[25] This trilemma – energy security, affordability and sustainability – has been an enduring policy context. Tony Blair wrote back in 2003 that his policy was “heal energy, which is also secure and sustainable”. Department of Trade (2003), “Our Energy Future – Creating a Low Carbon Economy”, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/272061/5761.pdf, CM 5761, February.
[26] See Helm, D. (2022), “The first net zero energy crisis”, http://www.dhelm.co.uk/energy/energy/the-first-net-zero-energy-crisis-someone-has-to-pay-2/, January.
[27] See Helm, D. (2020), “The Environmental Impacts of the Coronavirus”, Environmental and Resource Economics, https://doi.org/10.1007/s10640-020-00426-z.
[28] The EU has not banned Russian gas supplies: it is Russia that squeezed pipeline gas supplies. Russian LNG supplies remain robust and explain part of the rapid filling of storage in 2023.
[29] The Rough storage facility was closed in 2017, leaving gas storage at less than 4% of peak demand.
[30] The long-term gas contracts, developed by British Gas in the process of bringing on North Sea gas in the 1980s, were abrogated in the late 1990s as the market price fell back. See Helm, D. (2003), Energy, the State and the Market: British Energy Policy since 1979, Oxford University Press.
[31] Germany closed its last three nuclear reactors in April 2023, thereby completing the removal of significant low-carbon electricity generation from its system. Its trilemma has become a quadrilemma: affordability versus security of supply versus decarbonisation versus ideological opposition to nuclear.
[32] Labour’s 2030 target depends critically on Hinkley C being fully up and running by 2030.
[33] See Ofgem (2022), “Storm Arwen Report”, 9 June, https://www.ofgem.gov.uk/publications/storm-arwen-report.
[34] Helm, D. (2003), Energy, the State and the Market: British Energy Policy since 1979, Oxford University Press, chapters 2 and 3.
[35] See, for example, Kwasi Kwarteng (2002), “Business, Energy and Industrial Strategy Committee – Oral evidence: The work of the BEIS Department”, HC 529, 28 June, https://committees.parliament.uk/oralevidence/10507/html/, Q91 “very high gas prices”.
[36] National Grid ESO, “The ESO’s demand flexibility services”, https://www.nationalgrideso.com/electricity-explained/electricity-and-me/esos-demand-flexibility-service, accessed April 2023.
[37] See Guernsey News (2021), France threatens to pull the plug on Channel Island power cable, https://gsy.bailiwickexpress.com/gsy/news/france-threatens-pull-plug/#.ZEAuBnbML7w, 5 May.
[38] HM Government (2023), “Powering up Britain: Energy Security Plan”, p. 2.
[39] Recently Alistair Phillips-Davies, Chief Executive Officer of SSE plc, publicly called for the ceiling price on offshore wind CfDs to be raised. The Times (2023), “Price support ‘looks too low’ for any new wind farms to get built”, 12 April. https://www.thetimes.co.uk/article/price-support-looks-too-low-for-any-new-wind-farms-to-get-built-l0qmlncqw. In addition, Ørsted requested extra subsidy for Hornsea – see Financial Times (2023a).
[40] See HM Treasury (2022).
[41] Helm, D. (2017), section 7.
[42] HM Treasury (2021). The Labour Party’s commitment to its 2030 target makes no reference to the costs of the necessary investments. I
[43] Flyvbjerg, B. and Gardner, D. (2023), How Big Things Get Done: The Surprising Factors That Determine the Fate of Every Project, from Home Renovations to Space Exploration and Everything In Between,Macmillan.
[44] A carbon border adjustment is being introduced by the EU, and a consultation on possible CBAMs has been published in the UK. Department for Energy Security and Net Zero and HM Treasury (2023).
[45] These are questions the CCC has also opined on (and many others, notably lobby groups). See Committee on Climate Change (2023).
[46] Lawson (1982).
[47] Skidmore also suggests that GDP growth may be 2% higher in 2050. Skidmore (2023).
[48] See Hardt et al. (2018).
[49] See Helm, D. (2018).
[50] Labour, for example, aims to have the highest GDP growth in the G7 by 2030 and for the UK power sector to be net zero by 2030.
[51] See, for example, Fetzer, Gazze and Bishop (2022).
[52] Jevons (1866), chapter 7, p. 103.
[53] See Kuijer and Watson (2017); and Cambridgeshire Insight (2020).
[54] UK Parliament (2022).
[55] See also Allcott and Greenstone (2012); and UK Energy Research Centre (2007).
[56] See Helm (2011); and Helm, D. (2018) chapter 9.
[57] See Nuclear capacity in the UK, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/604271/Nuclear_Capacity_in_the_UK.pdf.
[58] A competition for SMRs has been announced. See Financial Times (2023b).
[59] Ofgem is currently investigating DRAX’s compliance with its licensing requirements.
[60] For UK measurements, see Office for National Statistics “Net zero and the different official measures of the UK’s greenhouse gas emissions”, https://www.ons.gov.uk/economy/environmentalaccounts/articles/netzeroandthedifferentofficialmeasuresoftheuksgreenhousegasemissions/2019-07-24.
[61] “[…] waste wood comprises around 20% of our feedstock. The remaining 80% comes from sawmill residues like sawdust, chips and shavings”. Drax (2022).
[62] See BBC (2022).
[63] Committee on Climate Change (2020b).
[64] The National Infrastructure Commission has proposed bypassing local planning—see National Infrastructure Commission (2023).
[65] 100GW of firm and intermittent capacity is equated to around 75GW of derated capacity. See GlobalData, “United Kingdom Power Market Size and Trends by Installed Capacity, Generation, Transmission, Distribution, and Technology, Regulations, Key Players and Forecast, 2022-2035”, https://www.globaldata.com/store/report/uk-power-market-analysis/
[66] Cumming (2022).
[67] See Defra (2022).
[68] See International Energy Agency “Carbon capture, utilisation and storage”, https://www.iea.org/fuels-and-technologies/carbon-capture-utilisation-and-storage.
[69] See HM Government (2023a).
[70] See, also, Helm (2019).
[71] At the time of writing, the Bill had not yet received Royal Assent.
[72] See again Helm (2019).
[73] See Ofgem periodic reviews (https://www.ofgem.gov.uk/energy-policy-and-regulation/policy-and-regulatory-programmes/network-price-controls-2013-2023-riio-1). See also Helm (2023).
[74] See Hannah (1979); and Helm (2003), chapter 2.
[75] In 1982 Michael Beesley and Stephen Littlechild argued that the grid should stay in the public domain and probably be reintegrated into the Department of Energy. See Beesley and Littlechild (1982).
[76] Ofgem, “RIIO-2 ED2 Final Determinations”, https://www.ofgem.gov.uk/energy-policy-and-regulation/policy-and-regulatory-programmes/network-price-controls-2021-2028-riio-2/network-price-controls-2021-2028-riio-2-electricity-distribution-price-control-2023-2028-riio-ed2?keyword=RIIO-2%20ED2%20Final%20Determinations&sort=publication_date.
[77] The grid is covered by a separate price cap, 2021–26, called “RIIO-T2”.
[78] HM Treasury (2023).
[79] See Glaister (2023).
[80] Priestley International Centre for Climate (2023).
[81] The “family silver” issue was famously raised by Harold Macmillan in respect of the privatisation of the utilities. “The sale of assets is common with individuals and states when they run into financial difficulties. First, all the Georgian silver goes, and then all that nice furniture that used to be in the saloon. Then the Canalettos go.” Macmillan (1985).
[82] See Ofgem statement on pre-payment meters. Ofgem (2023).
[83] European Commission (2023).
[84] Ofgem does not have a duty to meet the net zero target.
[85] The resistance by green parties in the European Parliament to rising EU ETS costs in April 2023 is an example of how far these concerns have reached, as in the successes of the farmers political party (the BoerBurgerBeweging) in the March 2023 elections in the Netherlands.
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