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Decarbonising the Grid:
The balance between ambitious targets and realistic pathways
Sam Hollister
Head of Energy Economics and Policy, LCP Delta
Fast forward five years, and it’s not hard to imagine the scene as British Prime Minister Keir Starmer opens another offshore wind farm in British waters, effectively bringing the claim of one of his predecessors, Boris Johnson, that the UK would become the “Saudi Arabia of wind power” into effect.
Since taking office on 4 July, the new UK government have announced a raft of policy measures to decarbonise Britain and invest in a clean power system.
“Clean power by 2030”
An unrealistic target or an ambitious goal?
A pillar of the new energy plan is to decarbonise electricity generation by 2030. For those in the energy sector, and for many outside, this looks incredibly ambitious - verging on impossible - given the time it takes to build infrastructure at this scale. Why then have the government made such a public commitment? Labour will be hoping that this “moonshot” focuses the government and industry on transforming the power sector and crowds in private sector investment into the UK.
The scale of meeting this challenge is immense - so the Government will be looking to leverage the UK’s shallow waters and high winds and bet big on offshore wind to do most of the heavy lifting in a clean power sector.
Readers will likely be aware of the significant volume of offshore wind power currently in Britain with 15GW of installed capacity - enough to power 12 million homes. However, by 2030, the Government hopes that number reaches 55GW. It will likely do so by continuing to provide “Contracts for Difference”, a support scheme that provides developers with fixed price long term contracts for low carbon power. This mechanism has been incredibly attractive to investors, who are able to guarantee revenues and minimise risks, but with construction times of up to four years to build, there is not much time if the Government is to meet its ambitions to nearly quadruple the current installed base and meet 55GW targets.
And what about when it isn’t windy?
Whilst wind power is relatively cheap to build, economically attractive, and low carbon, its critics point to the fact it doesn’t generate all the time. Recent LCP analysis carried out for the Royal Academy of Engineering, modelled that even if the Government meets its renewable targets by 2030, gas fired power stations “may be called upon in at least 25% of hours across the year in 2030” to ensure the lights stay on. Even if this only amounted to a small proportion of total electricity generation, it shows the importance of building other solutions to complement wind power that are low carbon. The Government will be looking at technologies such as hydrogen fuelled power stations and carbon capture plants (where CO2 is captured and stored), alongside new nuclear power stations, and long duration storage technologies where wind power can be converted and stored for later use to replace gas and ensure security of supply. However, to deliver by 2030 will be incredibly challenging as these technologies are either untested and unproven at scale, or, have long construction lead times that puts delivery by 2030 in doubt.
The 2030 clean power date is somewhat arbitrary and a political construction, what isn’t though, is the UK’s internationally committed target to meet net zero across the economy by 2050, and this includes power generation. To meet that, the UK will need all the solutions discussed above, and a much larger power system as greater electrification is the route for wider decarbonisation across the economy such as for heating and transportation.
The total capital investment (excluding financing costs) required for the construction of new power sector generation is significant, with an estimated £430bn of investment required between 2023 to 2050.
GB Power Generation from 2010 to 2050
Source: LCP Delta
Investing in clean power
The total capital investment (excluding financing costs) required for the construction of new power sector generation is significant, with an estimated £430bn of investment required between 2023 to 2050 in Great Britain.
In previous years, the UK and Europe have led the way (outside of China) in attracting investment in clean energy technologies. However, the introduction of the Inflation Reduction Act in the US saw things starting to change. Since its introduction in August 2022, investments in US domestic clean energy assets totalled $394bn, surpassing the total investment between 2015-22. However, with the election of President Trump, things may change again as he has made clear his intention to roll back the Act. This could create unique conditions for the UK and Europe to solidify their standing in the global clean energy market. With the steady pace of renewable investment in Europe and supportive national policies, the UK and EU are becoming increasingly attractive options for clean energy capital, talent, and resources.
The UK is hoping that GB Energy, a publicly-owned energy company designed to drive clean energy deployment, acts as a major catalyst. Backed by a capitalisation of £8.3billion over the next five years, GB Energy will hope to leverage private sector investment and support the energy transition. The Government is yet to deliver firm plans on how the newly formed institution will operate or its investment strategy, but it hopes that this new institution will reduce financing costs and drive the ambition for a clean power system.
Capex investment (2023-2050), excluding financing costs, LCP Delta
Source: LCP Delta
Conclusion
Clean power by 2030 sets an ambitious goal and signals the UK’s commitment to low carbon power. Meeting the 2030 Clean Power target will take an almighty effort from the Government, developers, and the investment community and, whilst we may ultimately fall short, setting such an ambitious target should provide assurances to the sector to continue to invest.
But what actually is clean power? That is slightly trickier to pinpoint, as even if Keir Starmer has his photo opportunity in 2030 alongside the 55th GW of offshore wind, the country will still be reliant on gas generation at various times or risk the lights going out according to LCP analysis. This should give investors the confidence to look at all options for low carbon power in the future, as it is likely that Britain will need to continue to invest to turn ambitions into reality.
This article is drawn from analysis within LCP Delta’s Power Insight service, a new subscription service providing clients with expert insights into key news and events in the power and gas markets; covering policy, industry, investment, markets, and regulation in Great Britain and Europe. To find out more, please get in touch.
