The government’s plan to decarbonise the UK’s electricity system by 2030 is a vast undertaking. Energy companies will throw £40bn-plus annually at the effort, backed by financing that ultimately affects consumers’ bills. So it is extraordinary that no official body seems able to answer this question: will it cost more to complete the job by 2030 rather than by the old 2035 timetable? Is it more expensive to go faster?
That is not to dispute the necessity of generating electricity from clean domestic sources, an ambition shared widely across the political spectrum for reasons of security of supply and climate emergency. But the pace of decarbonisation can clearly also affect the cost for consumers, a point Ed Miliband, the energy secretary, tends to skip over too breezily when he argues that security, sustainability and affordability are now perfectly aligned.
The report by the state-owned National Energy System Operator (Neso) earlier this month supported Miliband’s argument that clean power by 2030 is “achievable”, albeit with the heavy qualification that the task is “immensely challenging”. But Neso’s analysis did not compare the costs of 2030 against a 2035 timetable. Instead, it assessed 2030 against a “counterfactual” that imagined no meaningful acceleration.
On that basis, it concluded that a renewables- and nuclear-heavy system can be delivered by 2030 “without increasing costs for consumers” (a verdict hotly disputed by some because of its assumptions for gas and carbon prices) but it doesn’t tell us whether 2035, or any date in between, would be better value. Ofgem, the independent energy regulator with a duty to protect consumers, is the obvious body to give an opinion. But it hasn’t yet.
Talk to people who will build the new infrastructure, however, and they say the answer is blindingly obvious. “The 2030 target is going to make it more expensive than it would have been to go to 2035 because you are working at breakneck speed,” says one leading figure in the energy industry. “If you are going to put more risk into the system, it goes on to the price.”
It is easy to think of specific risks. The next auctions for offshore windfarm licences must look lovely from the point of view of bidders. To hit its 2030 targets, the government probably needs to order 10GW of capacity this year and next. To put that in context, total installed capacity in 2023 was only 15GW. To attract enough bids, the government may have to pay over the odds, which may be what Neso meant when it referred to “risks that the accelerated pace reduces competitive pressure”.
Or look at the expansion of the UK’s high-voltage transmission network. This is a £60bn programme and, in the case of FTSE 100 firm SSE, its share may be £25bn, or more than its stock market capitalisation. Fresh capital will be needed for a five-year sprint. To make it happen, Ofgem may find itself erring on the side of generosity when setting SSE’s returns of capital, financial penalties and incentives and so on.
Or consider Hinkley Point C, the Somerset nuclear plant that will eventually provide 7% of the UK’s electricity. If it’s not ready by its currently estimated delivery date of 2029-31 – and Hinkley has missed every deadline so far – the life of other nuclear plants may have to be extended, probably expensively. By contrast, a more relaxed 2035 deadline would allow gas-powered stations to fill any generation gap. That would not be good for emissions, but would probably be cheaper.
None of which is to deny that speeding up will also have benefits, cost-wise. Faster delivery of transmission hook-ups could lower “constraint cost”, the infuriating payments to offshore wind operators when they can produce more power than the system can handle on stormy days. There may also be fewer days the price of gas sets the market price, which is one of the main benefits Neso sees versus its “counterfactual”. There should be wider economic wins: faster demand for high-voltage cables could mean more investment in UK factories; if the grid capacity is in place, more power-hungry datacentres may get built sooner.
The point is that nobody has attempted to model these trade-offs in a clear way. Neso’s report argued that “pace must be the primary goal” but then said in the next sentence that “this cannot come at the expense of public consent or excessive cost as that would mean the clean power objective would be self-defeating”. That analysis is no use at all in judging the optimum pace – extremely rapid, or just rapid.
The government is due to respond to the Neso report in the next couple of months, and Ofgem will have its say. One or the other needs to address the tradeoffs around pace. This is a £200bn-plus programme – the detailed analysis matters.
