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House of Commons

Business, Energy and Industrial

Strategy Committee

Decarbonisation of the

power sector

Eleventh Report of Session 2022–23

Report, together with formal minutes relating

to the report

Ordered by the House of Commons

to be printed 25 April 2023

HC 283

Published on 28 April 2023

by authority of the House of Commons

Business, Energy and Industrial Strategy Committee

The Business, Energy and Industrial Strategy Committee is appointed by the

House of Commons to examine the expenditure, administration and policy of the

Department for Business, Energy and Industrial Strategy.

Current membership

Darren Jones MP (Labour, Bristol North West) (Chair)

Bim Afolami MP (Conservative, Hitchin and Harpenden)

Alan Brown MP (Scottish National Party, Kilmarnock and Loudoun)

Ruth Edwards MP (Conservative, Rushcliffe)

Jane Hunt MP (Conservative, Loughborough)

Mark Jenkinson MP (Conservative, Workington)

Ian Lavery MP (Labour, Wansbeck)

Andy McDonald MP (Labour, Middlesbrough)

Charlotte Nichols MP (Labour, Warrington North)

Mark Pawsey MP (Conservative, Rugby)

Alexander Stafford MP (Conservative, Rother Valley)

Powers

The Committee is one of the departmental select committees, the powers of which

are set out in House of Commons Standing Orders, principally in SO No 152. These

are available on the internet via www.parliament.uk.

Publication

reproduced under the terms of the Open Parliament Licence, which is published at

www.parliament.uk/site-information/copyright-parliament/.

Committee reports are published on the Committee’s website at

www.parliament.uk/beis and in print by Order of the House.

Committee staff

The current staff of the Committee are Matthew Chappell (Committee Operations

Manager), Kenneth Fox (Clerk), Catherine Kisanji (Committee Specialist), Catherine

Meredith (Second Clerk), Jacob Moreton (Media Ofﬁcer), Ashleigh Morris

(Senior Committee Specialist), Lewis Pickett (Committee specialist), Delﬁna Raka

(Committee Support Apprentice), Tim West (Senior Media Ofﬁcer), Louise Whitley

(Senior Committee Specialist) and Sue Wrightman (Committee Operations Ofﬁcer).

Contacts

All correspondence should be addressed to the Clerk of the Business, Energy

and Industrial Strategy Committee, House of Commons, London SW1A 0AA. The

telephone number for general enquiries is 020 7219 8586; the Committee’s email

address is beiscom@parliament.uk.

You can follow the Committee on Twitter using @CommonsBEIS

1 Decarbonisation of the power sector

Contents

Summary 5

Chapter 1: Introduction 7

Decarbonising the power system by 2035 7

Our inquiry 7

Chapter 2: Background 10

The UK’s power supply 10

The future electricity mix 12

Challenges of operating a decarbonised power system 14

Costs of a decarbonised power supply 15

Chapter 3: Progress to decarbonise power 16

The British Energy Security Strategy 16

Delivering the remaining emissions reductions 17

Powering Up Britain 18

A delivery plan for the power sector 19

2035 target – security of supply 20

Transitioning away from oil and gas 21

Transparency of oil and gas companies 22

Energy Proﬁts Levy 23

Chapter 4: Retaining investment in low-carbon energy 24

A global race for capital 24

Rising costs and Contracts for Difference 25

Electricity Generators Levy and capital allowances 26

Policy stability 27

Chapter 5: Routes to managing electricity supply and demand 28

Offshore wind 28

Floating offshore wind 31

Onshore wind 33

Repowering onshore wind 35

Solar 37

Tidal 39

Nuclear 40

Nuclear capacity in the UK 40

The role of nuclear in the future energy mix 41

/121

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HouseofCommonsBusiness,EnergyandIndustrialStrategyCommitteeDecarbonisationofthepowersectorEleventhReportofSession2022–23Report,togetherwithformalminutesrelatingtothereportOrderedbytheHouseofCommonstobeprinted25April2023HC283Publishedon28April2023byauthorityoftheHouseofCommonsBusiness,EnergyandIndustrialStrategyCommitteeTheBusiness,EnergyandIndustrialStrategyCommitteeisappointedbytheHouseofCommonstoexaminetheexpenditure,administrationandpolicyoftheDepartmentforBusiness,EnergyandIndustrialStrategy.CurrentmembershipDarrenJonesMP(Labour,BristolNorthWest)(Chair)BimAfolamiMP(Conservative,HitchinandHarpenden)AlanBrownMP(ScottishNationalParty,KilmarnockandLoudoun)RuthEdwardsMP(Conservative,Rushcliffe)JaneHuntMP(Conservative,Loughborough)MarkJenkinsonMP(Conservative,Workington)IanLaveryMP(Labour,Wansbeck)AndyMcDonaldMP(Labour,Middlesbrough)CharlotteNicholsMP(Labour,WarringtonNorth)MarkPawseyMP(Conservative,Rugby)AlexanderStaffordMP(Conservative,RotherValley)PowersTheCommitteeisoneofthedepartmentalselectcommittees,thepowersofwhicharesetoutinHouseofCommonsStandingOrders,principallyinSONo152.Theseareavailableontheinternetviawww.parliament.uk.Publication©ParliamentaryCopyrightHouseofCommons2023.ThispublicationmaybereproducedunderthetermsoftheOpenParliamentLicence,whichispublishedatwww.parliament.uk/site-information/copyright-parliament/.CommitteereportsarepublishedontheCommittee’swebsiteatwww.parliament.uk/beisandinprintbyOrderoftheHouse.CommitteestaffThecurrentstaffoftheCommitteeareMatthewChappell(CommitteeOperationsManager),KennethFox(Clerk),CatherineKisanji(CommitteeSpecialist),CatherineMeredith(SecondClerk),JacobMoreton(MediaOfficer),AshleighMorris(SeniorCommitteeSpecialist),LewisPickett(Committeespecialist),DelfinaRaka(CommitteeSupportApprentice),TimWest(SeniorMediaOfficer),LouiseWhitley(SeniorCommitteeSpecialist)andSueWrightman(CommitteeOperationsOfficer).ContactsAllcorrespondenceshouldbeaddressedtotheClerkoftheBusiness,EnergyandIndustrialStrategyCommittee,HouseofCommons,LondonSW1A0AA.Thetelephonenumberforgeneralenquiriesis02072198586;theCommittee’semailaddressisbeiscom@parliament.uk.YoucanfollowtheCommitteeonTwitterusing@CommonsBEIS1DecarbonisationofthepowersectorContentsSummary5Chapter1:Introduction7Decarbonisingthepowersystemby20357Ourinquiry7Chapter2:Background10TheUK’spowersupply10Thefutureelectricitymix12Challengesofoperatingadecarbonisedpowersystem14Costsofadecarbonisedpowersupply15Chapter3:Progresstodecarbonisepower16TheBritishEnergySecurityStrategy16Deliveringtheremainingemissionsreductions17PoweringUpBritain18Adeliveryplanforthepowersector192035target–securityofsupply20Transitioningawayfromoilandgas21Transparencyofoilandgascompanies22EnergyProfitsLevy23Chapter4:Retaininginvestmentinlow-carbonenergy24Aglobalraceforcapital24RisingcostsandContractsforDifference25ElectricityGeneratorsLevyandcapitalallowances26Policystability27Chapter5:Routestomanagingelectricitysupplyanddemand28Offshorewind28Floatingoffshorewind31Onshorewind33Repoweringonshorewind35Solar37Tidal39Nuclear40NuclearcapacityintheUK40Theroleofnuclearinthefutureenergymix41DeliveringontheGovernment’sambitions43Costsanddelays43Supplyofnuclearfuel46CarbonCaptureandStorage48PolicyrequirementsforCCS51GovernmentactiontosupportCCS51Bioenergy53UnabatedbioenergyintheUKpowersector53Bioenergywithcarboncaptureandstorage(BECCS)56Hydrogen60Hydrogenproduction60Demandforhydrogen61Hydrogeninthepowersector62Infrastructuretostoreandtransporthydrogen63TheUK’spositionasagloballeader64Energystorage65Demandreduction68Chapter6:DeliveryriskstotheGovernment’s2035target71Planningandconsent71NationalPolicyStatementsforEnergy72Communitybenefits73Upgradingtheelectricitynetworkinfrastructure74Actiontodeliveramorestrategicapproach76Securingagridconnection78Investmentinthedistributionnetworksandtheperformanceofnetworkoperators80Managingthenetworkmoreefficiently84Flexibilitymarkets85Improvingthecontrolroom88Minimumvisibilitystandardsand‘FlexibilityFirst’88Retailmarketreform89ReviewofElectricityMarketarrangements91ResponsetotheGovernment’sproposals92Chapter7:Theroleofinstitutions96Ofgem’sremit96FutureSystemOperator96Chapter8:Conclusion98Conclusionsandrecommendations99Formalminutes112Witnesses113Publishedwrittenevidence114ListofReportsfromtheCommitteeduringthecurrentParliament1175DecarbonisationofthepowersectorSummaryTheUKmustrapidlyincreasethegenerationoffossilfuel-freeelectricity.Ifwefail,therewillbeaphysicallimittothevolumeofelectricvehicles,electricheatpumpsandothernewlyelectrifiedprocessesthatcanbepoweredthroughlow-carbonelectricity.Atthecurrentpaceofchange,theUKissettofailtohititstargetofdecarbonisingthepowersectorby2035.Thisinturnwillfundamentallyundermineourabilitytohitnetzeroby2050,reduceourdependenceonimportedfossilfuelsandharnessthecheapestformofelectricitygeneration—renewables.Tobeclear,asecure,decarbonisedandcost-effectiveelectricitysystemcanbedeliveredby2035,withthepoliticalwilltodoit.Fortoolong,policiesforthepowersectorhavebeendesignedinsilos,withoutadequateconsiderationofhowtheyallinterrelateandfittogether.Oneconsequenceofthisisthatlow-carbonprojectsarenowfacingdelaysofuptofifteenyearstoconnecttotheelectricitynetwork.ThecreationofanewDepartmentforEnergySecurityandNetZero,whichwesupport,mustprovidetheimpetusforturningthisaround.TheGovernmentmustbecomemoreinvolvedinco-ordinatingdelivery,includingtheprovisionofanoverarchingdeliveryplan,reportingonnationalprogress,andunlockingproblemsmorequickly.Alongsidethisneedforenhancedpoliticalleadership,werecommendthattheenergyregulatorOfgembegivenanetzeromandate.Theextensivenatureofthisreportillustratestheamountofworkthathastobedoneandthesignificantamountofinvestmentthatisrequired.WhiletheUKisaheadofmostofthewesternworldwhenitcomestodecarbonisationofpowerandhasareputationfordesigningworld-leadinglow-carbonsystems,theUKinvestmentpropositionfortheelectricitysectorhasdeterioratedsincethelaunchofourinquiry.Theglobalraceforcapitalinlow-carbonprojectshasintensified,andlargesubsidieshaveincreasedtheattractivenessoftheUK’scompetitors.TheUSInflationReductionActandinternationalresponsestoitareleadingtoasignificantmarketshift.MeanwhiledevelopersofrenewableenergyprojectsintheUKarefacingsubstantialcostinflationandwindfalltaxexemptionslessgenerousthanthosegiventotheoilandgassector.Thesefactorsriskputtingtheviabilityofmanyrenewableprojectsindanger.ThekeytestfortheGovernmentwillbehowitcreatesaninvestmentofferthatdramaticallyincreasesandspeedsupthedeliveryoffinanceableprojectsacrossthecountry.Tounlockthisinvestment,notonlywilltheGovernmentneedtoprovidearesponsetocompetitionfromoverseasforinvestmentinlow-carbonenergy,butalsoplayamoreactiveroleinco-ordinatingandpushingthroughtherequiredupgradestotransmissionanddistributionnetworksandspeedinguptheprocessforplanningconsentsandgridconnections.Therewillneedtobeimprovedoversightofnetworkownerstoensuretheydeliverontheirbusinessplansaswellasincreasedcompetitioninthesector.TheGovernment’sstrategytodecarbonisethepowersectorincludessomegapsandrisksthatmustbeaddressed.Mostnotably,theGovernmentmustoverturnthedefactobanononeofthecheapestformsofrenewableelectricity—onshorewind—inEnglandandcreateapolicyframeworkthatsupportsthedeploymentofthistechnology.TheGovernmentmustensurethattheUK’sportshavethecapacitytosupportitsoffshorewindambitions,mustprioritiseworktosupportlong-durationenergystorage,decideDecarbonisationofthepowersector6ontheuseofhydrogenacrosstheeconomy,andclarifywhereprivatefinancefornuclearenergyprojectswillcomefrom.Itmustphaseouttheuseofunabatedbioenergyandensurethatpublicsubsidiesforbioenergywithcarbon,captureandstorage(BECCS)arecontingentonsustainablesupplychainsandvalueformoney.Demandreductionandflexibilitymustbetreatedasanequalpartnertosupply,notasanafterthought.Customersmustbeplacedfrontandcentreofthetransition.Withoutdoingso,decarbonisingthepowersectorsimplywillnothappen.TheGovernmentshouldbringforwarditsadditional£6billionfundingforenergyefficiencymeasureswhichithasallocatedfor2025–2028tonow.Itshouldimprovemarketsignalstorewardflexibleservices,allowingcustomerstoharnesscheapenergywhensupplyisabundant.ReformoftheenergyretailsectorshouldbeakeyfocusfortheDepartmentforEnergySecurityandNetZero,allowingsupplierstoinnovateandbuildsophisticatedrelationshipswithcustomersthroughtheprovisionofabroadersetofenergyservices.WeaskthattheGovernmentremembersthatwhendecidinghowtofundpoliciestodeliverthetransitiontoadecarbonisedpowersector,thetaxsystemhasbeendesignedtobeprogressive,whileleviesonbillsarenot.7DecarbonisationofthepowersectorChapter1:IntroductionDecarbonisingthepowersystemby20351.InOctober2021,theGovernmentsetanambitionforallelectricitygenerationtobedecarbonisedby2035,subjecttosecurityofsupply.1Today,around60%ofelectricitycomesfromlow-carbonsources,suchasrenewablesandnuclear,withgasaccountingfortheremaining40%.2Tomeetitstarget,theGovernmentmustreplacethisgas-firedsupplywithanewmixoflow-carbongenerationtechnologies,includingoffshoreandonshorewind,solar,nuclear,hydrogen,gaswithCarbonCaptureandStorage(CCS)andenergystorage.3Meanwhile,electricitydemandisexpectedtobearound50%higherby2035and100%higherby2050,followingtheroll-outofheatpumpsandelectricvehicles.4AchievingtheGovernment’sambitiontodecarbonisethepowersector,whilstmeetingincreaseddemand,willrequire:•far-reachingchangeinhowthepowersystemisoperated;•significantreductioninenergydemandandchangestohowenergyisconsumed;•sustainedinvestmentintechnologyandinfrastructure;•appropriateplanningarrangements;•strongsupplychains;and•innovationinbusinessmodelsandmarkets.2.InresponsetotheinternationalgascrisisthatfollowedRussia’sillegalinvasionofUkraine,theGovernment,inApril2022,publishedtheBritishEnergySecurityStrategy,5whichoutlinedplanstoaccelerateprogresstowardsadecarbonisedpowersector.Bydoingso,theStrategyaimedtoreducerelianceonimportedgasanddeliveramoresecureandsovereignsupplyofelectricity,aswellasaffordableenergybillsinthelongerterm.Mostnotably,theStrategysetoutsubstantiallyincreasedambitionsforoffshorewind,solar,nuclearpowerandhydrogen.ThefutureenergymixisexploredinChapter2.3.InFebruary2023,theGovernmentestablishedtheDepartmentforEnergySecurityandNetZero(DESNZ),whichhasprincipalresponsibilityfordeliveringtheGovernment’spowersectorambitions.On30March2023,inresponsetotheHighCourt’srulinginJuly2022thattheGovernment’sexistingplanstomeetnetzerowereinsufficient,theGovernmentpublishedarevisedstrategy—PoweringUpBritain—settingoutitsblueprintforenergyintheUK.61HMGovernment,NetZeroStrategy:BuildBackGreener,October20212ClimateChangeCommittee,2022ProgressReporttoParliament,June20223Carbon,CaptureandStorage(CCS)involvesthecaptureofcarbondioxide(CO2)emissionsfromindustrialprocesses,suchassteelandcementproduction,orfromtheburningoffossilfuelsinpowergeneration.Thiscarbonisthentransportedfromwhereitwasproduced,viaapipeline,andstoreddeepundergroundingeologicalformations.4ClimateChangeCommittee,SixthCarbonBudget,December20205HMGovernment,BritishEnergySecurityStrategy,April20226HMGovernment,PoweringupBritain,30March2023;seealso:HMGovernment,CarbonBudgetDeliveryPlan,30March2023Decarbonisationofthepowersector8TheGovernmentalsopublisheditsresponsestotherecommendationsmadeintheIndependentReviewofNetZero,chairedbytheRtHon.ChrisSkidmoreMP,andtotheClimateChangeCommittee’s(CCC)AnnualProgressReportin2022.7Itshouldbenotedthatevidencesubmittedtothisinquirywasreceivedpriortothepublicationofthesedocuments.Ourinquiry4.Welaunchedourinquiryon20May2022.Ourobjectivewastoassess:•whethertheGovernmentismakingsufficientprogresstowardsitstargettodecarbonisethepowersystemby2035;•whetheritsintendedapproachwilldelivervalueformoneyfortaxpayers;•howkeybarrierstodeployingthenecessaryinfrastructureandtechnologycanbeovercome;and•thepolicyandregulationrequiredtoensurethefuturedecarbonisedpowersystemcanberunsecurelyandefficiently.5.Weheldfiveoralevidencesessionsbetween1November2022and21March2023.Weheardevidencefromrepresentativesacrosstheenergysector,includingacademics,think-tanks,non-departmentalpublicbodies,independentcentresofexpertise,energygeneratorsandsuppliers,networkoperatorsandtheregulator,Ofgem.Wealsoheldarangeofprivatebriefingswithconsumergroupsandadvisorybodiesaswellasaroundtablewithlow-carboninvestors.Wereceivedover100submissionsofwrittenevidence.Afulllistofallthosewhoprovidedevidencetoourinquiryisincludedattheendofthisreport,andwearegratefultoallwhomadecontributions.6.TheMinisterforEnergySecurityandNetZero,RtHonGrahamStuartMP,wasduetoappearbeforetheCommitteeon21March2023buthadtowithdrawduetocommitmentsoverseas.BecauseoftherestructuringofselectcommitteesfollowingchangestothemachineryofGovernment,andtheimminentchangetothisCommittee’sremit,ithasnotbeenpossibletoscheduleanalternativetimeforthehearing.WethereforeencouragetheMinistertomakehimselfavailabletothenewEnergySecurityandNetZeroCommitteeattheearliestopportunity.7.TheCommitteevisitedStockholmfromTuesday11toThursday13April,wherewemetrepresentativesofSweden’senergyindustrytounderstandmoreaboutSweden’spowersystem.WevisitedStockholmExergi’sbioenergyplantwhichistriallingtheuseofbioenergywithcarboncaptureandstorage.8.TheReportisstructuredasfollows:•InChapter2,wesetoutbackgroundontheUK’spowersector,includingwheretheUK’selectricitycomesfromtodayandwheretheUKwillgetitspowerin2035andbeyond,alongwiththechallengesandcostsofoperatingapowersystemdominatedbyrenewables.7HMGovernment,CommitteeonClimateChange2022progressreport:governmentresponse,30March2023;HMGovernment,IndependentReviewofNetZero:governmentresponse,30March20239Decarbonisationofthepowersector•InChapter3,wesetouttheprogresstheUKhasmadeondecarbonisingpowertodateandprovideananalysisoftheGovernment’splanstoreducetheremainingemissionswithinthepowersector.•InChapter4,weexaminethepresentcontextforachievingtheremainingreductionsinemissionsfromthepowersector,suchastheglobalraceforcapitalinvestment,therisingcostsofenergyinfrastructureandtheimpactofrecentpolicychanges,includingtheElectricityGeneratorsLevy.•InChapter5,weexaminethechallengesofdeployingvariouslow-carbontechnologies,includingrenewables,nuclear,hydrogen,gasandbioenergywithcarboncaptureandstorageandenergystorage.Wealsoexaminetheroleofreducingdemandthroughbetterenergyefficiency.•InChapter6,weexaminesomeofthemaindeliveryriskstotheGovernment’s2035targettodecarbonisepower,includingtheplanningprocess,delaystosecuringaconnectiontotheelectricitynetworkandwholesalemarketreform.•Finally,inChapter7,weexaminetherolethatOfgemandthenewFutureSystemOperatorwillplayinhelpingtodecarbonisepower.Decarbonisationofthepowersector10Chapter2:Background9.TomeettheGovernment’stargettodecarbonisethepowersystemby2035,overthenextdecadetheUK’senergysystemwillundergoamomentoustransformation.TheUKwillnolongerdependonimportedfossilfuelsforenergy.Instead,thesystemwillbedominatedbysourcesofcheaper,cleaner,home-grownrenewableenergy—whichare,however,inherentlyintermittent.Electricitydemandwilldoubleasheatpumpsandelectricvehiclesarerolledoutandasincreaseddemandflowsfromindustrialprocessesincreasingtheiruseofelectricity.Thiswillbringaboutnewchallengesandopportunities.Newenergyinfrastructurewillneedtobedeployedatapaceneverachievedbefore,andthesystemwillrequireanupgraded,largerandsmarterelectricitynetworkthatcanmanagefluctuationsinpowersupply.Smarttechnologieswillenablecustomerstobettersynchronisetheirdemandtosystemneedsandaccesscheaperenergywhensupplyishigh.Achievingthe2035goaliscriticalfordecarbonisationacrosstheeconomy,asothersectorsshifttolow-carbonpowertofueltheirneeds.TheUK’spowersupply10.MostoftheenergytheUKconsumescomesfromoilandgas.Electricityaccountedfor18%ofUKenergyconsumptionin2022.8Thisissettochange.By2050,theGovernmentexpects50%ormoreoftheenergyconsumedbytheUKtocomefromlow-carbonelectricity,aselectricitydisplacesthepetrolusedtofuelvehiclesandthegasusedtoheathomes.9Muchmoreelectricitywillbeneededtomeetrisingdemand.TheClimateChangeCommittee(CCC),forexample,estimatedthatdemandforelectricitycoulddouble10orevenincreasethreefold,asothersectorsoftheeconomyelectrify.1111.TodaymostoftheUK’selectricitycomesfromlow-carbonsources.Approximately40%oftheUK’spowersupplyin2021camefromrenewables.12Nuclearpowermadeuparound15%ofelectricitygeneration.13However,theUKreliesongasforasignificantshareofitspower.In2021,40%oftheUK’spowersupplycamefromgas-firedpowerstations.148DepartmentforEnergySecurityandNetZero,EnergyTrends,March20239HMGovernment,NetZeroStrategy:BuildBackGreener,October202110From300terawatthours(TWh)todaytoover600TWhin2050.See:ClimateChangeCommittee,TheSixthCarbonBudget–electricitygeneration,December202011ClimateChangeCommittee,TheSixthCarbonBudget–electricitygeneration,December202012Renewableenergyisenergythatcomesfromasourcethatwillnotrunout.Theyarenaturalandself-replenishing,andusuallyhavealow-orzero-carbonfootprint.Examplesofrenewableenergysourcesincludewindpower,solarpowerandtidalenergy;HMGovernment,Powering-UpBritain:EnergySecurityPlan,March202313HMGovernment,Powering-UpBritain:EnergySecurityPlan,March202314ibid.11DecarbonisationofthepowersectorGreenhousegasemissionsfromgeneratingelectricityhavefallensubstantiallyoverthelastdecadeastheUKweaneditselfoffcoalanddeployedlargeoffshorewindcapacityandotherrenewables.Emissionsfromgeneratingelectricityaccountedfor12%oftheUK’stotalemissionsin2021,andhavefallen69%since2010.15During2021,however,emissionsfromgeneratingelectricityincreasedby10%comparedto2020.16Risingdemandpost-Covid,coupledwithlowerwindspeedsandoutagesatnuclearplants,meantthattheUKreliedmoreongastomeetdemand.17TheCCC,inJune2022,reportedthatemissionsfromelectricitygenerationwere“substantiallyabove”thetrajectorysetintheNetZeroStrategy.1815HMGovernment,CarbonBudgetDeliveryPlan,March202316ClimateChangeCommittee,Progressonreducingemissions:2022reporttoParliament,June202217ibid.18ibid.Decarbonisationofthepowersector12Box1:OverviewoftheUK’spowersystemElectricityisgeneratedbyavarietyofinfrastructurefromlargepowerstationstowindturbinesandsolarpanels.Thispoweristhentransportedthroughnetworksofoverheadandundergroundcablestowhereitisused.19Electricitycanalsobestoredusingavarietyoftechnologiesorimportedandexported,viainterconnectors,withneighbouringcountries.Theelectricitysystemhascertainrequirements.Forinstance:•Supplyanddemandforelectricitymustbebalancedonasecond-by-secondbasis.Thefrequencyofthenetworkneedstobemanagedwithinsafelimits.Ifimbalancesbetweensupplyanddemandoccur,partsofthecountrymaylosesupply.20TheNationalGridElectricitySystemOperatorisresponsibleforbalancingthegrid.•Certainfunctionsareneededtoenablethesystemtooperatesecurelyandsafely.Theseincludeinertia,21voltagecontrol,shortcircuitlevelandsystemrestoration.22Thesefunctionsaretypicallyprovidedbycertainplants—gas,coal,biomass,nuclearandhydro—which,theNationalInfrastructureCommission(NIC)explains,“producepowerthatissynchronisedwiththefrequencyoftheelectricitynetwork”.23•Differenttechnologiesperformdifferentroles.Renewablescanprovidearelativelycheapsupplyofelectricity,buttheiroutputvariesdependingontheweather.Renewablescannotprovidecertainsystemfunctions(e.g.inertiaandvoltagecontrol).Sometechnologies(e.g.nuclear)provideapredictablesourceofelectricitywhichisoftenreferredtoasfirmorbaseloadpower.Othertechnologies,suchasgasplants24orlow-carbonalternatives(powerCCSandhydrogen)canturnonandoffrapidly,adjustingsupplytomatchdemand.Therearetwocategoriesofelectricitynetwork:thetransmissionnetworkandthedistributionnetwork.Mostlargepowergeneratorsareconnectedtothetransmissionnetwork,whichcarrieshighvoltageelectricityacrosstheUK.25TherearethreeTransmissionNetworkOperators.26Electricityisthentakenfromthetransmissionnetworktoconsumers,viadistributionnetworks.ThedistributionnetworkalsoincreasinglyhassmallscalegeneratorsconnectedtoitandisownedbysixDistributionNetworkOperators.27Thefutureelectricitymix12.TheGovernment’sNetZeroStrategy,inOctober2021,setatargetfortheUKtofullydecarbonisepowerby2035,subjecttosecurityofsupply.28Thisbroughtthetarget19NationalInfrastructureCommission,OperabilityofHighlyRenewableElectricitySystems,February202120ibid.21TheNationalInfrastructureCommissionexplainsthatinertiais“kineticenergystoredintherotatingmassesofturbinesingeneratorsconnectedtothenetwork.Theserotatingmassesarelinkedtothefrequencyofthenetworkandrespondautomaticallyifthefrequencychanges,byinstantaneouslyinjectingorabsorbingsomepower”.Inertia,therefore,isameasureofthesystem’sresistancetochangesinfrequency.SeeNationalInfrastructureCommission,OperabilityofHighlyRenewableElectricitySystems,February202122ibid.23ibid.24Electricitygenerationwherecarbonfromburningnaturalgasisnotcapturedandstored.25NationalInfrastructureCommission,OperabilityofHighlyRenewableElectricitySystems,February202126NationalGridElectricityTransmission,ScottishPowerTransmission,andScottishHydroElectricTransmission27ThesixDistributionNetworkOperatorsare:SPEnergyNetworks,UKPowerNetworks,ScottishandSouthernElectricityNetworks,NationalGrid,ElectricityNorthWestandNorthernPowergrid.TherearealsootherinIndependentDistributionNetworkOperators(IDNOs),whichoperatesmaller,morelocalisednetworks.28HMGovernment,NetZeroStrategy:BuildBackGreener,October2021HMGovernment,NetZeroStrategy:BuildBackGreener,October202113Decarbonisationofthepowersectorforwardby15years.29ItisnotyetclearpreciselywheretheUK’selectricitysupplywillcomefromby2035norexactlyhowmuchadditionalcapacitywillberequired.Thiswilldependonarangeoffactors.30NationalGridElectricitySystemOperatorassumesthattotalgenerationcapacitywillneedtoincreasefromabout100GWtodaytoaround200GWin2035.31Whileasecuresupplycouldbeachievedusingvariouscombinationsoflow-carbontechnologies,thereisaconsensusthatmostoftheUK’sfutureelectricitywillcomefromrenewables,largelyoffshorewindandsolarpower.MostmodelsoftheUK’sfutureelectricitysupplysuggestthatbetween70%and90%ofelectricitywillcomefromrenewablesby2035andthataround150GWofrenewableenergycapacitywillberequired.32Toputthesenumbersintoperspective,theUKcurrentlyhasaround40GWofrenewablecapacity.13.Toensureareliablesupply,renewableswhichareinherentlyvariableneedtobecomplementedbyotherflexibleandfirmlow-carbontechnologies,33andpossiblysomegas-firedcapacityinreserve.34Therearedivergentviewsacrosstheindustryonwhatthespecificmixofthesetechnologiesshouldcomprise,althoughthereiswidespreadrecognitionthattheUK’spowersupplywillneedtobemoreflexiblethanitistoday.Todate,unabatedgasplants,35bioenergyandnuclearhavebeenreliedonforbothconstantanddispatchablepower.36Mostmodelsanticipatethatbetween10%and30%oftheUK’selectricitywillneedtocomefromcleandispatchablegeneration,whichcouldrequirebetween10and60GWofnewcapacity.37Thetechnologiesmayincludehydrogenpoweredturbines,nuclearpower,gasplantswithcarboncaptureandstorage(CCS)38orbioenergywithCCS(BECCS),orstoragesuchasbatteryorpumpedhydro.3929ibid.30Q2[GuyNewey];Q5[DrJoffe]31GreenAlliance,Briefing:Thebuildingblocksofsecure2035zerocarbonpowersupply,January202332GreenAlliance,Briefing:Thebuildingblocksofsecure2035zerocarbonpowersupply,January2023.TheClimateChangeCommittee’smostcost-effectivepathwaysuggestedthat70%ofelectricityshouldcomefromrenewablesby2035,risingto80%by2050.See:ClimateChangeCommittee,TheSixthCarbonBudget–electricitygeneration,December202033Flexibilityreferstotheabilitytoshiftwhenandwhereelectricityisbothgeneratedandconsumed.Sourcesofflexibilityexistonboththesupply-sideanddemand-sideofthesystem.TheDepartmentemphasisesthatflexibility“iscriticalforbalancingsupplyanddemand,enablingtheintegrationofvariablerenewablesandmaintainingthestabilityofthesystem”.SeeDepartmentforBusiness,EnergyandIndustrialStrategy,ReviewofElectricityMarketArrangements:ConsultationDocument,October2022.TheClimateChangeCommitteeexplainsthatfirmpower,incontrast,referstosourcesof“predictableelectricitygeneration”whichare“designedtoruncontinuously”.Nuclearandbioenergycanoperateasfirmsourcesofpower,forexample.SeeClimateChangeCommittee,TheSixthCarbonBudget–electricitygeneration,December202034ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March202335Electricitygenerationwherecarbonfromburningnaturalgasisnotcapturedandstored.36TheClimateChangeCommitteeexplainedthatdispatchablepoweriselectricitygenerationthat“canbeplannedwithahighdegreeofconfidenceforhours,daysand,normally,weeksaheadandreliedontobeabletoruncontinuouslyifrequired”.See:ClimateChangeCommittee,TheSixthCarbonBudget–electricitygeneration,December202037GreenAlliance,Briefing:Thebuildingblocksofsecure2035zerocarbonpowersupply,January202338Carbon,CaptureandStorage(CCS)involvesthecaptureofcarbondioxide(CO2)emissionsfromindustrialprocesses,suchassteelandcementproduction,orfromtheburningoffossilfuelsinpowergeneration.Thiscarbonisthentransportedfromwhereitwasproduced,viaapipeline,andstoreddeepundergroundingeologicalformations.39Bioenergywithcarboncaptureandstorage(BECCS)worksbycombiningtwotechnologies:bioenergyandcarboncaptureandstorage(CCS).Bioenergyistheuseofplantstocreateenergy,whileCCScapturescarbondioxideemissionsfromsourceslikepowerplantsandfactoriesbeforetheyentertheatmosphere.Thecapturedcarbondioxideisthentransportedandstoreddeepundergroundinplaceslikesalineaquifersanddepletedoilandgasfields.Decarbonisationofthepowersector1414.MostmodelsalsoexpecttheUKtoneedbetween20and30GWofenergystorageby2035,providingameansofstoringexcesselectricityduringperiodsofpeaksupplywhichcanbeusedlater,andaround20to40GWofinterconnectorcapacity.40Demand-sideresponseisalsoexpectedtoplayamajorrole,withupto28.5GWavailableby2035inNationalGridElectricitySystemOperator’sFutureEnergyScenarios2022.41Smarttechnologies(suchassmartchargingforelectricvehicles)willneedtobeusedtomanagedemandsontheelectricitysystembyencouragingconsumerstovarytheirusageaccordingtosystemneeds.Challengesofoperatingadecarbonisedpowersystem15.Adecarbonisedelectricitysystem,withahighpenetrationofrenewables,willcomewithchallenges.Balancingsupplyanddemandisexpectedtobecomeharder.Thisisdrivennotonlybythelesspredictableoutputofrenewables,butalsobynewdemandsforelectricity.GuyNewey,ChiefExecutiveattheEnergySystemsCatapult,anindependentcentreofenergyexpertise,explainedthattheelectricitysystemtodayis“relativelysimple”witha“consumerbasethatturnsontheTV,theheatandsoonatthesametime”.42Introducingelectricvehiclesandheatpumpsintothismixmeansthattheelectricitysystemwillbeverydifferent,withnewdemandsthatallneedtobemetandbalancedinrealtime.43Thegridsystemwillneedtotransitionfromtransportingpowerfromafewlarge,centralisedpowerstationstoonewithmillionsofflexibleassets.44Theenergysystemhastraditionallyoperatedbasedonone-wayenergyflowsfromenergygeneratorstousers.Infuture,underadecentralisedsystem,powerwillalsoflowbacktheotherway.Flexibleassetssuchaselectricvehicles,solarpanels,heatpumpsandbatterystoragewillbecomeactiveparticipantsintheenergysystem,tradingelectricitybackandforthwithenergycompanies.45Theexpansionofrenewables,especiallyoffshorewind,willmeanthatmoregenerationislocatedontheperipheryofthenetwork(forinstanceinScotlandorEastAngliaorCornwall),situatedatgreaterdistancesfromlargecentresofdemand(suchasSouthEastEngland).4616.Traditionally,meetingsecurityofsupplyhasbeenmostchallengingduringtimesofpeakdemand,withgas-firedpowerstationsprovidingtherequiredflexibility.Inthefutureenergysystem,stresswillbedrivenasmuchbypeaksandtroughsofelectricitysupply.47NationalGridElectricitySystemOperator,whichisresponsibleforbalancingtheelectricitynetwork,expectshighdemandduringperiodsofhighrenewablesupplytoposelessriskthanperiodsoflowerdemandbutwithmuchlowerlevelsofrenewablegeneration.48Theseperiodsofundersupplyareusuallyshort:hoursorafewdays,anditisexpectedthattheywillbemanagedbyoptionsincludingenergystorage,interconnectors,40GreenAlliance,Briefing:Thebuildingblocksofsecure2035zerocarbonpowersupply,January202341NationalGridElectricitySystemOperator,FutureEnergyScenarios,July2022;ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March202342Q2[GuyNewey]43Q2[GuyNewey],Q224[DrRadcliffe]44EnergyNetworksAssociation(DPS0046);Jacobs(DPS0021)45Eaton(DPS0026)46HighviewPower(DPS0069);NationalGridElectricitySystemOperator,FutureEnergyScenarios,July2022;ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023;DepartmentforBusiness,EnergyandIndustrialStrategyandOfgem,ElectricityNetworksStrategicFramework:Enablingasecure,netzeroenergysystem,August202247Regen,Adayinthelifeof2035,13October202248NationalGridElectricitySystemOperator,FutureEnergyScenarios,July202215Decarbonisationofthepowersectoranddemand-sideresponse.49Moreextreme,butrare,extendedperiodsoflowrenewablegeneration(referredtoasDunkelflauteevents)possiblylastingseveralweeks,willalsoposearisk.Tomanagethese,dispatchablethermalpowerplants(gas/hydrogen)arelikelytoberequired,aswellaslong-durationenergystorageandinterconnectors.50Oversupplywillalsobeproblematicas,atperiodsofhighrenewablegenerationandlowdemand,additionalenergywillneedtobeconsumed(eitherbyincreasingdemandorusingstorage)orgeneratorswillneedtobepaidtoreduceoutput,whichwouldaddtocustomers’bills.51ModellingbytheCCCsuggeststhatthepoweravailablefromrenewableswillexceeddemandinaroundone-thirdofhoursin2035.52Electrolyserswillbeneededformanaginglongerperiodsofoversupply,astheycanincreasedemandbyusingelectricitytoproducehydrogenwhichcanbestored.53Costsofadecarbonisedpowersupply17.Beforetherecentriseininternationalgasprices,theClimateChangeCommittee,inDecember2020,estimatedthatby2035alow-carbonelectricitysystemwouldcostupto£3billionmorethanahigh-carbonone.However,italsoestimatedthatby2050,thecostofalow-carbonsystemcouldbeupto£5billioncheaperor£9billionmoreexpensive,dependingonvariousfactors.54Higherdemandforelectricity,forexample,islikelytoresultinamoreexpensivesystem.55TheCCCsuggestedthattheoverallcostofalow-carbonsystemwouldbemoreexpensiveifthereisahighershareofmoreexpensivetechnologiesintheenergymix.56However,moreexpensivetechnologies(suchasnuclearorcarboncaptureandstorage(CCS))includethosewhichprovideflexibilityandresiliencetothesystem.ModellingbytheDepartmentforBusiness,EnergyandIndustrialStrategy(BEIS)in2020concludedthatsystemflexibilityreducessystemcosts.57TheGovernmentexpectsitsgoaltodecarbonisethepowersystemtorequire£275–375billionofpublicandprivateinvestment,aswellas£50–150billionofinvestmentintheelectricitynetworks.5849ibid.50ibid.51ibid.52ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March202353ibid.54ClimateChangeCommittee,TheSixthCarbonBudget–electricitygeneration,December202055ibid.56ibid.57DepartmentofBusiness,EnergyandIndustrialStrategy,Modelling2050:ElectricitySystemAnalysis,December202058HMGovernment,CarbonBudgetDeliveryPlan,30March2023Decarbonisationofthepowersector16Chapter3:Progresstodecarbonisepower18.Throughoutourinquiry,weheardthatwhiletheGovernment’stargetisforahugeincreaseinthedeploymentofcleanenergy,policyandregulatorybarriersareobstructingprogressandcreatingexcessiveredtape.Alackofanoverarchingdeliveryplanandlimitedfocusonwholesystemcostshascreatedpolicysilosandsequencingproblems,withdevelopersoflow-carbontechnologieswhowanttoconnecttotheelectricitynetworknowfacingdecade-longdelays.WhiletheGovernmenthaslaunchedconsultationsinanumberofareaswhichcouldleadtomuchneededpolicyreforms,themessageweheardwasclear:thefocusmustnowbeondelivery.WealsoheardhowtheGovernment’sstrategytodecarbonisethepowersectorincludessomebig,missedopportunities.Thisincludespolicytodeployoneofthecheapestformsofrenewableenergy—onshorewind—andmeasurestoreducedemandthroughenergyefficiencyprogrammes.TheBritishEnergySecurityStrategy19.FollowingRussia’sinvasionofUkraineandtheUK’sincreasedexposuretohighinternationalgasprices,inApril2022,theGovernmentpublisheditsBritishEnergySecurityStrategy.ThisfollowedtheTenPointPlanforaGreenIndustrialRevolution,theEnergyWhitePaperandNetZeroStrategy.59TheBritishEnergySecurityStrategyoutlinedhowitintendedtoreducetheUK’s“underlyingvulnerability”tointernationaloilandgaspricesbyacceleratingtherolloutofrenewablesandotherlow-carbontechnologies.60Itsuggestedthat95%ofelectricitycouldcomefromlow-carbonsourcesbyasearlyas2030andsetincreasedambitionsacrossarangeoflow-carbontechnologies,including:61•atargettodeliverupto50GWofoffshorewind,including5GWoffloatingwind,62by2030,upfrom40GWand1GWrespectively.TheUKcurrentlyhas14GWofoffshorewind;•anexpectationofafive-foldincreaseinsolarcapacityby2035.Thiswouldseecapacityrisetoupto70GW;•anambitiontodeliverupto24GWofcivilnuclearcapacityby2050.Thiswasasignificantincreaseontheprevioustargetof5GWandmorethanthe10GWofcapacitytheClimateChangeCommittee(CCC)suggestedtheUKmayneed.TheUKcurrentlyhas6GWofcivilnuclearcapacity;63and•atargettodeliverupto10GWofhydrogenproductionby2035,anincreaseof5GWontheGovernment’sprevioustarget.59HMGovernment,TheTenPointPlanforaGreenIndustrialRevolution,November2020;HMGovernment,NetZeroStrategy:BuildBackGreener,October2021;HMGovernment,EnergyWhitePaper:PoweringourNetZeroFuture,December202060DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April202261ibid.62Awindturbineisattachedtoaplatformthatfloatsinthewater,andthisistetheredbymooringlinesandanchoredtotheseabedtokeepitinplace.Itusesthesametechnologyasfixedwindturbinestogenerateelectricity.Kineticenergyfromthewindmovestheturbine’sblades,whichcanconvertthispowerintoelectricity.Theelectricitygeneratedisthentransmittedonshoreusingasubseacable.Themaindifferenceisthatfixedoffshorewindsitsontheseabed,whereasfloatingwindistetheredtotheseabed.63ClimateChangeCommittee,TheSixthCarbonBudget,December202017Decarbonisationofthepowersector20.TheBritishEnergySecurityStrategyfocusedonscalingupsupplybutdidnotsetoutplanstoimproveenergyefficiency.Witnessesagreedthat,asaresult,theGovernmentlostoutonachancetoenhancetheUK’senergysecurity,reduceemissionsandcutbills.64TheBritishEnergySecurityStrategyalsofailedtoincludeaspecifictargetforeitheronshorewind,despiteitbeingoneofthecheapestsourcesofgeneration,orenergystorage,whichwillplayakeyroleinthefutureenergysystem.Nonetheless,thelong-termtargetstoincreasethedeploymentofrenewablesandlow-carbontechnologiesareambitiousandstretching.65TheCCCsaidthattheGovernmentwill“needtorelentlesslydeliveratascaleandpaceasyetunseen”.66EnergyUK,atradeassociationfortheenergyindustry,saidthat“oneofthemostimportantpartsoftheStrategywillbehowweincreasethepaceofdeploymentandremovethebarriersanddelaysthatcurrentlyexist”.67Deliveringtheremainingemissionsreductions21.WhiletheUK’ssuccessindrasticallyreducingemissionsfromtheelectricitysectoroverthepastdecadeisimpressive,thereiswidespreadacceptancethattacklingthefinalthirdofemissionswillbemuchharder,thoughnotinsurmountable.Weheardthroughoutourinquirythatthereareaseriesofregulatoryandpolicyblockersstandingintheway.TheCCCisclearthattheGovernment’s2035goalwillnotbemetwithout“urgentreform”.68Keyconcernsweheardcentredaround:•alackofanoverarchingdeliveryplanandfocusonwholesystemcosts;•networkconstraintsanddelaysinsecuringgridconnections;•anoutdatedplanningregime;•economicheadwindsthathaveincreasedcostsfordevelopersoflow-carbonprojects,andaglobalracetosecureinvestmentintheenergytransition;•bottlenecksacrosssupplychains;•awholesaleelectricitymarketthatisinneedofreform;•alackoffocusonensuringaroutetomarketforflexibleassets;and•limitedprogressinreducingenergydemand.Thesebarrierswillbeaddressedinmoredetailthroughoutthisreport.64Seeforexample:TheAssociationforDecentralisedEnergy(DPS0040);E.ON(DPS0082);ScottishPower(DPS0090);KathrynPorter(ConsultantatWatt-Logic)(DPS0011);LocalGovernmentAssociation(DPS0019);Seealso:ClimateChangeCommittee,Progressonreducingemissions:2022reporttoParliament,June2022;“Commissionwelcomes“scaleofambition”ofEnergySecurityStrategy”,NationalInfrastructureCommission,7April2022;“CCCrespondstoUKGovernment’sEnergySecurityStrategy”,ClimateChangeCommittee,7April2022;EnvironmentalAuditCommittee,FourthReportofSession2022–23,Acceleratingthetransitionfromfossilfuelsandsecuringenergysupplies,HC10965“CCCrespondstoUKGovernment’sEnergySecurityStrategy”,ClimateChangeCommittee,7April202266“Commissionwelcomes“scaleofambition”ofEnergySecurityStrategy”,NationalInfrastructureCommission,7April202267“UpdatedresponsefromEnergyUKtoEnergySecurityStrategy”,EnergyUK,7April2022;Seealso:CentralAssociationofAgriculturalValuers(DPS0029)68ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023Decarbonisationofthepowersector18PoweringUpBritain22.On30March2023,aspartoftheGovernment’s“EnergySecurityDay”,itpublishedasuiteofclimateandenergypolicydocuments.Atthecentreofitspackageis“PoweringUpBritain”,whichincludesanoverviewoftheGovernment’splansaswellastheUK’snewenergysecurityandnet-zerostrategies.69Together,theseprovideanupdatedblueprintforenergyintheUK.Whiletheplanslargelycontainedrestatementsofexistingpolicyandpledgesoffuturereviews,theylaythegroundworkformanyofthereformsrequiredtodeliverontheGovernment’s2035goal.Therewerealsosomeimportantnewconsultationslaunchedthatwillinfluencekeypolicydecisionsinthecomingyearsandsomewelcomenewpolicycommitments.Theseinclude,mostnotably,newpoliciesonlow-carbonheatandthemuch-delayedpublicationoftheconsultationontheupdatedNationalPolicyStatements.70However,thereweresomegaps:•thepackagecontainednonewfiscalmeasuresforrenewablestorespondtoincreasedcompetitionforcapitaloverseas;•nonewpolicytostimulateinvestmentinlong-durationenergystorage;•onshorewindwillcontinuetobetreatedlessfavourablythanallotherenergytechnologiesintheplanningregime;and•therewerelimitedmeasurestodriveprogressonenergyefficiency(asidefrompolicytargetedatlow-carbonheat).23.Alongsideits“PoweringUpBritain”documents,theGovernmentalsopublisheditscarbonbudgetdeliveryplan,whichtriestomeasuretheimpactsofallrelevantgovernmentpoliciesandproposals.71AccordingtotheGovernment’sprojections,by2035,itsplanswouldleadtotheUKgetting99%ofelectricityfromlow-carbonsources.However,asEmmaPinchbeck(CEOofEnergyUK)stated,“adaywheretheGovernmentreaffirmsthoseambitionsandsetsoutitsplansiswelcome—butmostimportantly,itmustnowbefollowedbyarelentlessdriveoverthecomingweeks,monthsandyearstodeliveronthem”.7224.TodelivertheGovernment’stargettodecarbonisethepowersystemby2035,theUKneedstodeploylow-carbontechnologiesatafasterratethanhasbeenachievedhistorically.Awholehostofregulatoryandpolicybarrierscontinuetoimpedethedeploymentofcleantechnologies.Theevidencesubmittedtoourinquirymadeclearthat,atthecurrentrateofpolicydelivery,theUKGovernmentwillmissitstargettodecarbonisepowerby2035.WhiletheGovernment’s“PoweringUpBritain”plansoutlineasuiteofactionsthatwouldhelpitgetontrack,itsfocusmustnowbeanunrelentingdrivetodeliverthem.25.ThelevelofcoordinationandpaceofdeliveryneededrequirestheGovernmenttooperateinadifferentwaythanithasinthepast.WewelcomethecreationofthenewDepartmentforEnergySecurityandNetZero,butthatDepartmentmustnowactto69HMGovernment,PoweringUpBritain,30March2023;HMGovernment,PoweringUpBritain:EnergySecurityPlan,30March2023;HMGovernment,PoweringUpBritain:NetZeroGrowthPlan,30March202370DepartmentforEnergySecurityandNetZero,Consultation:PlanningforNewEnergyInfrastructure-ReviseddraftNationalPolicyStatementsforenergyinfrastructure,30March202371HMGovernment,CarbonBudgetDeliveryPlan,30March202372“EnergyUKrespondsto‘PoweringupBritain”,EnergyUK,30March202319Decarbonisationofthepowersectorcoordinatestakeholders,unlockbottlenecks,anddrivethepaceofdeliveryrequired.IfthenewDepartmentoperates‘businessasusual’theGovernmentwillfailtohititsowntargets.Adeliveryplanforthepowersector26.TheCCC,NationalAuditOffice(NAO)andwitnessestoourinquiryhighlightedthatakeyrisktotheGovernment’s2035targetisalackofanoverarchingdeliveryplanthatconsolidatesallthedifferentambitions,policiesandactivitiesthatcontributetothedecarbonisationofpower(i.e.expandinggeneration,upgradingnetworks,reformingmarketarrangementsandincreasingdemand-sideresponse).73TheCCCsuggestedthatthiscouldresultin“importantelements”suchascontingencymeasuresforkeyrisksanduncertainties“beinginsufficientlydevelopedtotherequiredscale”.74TheNAOstressedthatto“achievepowerdecarbonisationcost-effectively,changestodifferentaspectsofthepowersystemmustbealignedandsequencedeffectively,toavoidoneaspectbeingaconstraintonanother,orchangesthatarecontradictory”.75Theeffectsofpoorsequencingarealreadyevidentfromthefailureofnetworkcapacitytokeeppacewiththeamountofrenewablegenerationdeployedonthesystem.76AdetailedplanisalsonecessarytogiveinvestorstheconfidencetomakeinvestmentsandtoprovideaclearsenseonhowtheGovernmentintendsthatitsgoalshouldbepaidfor.77LauraSandysCBE,ChairoftheEnergyDigitalisationTaskforce,78toldusthat:Thereisarealissuehereaboutadeliveryunitthatabsolutelypullsthesetechnologysilostogether.Weneedamapthattellsusaboutthesequencing.[..]weneedsomebodytoco-ordinaterolesandresponsibilities,sequencing,timetableandpolicygateways.Ifwehadthat,inmyview,investorswouldbemuchmoreconfidentthattheyunderstoodwherewewereheadingto.Atthemoment,wehaveaseriesofconsultationsthatcomeout,technology-focusedratherthanwhole-system-focused.Inmyunderstanding,nobodyownswhole-systemcosts.Theyownthesilocosts.7927.TheNAOrecentlyreportedthattheDepartmentforBusiness,EnergyandIndustrialStrategyagreedinFebruary2022toproduceanoverarchingplanforthedeliveryofthe2035target.80AfirstdraftofthedeliveryplanwasdueinOctober2022.However,theNAOsaidthattheDepartment“hasmadelessprogressonestablishingthedeliveryplanthanitinitiallyenvisaged”becauseoftheworkrequiredtosupportconsumersthroughthecurrentenergycrisis.81ThesuccessorDepartment,theDepartmentforEnergySecurityandNetZero(DESNZ),toldtheNAOthatit“stillhasmoreworktodotodevelopadeliveryplan”.82Whilethe“PoweringUpBritain”documentsgosomewaytowardsclarifyingthe73ClimateChangeCommittee,Progressonreducingemissions:2022reporttoParliament,June2022;NationalAuditOffice,Decarbonisingthepowersector,HC1131,1March2023;Jacobs(DPS0021);SGN(DPS0052);BPplc(DPS0089),Q7[DrJoffe];Q431[LauraSandysCBE]74ClimateChangeCommittee,Progressonreducingemissions:2022reporttoParliament,June202275NationalAuditOffice,Decarbonisingthepowersector,HC1131,1March202376ibid.77Q7[DrJoffe];Q431[LauraSandysCBE];Seealso:Jacobs(DPS0021)78TheEnergyDigitalisationTaskforceisfocusedonmodernisingtheenergysystemtounlockflexibilityanddrivecleangrowthtowardsnetzerocarbonemissionsby2050.ThisTaskforceisrunbyEnergySystemsCatapult.79Q431[LauraSandysCBE]80NationalAuditOffice,Decarbonisingthepowersector,HC1131,1March202381ibid.82ibid.Decarbonisationofthepowersector20Government’spolicyintentions,theydonotmeettheNAO’scallforaclearoverarchingplanfordecarbonisingpowerthatclearlysetsoutthetimerequiredtodecarboniseallaspectsofthesystemandhowdifferentactivitiesinterrelate.Thepublicationsdonotoutlinecontingencymeasurestoaddresskeyrisksorclearlyexplainhowplanswillbepaidfor.TheDESNZPermanentSecretary,JeremyPocklington,toldtheHouseofCommonsPublicAccountsCommitteeon23March2023thata“clearerportfoliodeliveryplan”iscomingthisautumn.8328.Anoverarchingdeliveryplanforthedecarbonisationofpower,withclearmilestonesandcontingencies,willhelptheGovernmentbringacomplexsetofinterrelatedtaskstogether.Atthemoment,decisionsaretakenonspecifictechnologiesorissuesinsiloswithoutaroadmapforthewholesystem.Thishasledtosequencingproblemsandafailuretotakeownershipofwholesystemcosts.ThiswasillustratedbyNationalGridESOconfirmingsignificantconstraintpayments,largelystemmingfromafailuretoupgradethetransmissiongridbetweenScotlandandEngland.Acomprehensiveplanwillgiveinvestorsmoreconfidencetodeploynew,low-carboninfrastructureintheUKbecausetheywillhaveaclearerunderstandingofhowtheirprojects,andthereformsthesedependon,willfitintoadecarbonisedenergysystem.29.WereiteratethecallsofboththeClimateChangeCommitteeandNationalAuditOfficefortheGovernmenttopublishacomprehensive,long-termdeliveryplanforadecarbonisedpowersystemby2035.ThecreationofanewDepartmentforEnergySecurityandNetZeroshouldprovidetheimpetusandMinisterialcapacitytodothis.Thisplanshouldrecognisethetimeneededtodecarbonisethedifferentaspectsoftheelectricitysystemaswellasthesequencinginvolved.Werecommendthatthisdeliveryplansetsoutclearroadmapsandmilestonesaswellascontingencyplansforkeyrisksanduncertainties.Itshouldalsofocusonwholesystemcosts.WeasktheGovernmenttopublishthisdeliveryplannolaterthanbytheendof2023.2035target–securityofsupply30.ThetargettheGovernmentsettodecarbonisetheelectricitysystemby2035issubjecttosecurityofsupply.84TheGovernmenthasnotdefinedsecurityofsupplyorspecifiedtheextentoffossilfuelemissionsitispreparedtoacceptfrom2035onwards.85TheCCCsuggestedthatasmallamountofunabatedgasmaystillbeneededtoprovideelectricityonrareoccasions(upto2%ofannualelectricityproductionin2035).86Completelyphasingoutgascouldaddtothecostandcomplexityofthetransition.However,theCCCnotedthatitisforGovernmenttodecidehowmuch“headroomcapacitytobuildintothesystem”.8731.TheGovernmenthassetatargettodecarbonisethepowersystemby2035,subjecttosecurityofsupply.TheGovernmenthasnotdefined‘securityofsupply’.After2035,theremayberareoccasionswhentheUKneedstouseunabatedgas-firedstationstomeetshortfallsinsupply.Acleardefinitionof‘securityofsupply’isneededtoensure83EvidencetakenbythePublicAccountsCommitteeondecarbonisingthepowersector,Q27[JeremyPocklington]84HMGovernment,NetZeroStrategy:BuildBackGreener,October202185NationalAuditOffice,Decarbonisingthepowersector,HC1131,1March202386ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March202387ibid.21DecarbonisationofthepowersectorthattheGovernmentcanbeproperlyheldtoaccountforitsperformanceagainstthe2035target.TheGovernmentshoulddefinethe‘subjecttosecurityofsupply’conditioninits2035targetandclarifytheamountofresidualemissionsfromunabatedgasplantsthatitiswillingtoacceptfrom2035onwards.Transitioningawayfromoilandgas32.TheInternationalEnergyAgencyhasbeenclearthatnewfossilfuelprojectsareincompatiblewiththeParisAgreement’sgoaltokeepglobalwarmingto1.5Cabovepre-industriallevels.88Ithasstatedthatdemandcanbemetthroughcontinuedinvestmentinexistingassetsandalreadyapprovedprojectsbutwithoutanylongnewleadtimeupstreamconventionalprojects.89Ithasrecognisedthat“meetingthiscondition,comeswithconsequencesthatcountriesneedtoconsidercarefully,especiallyinaworldmarkedbygeopoliticaltensions.Onecrucialaspectisanincreasedrelianceovertimeonasmallerconcentrationofsuppliers”.9033.Aspartofthe“PoweringupBritain”exercise,theGovernmentconfirmedthatitwouldcontinuewithitsplanstoexpandfossilfuelproductionintheNorthSeaandthattheNorthSeaTransitionAuthoritywouldretainitsobjectiveof“maximising”offshoreoilandgasproduction.91TheGovernmentopenedafreshlicensingroundfornewoilandgasprojectsinOctober2022.TheNorthSeaTransitionAuthorityisexpectedtoawardthefirstlicencesfromthesecondquarterofthisyear.92ThefieldsforwhichUKGovernmentapprovalwillbesoughtoverthecomingyearsincludenewoilandgasfields.TheGovernmentrecentlyrejectedtherecommendationoftheEnvironmentalAuditCommitteetosetanenddateforawardingnewoilandgaslicences.9334.AdecisiononwhethertoapprovethedevelopmentoftheRosebankfield,thebiggestundevelopedoilandgasfieldintheNorthSea,withthepotentialtoproduce500millionbarrelsofoil,isalsodueimminently.94AnalysisbycampaigngroupUpliftfoundthatthelikelyemissionsjustfromproducingoilfromthefieldwouldbeenoughtoexceedtheshareoftheUK’scarbonbudgetsthatshouldcomefromoilandgasproduction,from2028onwards.95DrSimonEvans,DeputyEditorandPolicyEditoratCarbonBrief,aUK-basedwebsitespecialisinginthescienceandpolicyofclimatechange,foundthatifapproved,Rosebankisexpectedtoproducethesameamountofcarbondioxideemissionseachyearas90oftheworld’slowest-emittingcountries(400millionpeople).9688InternationalEnergyAgency,NetZeroby2050:ARoadmapfortheGlobalEnergySector,28May2021;Seealso:InternationalInstituteforSustainableDevelopment,NavigatingEnergyTransitionsMappingtheroadto1.5°C,October202289InternationalEnergyAgency,NetZeroby2050:ARoadmapfortheGlobalEnergySector,28May202190LetterfromtheExecutiveDirectoroftheInternationalEnergyAgencytoEAC,dated22November202291HMGovernment,PoweringupBritain:EnergySecurityPlan,30March202392ibid.93EnvironmentalAuditCommittee,FourthReportofSession2022–23,Acceleratingthetransitionfromfossilfuelsandsecuringenergysupplies,HC109;EnvironmentalAuditCommittee,Acceleratingthetransitionfromfossilfuelsandsecuringenergysupplies:GovernmentandRegulatorResponsetotheCommittee’sFourthReportFourthSpecialReportofSession2022–23,HC122194Theproject’senvironmentalstatementiscurrentlybeingreviewedbytheOffshorePetroleumRegulatorforEnvironmentandDecommissioning(OPRED).TheNorthSeaTransitionAuthoritywillthendecideovertheproject’sfielddevelopmentplan,whichrequiresanOPRED-approvedenvironmentalstatement.TheSecretaryofStatewillthenmakeafinalinvestmentdecisiononthesite.Equinorhasan80%stakeintheproject.95“NewoilfieldintheNorthSeawouldblowtheUK’scarbonbudget”,TheGuardian,1April202396“In-depthQ&A:TheUK’s‘greenday’avalancheofclimateandenergyannouncements”,CarbonBrief,31March2023Decarbonisationofthepowersector22Transparencyofoilandgascompanies35.Theenergytransitionisnowexpectedtohappenmorequicklythanhadpreviouslybeenexpected.97Oilandgascompanieswillneedtodeveloptheirpipelinesofrenewablesandlow-carbonactivitiesiftheyaretoremainviableinfutureandaligntheiractivitieswithglobalcommitmentstolimittemperatureincreasesto1.5°C.However,asaresultofRussia’sinvasionofUkraineandthesubsequentgascrisis,oilandgasfirmsmaderecordprofitsin2022.Ratherthanredirectingthemajorityoftheseprofitstorampupinvestmentsinrenewables,severalcompaniesmaximisedtheiruseofsharebuybacksanddividends.Forexample,Shellreportedglobalprofitsof$40billionanddistributed$26billiontoshareholdersin2022,including$18billioninsharebuybacks.98Just17%or$4.3billionofitscapitalexpenditurelastyearwasoninvestmentinlow-carbonenergy.9936.WewrotetoarangeofoilandgascompaniesabouttheirinvestmentsintheUK,askingthemtoprovideabreakdownoftheirplannedinvestmentsintorenewables(asasourceofpowertothegrid),greenhydrogen,bluehydrogen,theirdownstreambusiness(electrification),oilandgasandCarbonCaptureandStorage(CCS).100Theresponses,inthemain,failedtoadequatelyaddressourquestions.101ThecompaniesprovidedsomeinformationbutnotenoughforustomakeaclearassessmentoftheireffortstodiversifytheirbusinessportfoliosandaligntheiroperationswiththeUK’slegallybindingnetzerotarget.Forexample,BPtoldusthatitplansto“investupto£18billionintheUKinoil&gas,EV[electricvehicle]charging,renewables,hydrogenandCCSto2030”butitdidnotprovideaclearerbreakdownofhowinvestmentwouldbeallocatedacrossthesevarioustechnologies.102WereceivedtwoconfidentialsubmissionsfromShellandTotalEnergies,bothofwhichrequestedthatwedonotpublishthecorrespondenceduetocommercialsensitivities.10337.Inrecentmonths,somemajoroilandgascompanieshavestartedtodialbackontheirclimate-relatedcommitments.BPannouncedthatthegroup’soilandgasoutputwouldfallonly25%by2030,comparedwith2019levels,downfromaprevioustargetof40%.104MeanwhileShell’splanforitsoiloutputtodeclinebyonetotwopercenteachyearthisdecadeisunderreview.105OtheroperatorsintheNorthSeasuchasHarbourEnergy,investnothinginrenewables.10697InternationalEnergyAgency,‘Renewablepower’sgrowthisbeingturbochargedascountriesseektostrengthenenergysecurity’,December2022;Ember,GlobalElectricityReview2023,12March202398Shellplc,AnnualReportandAccountsfortheyearendedDecember312022,February202399ibid.100LetterfromtheBEISCommitteeChairtoTotalEnergiesdated29November2022;LetterfromtheBEISCommitteeChairtoShell,dated29November2022;LetterfromtheBEISCommitteeChairtoHarbourEnergy,dated29November2022;LetterfromtheBEISCommitteeChairtoEquinor,dated29November2022;LetterfromtheBEISCommitteeChairtoBP,28November2022101LetterfromAndrewMennear,Director,UKGovernmentAffairs,BPtotheBEISCommitteeChair,dated20December2022;LetterfromLindaCookCEOofHarbourEnergytotheBEISCommitteeChair,dated5December2022;LetterfromArneGürtner,SeniorVicePresident,ChairofEquinorUKLtd,dated8December2022102LetterfromAndrewMennear,Director,UKGovernmentAffairs,BPtotheBEISCommitteeChair,dated20December2022103Shellsubsequentlyprovidedanupdatedresponsewhichwaspublished.See:LetterfromDavidBunch,Chair,ShellUKtotheBEISCommitteeChair,dated6March2023104“BPscalesbackclimatetargetsasprofitshitrecord”,BBC,7February2023105“Cuttingoilandgasproductionisnothealthy,saysShellbossWaelSawan”,TheSundayTimes,4March2023106Q247[LindaCook]23DecarbonisationofthepowersectorEnergyProfitsLevy38.InMay2022,thethenChancellorannouncedatemporary25%EnergyProfitsLevy(EPL)onoilandgasprofits.107TheEPLincreasedtheheadlinerateoftaxforoilandgasproducerprofitsfrom40%to65%.A‘super-deduction’styleinvestmentallowancewasintroducedalongsidetheEPL.Theinvestmentallowanceratewas80%andmeantthatforevery£1businessesinvestedinextractiontheywouldgeta91ptaxsaving.108Thisnearlydoubledthetaxreliefcompaniesreceivedfromqualifyingexpenditure,from46pforevery£1ofextrainvestmentto91p.TheInstituteforFiscalStudies(IFS)hassaidthat“thesuper-deductionmeansinvesting£100intheNorthSeawillcostcompaniesonly£8.75,withtheremainingcostpaidbytheGovernment.So,amassivelyloss-makinginvestmentcouldstillbeprofitableaftertax”.10939.On17November2022,theChancellorannounceda10-percentagepointincreaseinthelevyrate,from25%to35%,whilealsoextendingthewindfalltax’sdurationfrom2025to2028.110ThistooktheNorthSeaoilandgasindustry’staxrateto75%whencombinedwiththe40%specialcorporationtaxrate.The80%deductionwasalsochangedto29%(otherthanfordecarbonisationexpenditure).OncethehigherrateofEPLisaccountedfor,thisproducedasimilarresultasthepreviousallowance,withreliefof91.40pforevery£1ofqualifyingexpenditure.111The80%deductionwillberetainedforexpenditureincarbonemissions-reducingtechnology—resultingintaxreliefof109.25pforeverypoundspent.112Examplesincludemodifyingexistinginstallationstousepowerfromoffshorewindfarms,installingbespokewindturbinestopowerinstallations,orrunningelectricitycablestoinstallationsfromshore.113Oilandgascompaniesarealsoabletooffsetaportionoftheirdecommissioningcostsagainsttheirtaxbill.Afteraccountingforallreliefsavailabletoit,itwasreportedthatShellpaidjust£6.5millionintaxonitsUKoperationsin2022—afractionofits£40billionglobalprofits.11440.Announcementsbymajoroilandgascompaniestoprioritisesharebuybacksanddividendsoverinvestmentinrenewables,andtoscalebackontargetstoreducetheimpactoftheiroperationsontheclimateinfavourofextractingmorefossilfuels,suggestthattheindustryhassomewaytogobeforeitfindsagoodbalancebetweenprioritisingprofitanditsresponsibilitytocutemissions.TheinvestmentreliefincludedintheEnergyProfitsLevymeansthattaxpayerswilleffectivelypayoilandgascompaniestocleanuptheirownoperations.Taxpayersupportforoilandgascompaniesshouldbecontingentonthesecompaniesbeingtransparentabouttheirfutureinvestmentsinrenewablesandlow-carbontechnologies,andonevidenceshowinghowtheirplansfordecarbonisationarecompliantwiththecountry’sstatutorycarbonbudgetsandnetzerotarget.107HMTreasury,EnergyProfitsLevyFactsheet-26May2022,Updated15June2022108ibid.109“Responsetogovernmentcostoflivingsupportpackage”,InstituteforFiscalStudies,26May2022110HMGovernment,AutumnStatement2022,17November2022111HMTreasury,‘EnergyTaxesFactsheet,’17November2022112ibid.113ibid.114“DecomrebateshelplowerShellsUKtaxbilltojust£6.5m”,EnergyVoice,28March2023Decarbonisationofthepowersector24Chapter4:Retaininginvestmentinlow-carbonenergy41.TheUKisaheadofmostoftherestofthewesternworldwhenitcomestodecarbonisation.However,therehasbeenanotabledeclineininvestorconfidenceintheUKenergysectorsincewestartedtakingevidenceforourinquiry.WeweretoldthattheUKinvestmentclimateisbecomingmorechallengedduetoincreasingcompetitionfromabroad,awindfalltaxonlow-carbongeneratorsthathasasub-optimaldesign,andsubstantialcostinflation.WeweretoldthattheGovernmentshouldnotbecomplacentabouttheprogressithasmadeifitwantstoretainitspositionasagloballeaderindesigninglow-carbonsystemsandmaximisetheeconomicopportunitiesofthetransitiontoadecarbonisedpowersystem.Aglobalraceforcapital42.TheUKisfacingincreasedglobalcompetitionfromothercountries,includinglargermarketssuchastheUSandEurope,toattractprivateinvestmentinlow-carbontechnologies.115LargesubsidieshaveincreasedtheattractivenessoftheUK’scompetitors.TheInflationReductionActintheUSincludesneworextendedtaxcreditsforavarietyofenergyinfrastructure,includingwind,solar,batterystorage,nuclear,hydrogenandcarboncaptureandstorage(CCS),alsocapturingthesupplychainandmanufacturing.116TheEUhasrespondedwithitsownpackageofsupport.117WhileindustryhadhopedthattheUKGovernmentwouldsetoutacompetitiveresponsefirstattheSpringBudget2023andthenonits“EnergySecurityDay”,aresponseisnowdueinautumn.118Weheardthat,withoutaction,theUKrisksfallingtothesidelines,withbillionsofpoundsofinvestmentpotentiallyatthreat.119Furthermore,weweretoldthatiftheUKisnotmademoreinvestable,offshorewindfactorieswhichcouldhavebeenbasedintheUKwillgooverseas.TheGovernmentsaidthatitdoes“notwishtoparticipateinadiscriminatorysubsidyrace,whichwillbeharmfultomanynations’intentionstotransition”.Instead,itsfocusisoncallsfrominvestors“toprovidethelong-termcertainty,strategicde-risking,andconfidencethattheyneedtoinvest”.12043.TheUKhasbecomelessattractivetoenergyinvestors.TheUKisinaglobalraceagainstlargermarketstoattractcapitaltodecarbonisetheeconomy.TheUSandEUhaveintroducedaseriesoflong-termtaxincentivesforcleanenergyinfrastructure.TheUKGovernmenthasyettorespond.WerecommendthatwhenreviewingthecompetitivenessoffiscalincentivesofferedbytheUKtoencourageinvestmentinlow-carbonenergyprojects,theGovernmentshouldconsiderprovidingamoretailoredresponseinthecapitalallowanceregimeforthesector.115Q405[LauraSandysCBE,AdamBell,AdamBerman];Q202[DrRadcliffe]116“Mediareaction:WhatJoeBiden’slandmarkclimatebillmeansforclimatechange”,CarbonBrief,17August2022117”Q&A:HowtheEUwantstoracetonet-zerowith‘GreenDealIndustrialPlan”,CarbonBrief,17March2023118Q189[JeremyHunt]119Q405[AdamBerman];EnergyUK,Stormsapproaching:HowtopreventaninvestmenthiatusinUKlow-carbongeneration,February2023;RenewableUK,RetainingtheUK’sleadershipinrenewablesRecalibratingpolicyinthemidstofanenergycrisisandincreasingglobalcompetition,February2023;“Government’senergyannouncementsdonotgofarenoughtosecuresufficientinvestmentinrenewables”,RenewableUK,30March2023120HMGovernment,PoweringUpBritain,30March202325DecarbonisationofthepowersectorRisingcostsandContractsforDifference44.TheContractsforDifference(CfD)schemeistheGovernment’smainmechanismforsupportinglow-carbonelectricitygeneration.121CfDsarealong-termcontractbetweenanelectricitygeneratorandthepubliclyownedLowCarbonContractsCompany(LCCC).Thecontractenablesthegeneratortostabiliseitsrevenuesatapre-agreedlevel(theStrikePrice)forthedurationofthecontract(15years).UndertheCfD,paymentscanflowfromLCCCtothegenerator,andviceversa.WhenthemarketpriceforelectricitygeneratedbyaCfDGenerator(thereferenceprice)isbelowtheStrikePricesetoutinthecontract,paymentsaremadebyLCCCtotheCfDGeneratortomakeupthedifference.However,whenthereferencepriceisabovetheStrikePrice,theCfDGeneratorpaysLCCCthedifference.Thisfeedsbacktocustomerbills.In2022,windandsolarPVprojectswithCfDspaidbackover£357milliontoreduceconsumerbills.12245.CfDcostreductionhasbeenmostnoteworthyintheoffshorewindsector,whichhasseenstrikepricesfallfrom£150perMWhto£37perMWhinlessthanadecade.123A£37auctionstrikeprice(achievedatAllocationRound4in2022),whenadjustedforinflation,iscurrentlyworth£46.24,aroundathirdofthecurrentaveragewholesaledayaheadreferenceprice.124However,thisisbasedonbidpricesforprojectsthatareanumberofyearsfromcompletion.AccordingtoEnergyUK,overallcostsforrenewablesdevelopershaverisenby20–30%,withsomedevelopersreportingcostincreasesofupto50%forspecificprojects.125Theseincreaseshavebeencausedbyavarietyoffactors,includinghighercommoditycosts,risingcostsforwindturbinesandsolarpanels,increasedsupplychainanddeploymentcosts(forinstancefrominstallationvesselsinoffshorewindtolegalandprofessionalservicesfees),higheroperationsandmaintenancecosts,currencychangesandmorecomplicatedtradingarrangements,andincreasedcostofcapital.126AdamBerman,DeputyDirectoratthetradebodyEnergyUK,toldusthatnoneofthemajoroffshorewinddevelopersfromAllocationRound4havereceivedagreenlightforthefinalinvestmentyet.127Somecompanies,suchasØrsted,arecontemplatingputtingcertainprojects“onhold”followingconcernsovertheirviability.12846.InMarch2023,theGovernmentlaunchedtheparametersforthisyear’sCfDauction—AllocationRound5—whichwillsupportnewandestablishedtechnologies,suchasoffshorewind,solarandtidalenergy.129EnergysectorstakeholdershavearguedthatthefundingavailableforAllocationRound5doesnotreflecttheincreaseincoststhatgeneratorsarefacing.130EnergyUKarguedthatthemainpurposeofCfDsshouldbetodeliverthelargestvolumeofrenewablecapacitypossibleatlowestavailablecost,nottokeepdrivingpricesdownbeyondwhatisrealisticgivenmarketconditions.131121DepartmentforEnergySecurityandNetZero,‘ContractsforDifference’,14December2022122Regen,CouldthegovernmentbeabouttogambleawaytheUK’sleadershipinoffshorewind?,March2023123HMGovernment,ContractsforDifference(CfD)AllocationRound4:results,7July2022124Regen,CouldthegovernmentbeabouttogambleawaytheUK’sleadershipinoffshorewind?,March2023125EnergyUK,Stormsapproaching:HowtopreventaninvestmenthiatusinUKlow-carbongeneration,February2023126Regen,CouldthegovernmentbeabouttogambleawaytheUK’sleadershipinoffshorewind?,March2023127Q421[AdamBerman]128“Risingcosts‘couldblock’HornseaThree”,TheTimes,3March2023129HMGovernment,ContractsforDifference(CfD):AllocationRound5,March2023130“Pricesupport‘lookstoolow’foranynewwindfarmstogetbuilt”,TheTimes,12March2022;“Renewableenergyprojectsatrisk:‘UK’slatestplanscouldcausemissedinvestments”,EnergyLiveNews,17March2023131EnergyUK,Stormsapproaching:HowtopreventaninvestmenthiatusinUKlow-carbongeneration,February2023Decarbonisationofthepowersector2647.ThereisariskthattheGovernmenthasnotaccuratelyreflectedrisingcostsforrenewablesdevelopersinthebudgetforthisyear’sContractsforDifferenceauction,puttingtheviabilityoffutureprojectsintoquestion.WerecommendthattheGovernmentreviewstheparameterssetforitsContractsforDifferenceAllocationRound5toensurethattheyaccuratelyreflectthecostpressuresfacingthesector.ElectricityGeneratorsLevyandcapitalallowances48.Inawelcomeattempttoensurethatelectricitygeneratorsearning“extraordinaryreturns”duetoexceptionallyhighgaspricespaytheirfairshare,theGovernmentannouncedtheElectricityGeneratorsLevy(EGL)aspartoftheAutumnStatement2022.132TheEGLhasbeenappliedtolow-carbonelectricitygenerators—includingwind,nuclearandbiomass—since1stJanuary2023,includingnewprojectscommissionedafterthisdate,andwilllastuntil31March2028.Itwilltaxrevenuesfromenergygeneratorsat45%abovea£75/MWhthreshold.133ItdoesnotapplytorevenuefromthesaleofelectricitythatisgeneratedatanagreedstrikepriceunderaContractforDifference.Thisisbecauseexceptionalreturnsarealreadybeingpassedbacktocustomersviathisscheme.49.However,weheardthattheEGLhasbeenpoorlydesigned.Firstly,weweretoldthattheEGLwillactasadeterrentfornewprojectstoinvestbasedonmarketpricerisk,increasingthedependencyontheContractsforDifferencescheme.134InlightofconcernsregardingbudgetallowancesfortheupcomingContractsforDifferenceallocationround,thereisariskthatinvestmentinlow-carbontechnologiesmaynotbesufficienttodelivertheGovernment’sambitions.135WewerealsotoldthatconsumerswouldhaveseenhigherreturnshadtheGovernmentchosentoofferVoluntaryContractsforDifferencetoexistinggenerators.136TheVoluntaryContractsforDifferenceproposalwasfirstsuggestedbytheUKEnergyResearchCentre(UKERC)andexploredbytheGovernmentinSeptember2022.137WeweretoldthatVoluntaryContractsforDifferencewouldhavestrikepricesatasimilar—orlower—levelthantheEGLthreshold.138TheGovernment(orbillpayer,dependingonhowitisstructured)wouldkeep100%ofrevenueabovethisthreshold.EnergyUKstatedthatgeneratorsarewillingtosurrendervolatilewholesalemarketrevenueinexchangeforastablefixedtermcontractwithloweroverallreturns.139Furthermore,theGovernmentdidnotincludeaninvestmentallowanceaspartoftheEGLakintothatprovidedtotheoilandgassectorviatheEnergyProfitsLevy(discussedinChapter3).140WealsoheardthattheEGLfailstotargettheexceptionalrevenuemadebyothermarketparticipantsfurtherdownthesupplychainwhichtradeelectricity.14150.Withthesuperdeductionschemecomingtoanend,142attheSpringBudget2023,theChancellorannounced‘fullexpensingrelief’to2026.143Thiswillprovidefor100%relief132HMTreasury,AutumnStatement2022,November2022133HMRevenueandCustoms,ElectricityGeneratorLevy,15March2023134Q413[AdamBerman]135Regen,CouldthegovernmentbeabouttogambleawaytheUK’sleadershipinoffshorewind?,March2023136Q413[AdamBerman];Q414[AdamBell]137EnergyPricesBill2022–23,ResearchBriefing9642,HouseofCommonsLibrary,14October2022138EnergyUK,Stormsapproaching:HowtopreventaninvestmenthiatusinUKlow-carbongeneration,February2023139ibid.140Q104[CatherineRaw]141Q412[AdamBerman]142Thesuperdeductionschemegrantedcapitalallowancesat130%onqualifyingcapitalexpenditureandexpiredon31March2023.143HMTreasury,SpringBudget2023,21March202327Decarbonisationofthepowersectorforthecostofqualifyingplantandmachineryinvestments.Underfullexpensing,foreverypoundacompanyinvests,theirtaxesarecutbyupto25p.144However,someassets,suchaswindturbines,whicharedeemedtobelong-lifeandareexpectedtolastatleast25years,willattractalower50%rate.145AccordingtoEnergyUK,whilewelcome,this“broadbrush”approachdoesnotgoanywherenearfarenoughtoaddressthefundamentalproblemsfacinglow-carbonelectricitygenerators.146Thecapitalallowancesarecurrentlyinplaceforthreeyears,comparedtotheUSandEU10yearframeworks.Ørstedsaidthat“thelion’sshareofcapitalexpenditureonHornseaThree147andotherforthcomingoffshorewindprojectswillcomeoutsidethequalifyingscopeandtimeframe”.148Furthermore,thereliefisappliedtoprofitsthatareeligibleforcorporationtaxat19%.CorporationtaxischargedonprofitsaftertheyhavebeensubjecttotheEGL.51.ProvidingthatoilandgascompaniesutilisetheirinvestmentallowancesincludedintheEnergyProfitsLevy,oilandgasextractionwillcontinuetobenefitfromalowereffectiverateofmarginaltaxthanlow-carbondevelopers.Thisrisksofferingperverseincentivestoinvestors.Werecommendthatwheninvestinginlow-carbonelectricitytechnologies,developersshouldreceiveaninvestmentallowancerateequivalenttothatreceivedbytheoilandgassector.WefurtherrecommendthattheGovernmentrevisitsthecaseforVoluntaryContractsforDifferenceforlow-carbonelectricitygeneratorscurrentlysubjecttotheElectricityGeneratorsLevy.Policystability52.Firmsintheenergyindustrywarnedusthattheyrequireastablepolicyandregulatoryenvironmenttoplanandinvest.TheUK,weweretold,haslatelynotprovidedthekindofstablepolicyenvironmenttheelectricitysectorneedstoconfidentlyinvestandkeepthecostofcapitallow.149TheGovernment,understandably,hasneededtointerveneduringthecurrentenergycrisistoprotecthouseholdsandbusinessesfromhighenergycostsandensureenergycompaniespaytheirfairshare.However,interventionssuchastheextensivepowersgrantedtotheSecretaryofStateintroducedundertheEnergyPricesActhaveshakeninvestorconfidence.150WealsoheardthattheElectricityGeneratorsLevywasimposedwithoutproperengagementwiththesector.151Differentadministrationshavetakendifferentpositionstowardsvariouspartsoftheenergysector,includingonshorewind,solarandnuclear,leadingtostop-startpolicies.Inotherareas,theGovernmenthasbeenslowtosetoutisposition,duetodelaysinthepublicationofgovernmentstrategiesandpolicystatements,suchastheBiomassStrategy,NationalPolicyStatementsandtheStrategyandPolicyStatementforOfgem.53.RecentpolicyandregulatoryuncertaintyhasunderminedinvestorconfidenceatpreciselythetimewhentheUKislookingtoattractprivateinvestmentincleanenergyinfrastructure.TheGovernmentshoulddoitsutmosttocreateandmaintainastablepolicyenvironment,whichde-risksinvestmentsinlow-carbontechnologies.144HMGovernment,Guidance,SpringBudget2023–Fullexpensing,15March2023145ibid.146“UKspringbudget2023:Keyclimateandenergyannouncements”,CarbonBrief,15March2023147HornseaThreeisan£8billionoffshorewindfarmthatcouldgenerateenoughelectricitytopowermorethanthreemillionUKhomes.Itisduetobeginproductionin2026butiscurrentlyatrisk.148“Ørsted‘disappointed’withSpringBudget’slackofsupportforrenewables”,EnergyLiveNews,16March2023149Qq26–29[RobertBuckley];Q30[GuyNewey,DrJoffe]150Q27[RobertBuckley];Q30[GuyNewey]151Q29[RobertBuckley]Decarbonisationofthepowersector28Chapter5:Routestomanagingelectricitysupplyanddemand54.TheGovernmenthassetoutitsplansforwherethemajorityoftheUK’sfutureenergysupplyshouldcomefrom,buttherearearangeofbarriersandrisksfacingthedifferenttechnologies.Thischapterprovidesasector-by-sectoranalysisofthese.Ourkeyfindingsaresetoutbelow:•Renewables—Offshorewindandsolararefacinglongdelaystogainplanningpermissionandconsentandsecureagridconnection.TheUK’sportsdonothavecapacitytofacilitatelarge-scalefloatingoffshorewindconstruction.TheGovernmenthasconsultedonmakingitsplanningrulesforonshorewindinEnglandlessrestrictive,butitisnotclearthattheproposalswillunlocksignificantopportunitiesforthesector;•Nuclear—Renewableswillneedtobesupportedbymorestableformsofpower,butthemajorityoftheUK’snuclearfleetisduetoretireby2028.TheGovernmenthashugeambitionsfornuclearenergy,butthereisalackofclarityonwheretheprivatefinanceforprojectswillcomefromandhowdelaysandcostoverrunswillbeaddressed;•Bioenergy—TheUKcurrentlyreliesonunabatedbiomassforalargeportionofitselectricityandhasspentbillionssubsidisingthesector,buttheseplantshavesignificantlifecycleemissions.TheGovernmentplanstousecarboncaptureandstorage(CCS)todecarbonisebioenergy(BECCS),butwhetherthiscouldbeachievedsustainablyisuncertain;•HydrogenandgasCCS—TheUKwillalsoneedhydrogenandgasCCStoprovideflexiblesourcesofenergy.TheGovernmenthasrecentlyannouncedthat£20billionwillbeallocatedtosupportthedevelopmentofCCS,butithasnotsetouthowthiswillbepaidfor.Theavailabilityoflow-carbonhydrogenwillbeconstrainedinthenear-term,whichmayriskanover-relianceonfossilfuel-basedhydrogen;•Energystorage—Thereiscurrentlynopolicytosupportthedeploymentoflong-durationenergystorage;and•Energydemand—Whilereducingdemandshouldbeattheheartofthetransitiontoadecarbonisedpowersystem,existingenergyefficiencyprogrammesarenotoperatingatsufficientscaleandtheGovernment’sadditional£6billionoffundingforenergyefficiencyisnotavailableuntil2025.Offshorewind55.TheUKisaworldleaderinoffshorewind,withthelargestfleetofturbinesoutsideChina.152OffshorewindiswidelyexpectedtoprovidethebulkoftheUK’selectricityinfuture.TheClimateChangeCommittee(CCC)hassuggestedthatby2050theUKmayhavebetween65and125GWofoffshorewindcapacity,upfrom13GWtoday.153152IndependentreportoftheOffshoreWindChampion,SeizingourOpportunities,March2023153ClimateChangeCommittee,TheSixthCarbonBudget–electricitygeneration,December202029DecarbonisationofthepowersectorMeanwhile,theOffshoreRenewablesCatapultestimatedthat,withthepotentialoffloatingoffshorewind,atleast600GWofoffshorewindcapacitycouldbedeployedinUKwaters.154TheGovernmentisaimingfor50GWofoffshorewindtobedeployedby2030,includingupto5GWoffloatingwind.155Achievingthistargetisexpectedtodrive£155billionofinvestmentintheUK,supportingaround100,000jobs.156However,itwillrequireanextra37GWtobedeployedineightyears,froma13GWbase.TheDepartmentforEnergySecurityandNetZero(DESNZ)isinternallymonitoringaround80GWofoffshorewindcapacityinvariousstagesofdevelopment.157AccordingtotheNationalAuditOffice,inJanuary2023,thisincludedapproximately27GWatthestageofeithersecuringplanningpermissionorinvestment,orunderconstruction,andaround40GWatthepre-planningstage.15856.Notalloffshorewindprojectsinthepipelinewillproceed.Bottlenecksintheprocess,suchastheexcessivetimetakentogainplanningpermissionandconsentandsecureagridconnection,areputtingtheGovernment’stargetatrisk.159TheGovernmentstatedthatthedevelopmentanddeploymentofoffshorewindfarmscurrentlytakesupto13years.160RenewableUK,atradebodyforrenewableenergy,toldusthat“newoffshorewindsitesleasedinthelasttwoyearsarebeingofferedgridconnectiondatesfrom2032onwards”.161Meanwhile,gainingthenecessaryplanningpermissionandconsentfornewoffshorewindprojectscurrentlytakesbetweenthreeandfiveyears.162NooffshorewindprojecthasbeenrecommendedforapprovalbythePlanningInspectoratesince2017.Allprojects,whichamountedto6GW,werereferredtotheSecretaryofStatetobereviewedbeforeheconfirmedapproval.163Wefoundastrongconsensusthatamoreco-ordinatedandefficientplanningsystemandgridconnectionsprocessareneededtoachievetheGovernment’stargetof50GWofoffshorewindby2030.164(OuroverarchingrecommendationsonnetworksandplanningaresetoutinChapter6.)57.DESNZintendstoreducethetimeittakesforanoffshorewindfarmtobecomeoperationalbycuttingtheprocessingtimebymorethanhalf,includingachievingplanningconsentinoneyearratherthanfour.165ThestepstheGovernmentistakingtoachievethisinclude:•Speedinguptheapplicationprocessbystreamliningregulationsandupdatingguidancetomakesureitisproportionate.Itispilotinganewfasttrackprocess154ORECatapult(DPS0100)155DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April2022156RenewableUK,RetainingtheUK’sleadershipinrenewablesRecalibratingpolicyinthemidstofanenergycrisisandincreasingglobalcompetition,February2023157NationalAuditOffice,Decarbonisingthepowersector,HC1131,1March2023;RenewableUKestimatedthattheUKcurrentlyhasapipelineof99.8GWofoffshorewind.See:“UK’soffshorewindpipelinecloseto100GWmark,RenewableUKconfirms”,Edie,16March2023158NationalAuditOffice,Decarbonisingthepowersector,HC1131,1March2023159RWE(DPS0088);GlennmontPartners(DPS0039);Ørsted(DPS0073);NationalAuditOffice,Decarbonisingthepowersector,HC1131,1March2023;ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023160DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April2022161RenewableUK(DPS0004)162ibid.163BPplc(DPS0089);EDF(DPS0059);RenewableUK(DPS0004)164Seeforexample:RWE(DPS0088);GlennmontPartners(DPS0039);Ørsted(DPS0073);RenewableUK(DPS0004);EDF(DPS0059)165DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April2022Decarbonisationofthepowersector30forcertainNationallySignificantInfrastructureProjects,166includingoffshorewind,withpowersfortheSecretaryofState(beinggrantedintheLevellingUpandRegenerationBill)tosetshortertimelinesforcertainprojects.167TheGovernmentwillconsultonitsproposalsforfast-trackconsentinspring2023,withpilotsbeginningfromlateautumn.168•Thepublicationofacross-governmentNationallySignificantInfrastructureProject(NSIP)ActionPlan,whichsetsouthowtheGovernmentwillreformtheNSIPconsentingprocesstoensuretheplanningsystemcandeliverforthefuture,whichoffshorewindprojectswillbenefitfrom.169•ConsultingonupdatingtheEnergyNationalPolicyStatements170toensuretheyreflecttheimportanceofoffshorewind.171•PuttinglegislationinplacethroughtheEnergyBilltostreamlinetheoffshorewindconsentingprocessbyintroducingtheOffshoreWindEnvironmentalImprovementPackage,includingregulationstoadaptenvironmentalassessmentsforoffshorewind,enablestrategiccompensationandintroduceMarineRecoveryFunds.17258.Eachoffshorewindfarmisrequiredtohaveitsownradialconnectiontothetransmissionnetwork.Thismeansthateachnewfarmrequiresnewonshoreconstructionworktoconnecttothegrid.Tominimisetheimpactonlocalcommunitiesandreducecosts,theGovernmentisundertakingtheOffshoreTransmissionNetworkReviewaimedatestablishingamorestrategicapproachtogridinfrastructuretosupportoffshorewind.173Aspartofthis,NationalGridElectricitySystemOperator(ESO)publishedtheHolisticNetworkDesigninJuly2022,settingoutforthefirsttimeastrategic,coordinatedplanfortheelectricitynetworkneededtosupport50GWofoffshorewindby2030.174TheGovernmentwillconcludetheOffshoreTransmissionNetworkReview,withthepublicationthissummerofrecommendationsforaFutureFramework.TheFutureFrameworkwillbuilduponchangesimplementedundertheOffshoreTransmissionNetworkReviewtoenabledeliveryofamorestrategicapproachtooffshorewindandassociatedtransmissioninfrastructure.175TheGovernmentisalsoconsultingoncommunitybenefitsforhostingcriticaltransmissioninfrastructure.176166NationallySignificantInfrastructureProjectsarelarge-scaleprojectsrelatedtoenergy,transport,waterandwaste,whichareofnationalimportanceandgothroughaseparateplanningprocesstootherinfrastructureprojects.167Levelling-upandRegenerationBill,HLBill84168DepartmentforLevellingUp,HousingandCommunities,Policypaper:NationallySignificantInfrastructure:actionplanforreformstotheplanningprocess,23February2023169ibid.170NationalPolicyStatementsareproducedbytheGovernmenttosetobjectivesforthedevelopmentofnationallysignificantinfrastructureinaparticularsectorandtoprovidethelegalframeworkforplanningdecisions.TheNationalPolicyStatementforEnergysetsouttheGovernment’spolicyforthedeliveryofenergyinfrastructure.ItprovidesthelegalandpolicyframeworkfordecisionsbytheSecretaryofStateonapplicationsforenergydevelopmentsthataredeemed“nationallysignificant”underthePlanningAct2008.171DepartmentforEnergySecurityandNetZero,Planningfornewenergyinfrastructure:revisionstoNationalPolicyStatements,30March2023172EnergyBill,HLBill130173HMGovernment,‘Offshoretransmissionnetworkreview,’accessedon13April2023174NationalGridElectricitySystemOperator,Pathwayto2030Aholisticnetworkdesigntosupportoffshorewinddeploymentfornetzero,July2022175HMGovernment,PoweringupBritain:EnergySecurityPlan,30March2023176DepartmentforEnergySecurityandNetZero,CommunityBenefitsforElectricityTransmissionNetworkInfrastructure,March202331Decarbonisationofthepowersector59.InMay2022,theGovernmentappointedTimPickastheUKOffshoreWindChampion—anindependentadvisortogovernmentonthedevelopmentoftheUK’soffshorewindsector.On5April2023,afterayearofengagingstakeholders,hisfinalreportwaspublished,settingoutasetofcomprehensiverecommendationstoaccelerateoffshorewinddeployment.177MrPick’smainmessage,whichreflectstheevidencetakenthroughoutourinquiry,wasthat,whiletheUKhasbeenagloballeaderonoffshorewindtodate,theglobalmarketisbecomingincreasinglycompetitive—andtheUKmaynotretainitsleadershippositionwithoutmoreswiftandtargetedpolicyinterventions.178HestatedthatifMinisters“takejustonemessagefromthereport,itshouldbetheurgentneedtoupgradeournationalgrid”,andthat“absenttheimplementationoffurthermeasurestoaccelerateGridConnections,deploymentofaround40GWbytheendof2030maybeachievable,butthe50GWambitionfromtheBritishEnergySecurityStrategywillbemissed.”179Thereport’srecommendationsincludemeasuresto:reducethetimetakentoplanandconsentoffshorewindfarms,tackledelaysforgridconnections,andreformOfgem’sremittoensurecleanenergyprojectssuchasoffshorewindcanbeprioritised.180Thereportalsosuggestedthecreationofan‘IndustrialGrowthPlanforOffshoreWind’.Thiswoulddetailhowsupplychainsandtheskillsbasecouldgrow,tokeepasmuchoftheeconomicbenefitofthesector’sgrowthwithintheUKaspossible.18160.TheUK’soffshorewindsectorisasuccessstory.TheGovernmenthasambitiousplanstoscaleupoffshorewinddeployment,maximisingthepotentialoftheUK’snaturalresources.However,unlessrapidlyaddressed,currentbottlenecksintheprocesswillstandinthewayoftheGovernmentachievingitsambitionfor50GWofoffshorewindtobedeployedby2030.WhilewecommendtheGovernmentfortheworkbeingdonetospeedupthedeploymentofoffshorewind,andtoensurelocalcommunitiesthathostcriticaltransmissioninfrastructurebenefitfromdoingso,itisunfortunatethattheGovernmentisonlynowconsultingintheseareas.61.Inresponsetothisreport,theGovernmentshouldsetouthowitismonitoringprogressagainstitsambitiontodeploy50GWofoffshorewindby2030.TheGovernmentshouldalsosetouthowitwillberespondingtotherecommendationsoftheUKOffshoreWindChampion.Furthermore,localcommunitieswhichhostcriticalnationalinfrastructuremustseetangiblebenefitsfromdoingso,andconnectionsbetweenoffshorewindfarmsandtransmissionnetworksneedtobebetterco-ordinatedtominimisedisruptionforlocalcommunities.WeasktheGovernmenttosetouthowitwillensureappropriateoversightofCrownEstatedecision-makinginrespectofsocialvalueandimpactforlocalcommunities.Floatingoffshorewind62.Floatingoffshorewind182isanemergingtechnologywhichcanbedeployedindeeperwaterswherewindspeedsaremoreconsistent.TheUKhasthelargestpipelineoffloatingwindprojectsgloballyandthemostambitiousnationaltarget:5GWby2030,asexpressedintheBritishEnergySecurityStrategy,whichcoulddeliveraGrossValue177IndependentreportoftheOffshoreWindChampion,SeizingourOpportunities,March2023178ibid.179ibid.180ibid.181ibid.182Floatingoffshorewindfarmscomprisewindturbinesinstalledonfloatingplatforms(substructures)anchoredtotheseabedbymeansofflexibleanchors,chainsorsteelcables.Decarbonisationofthepowersector32Addedof£43.6billionand29,000jobsintheUK.183TheFloatingOffshoreWindTaskforceestimatedthat,by2040,34GWoffloatingoffshorewindcouldbedeployed.184Significantinvestment,however,wouldberequiredtoachievethisindustrialscaleofdeployment.185RenewableUKemphasisedtheneedtoensurethattheestablishedsupplychaincompaniesinoffshorewind,andoilandgascompanieswhocoulddiversifytheirfloatingexpertiseintothesector,leadthewayindevelopingfloatingtechnologyandexpertisesothattheycancapitaliseonthefutureglobalmarketforit.18663.ThethreemainregionsforfloatingoffshorewinddevelopmentintheUKareScotland,theCelticSea(surroundingWalesandSouthWestEngland)andtheNorthEastofEngland.187MuchoftheUK’soffshorewindresourcesarecurrentlylocatedinScotlandandalongtheeastcoastofEngland,aswellinNorthWalesandtheNorthWest.188Regen,anindependentcentreofenergyexpertise,toldusthatwhiletheCelticSeahadpreviouslybeen“overlooked”foroffshorewinddevelopmentduetoitsdeeperseabed,itprovidesamajordevelopmentopportunityforfloatingoffshorewindduetoitsdeepwatersandstrongwinds.189ExpandingfloatingoffshorewindintheCelticSeaoffersthepotentialtospreadtheUK’swindportfoliooutacrossthecountry,leadingtoimprovedsystembalancingandreducedwholesystemcostsbyaccessingdifferentweatherpatternsacrosstheUK.64.Thereareseveralchallengesfacingthefloatingoffshorewindsector,includinggridconnectivity,portsandlogisticsandsupplychaindevelopment.190TheOffshoreRenewableEnergyCatapultoutlinedthattheUK“doesnothaveinfrastructurecapability,orcapacity,requiredtosupportanumberofkeylargescalefloatingoffshorewindconstructionactivities”.191Floatingoffshorewindplatformscanmeasureupto80metresacrossandweighthousandsoftonnes.By2030,floatingoffshorewindturbinesmaybeastallasTheShard(300metres).192Portrequirementsforthemanufactureandassemblyoffloatingoffshorewindcomponentsarethereforeconsiderable.Portswillactastemporaryconstructioncompoundswherefloatingstructuresareassembledandintegratedwiththetower,windturbinegeneratorandblades.Somemanufacturingandfabricationisalsolikelytobedoneattheport-side.193Ensuringthatportinfrastructureispreparedforthesefunctionsiskeytoenablinglocalsupplychainsandmanufacturing.AsHenrikL.Pedersen,theCEOofAssociatedBritishPorts,whichowns21portsacrosstheUK,toldtheHouseofCommonsWelshAffairsCommittee:183IndependentreportoftheOffshoreWindChampion,SeizingourOpportunities,March2023;DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April2022184RenewableUK,FloatingOffshoreWindTaskforce:IndustryRoadmap2040,March2023RenewableUK,FloatingOffshoreWindTaskforce:IndustryRoadmap2040,March2023185ibid.186AccordingtoRenewableUK,thefutureglobalmarketforfloatingoffshorewindisestimatedtobebetween200–250Wby2050,representingbetween400–500billionincapitalexpenditureinvestmentalone.See:RenewableUK,RetainingtheUK’sleadershipinrenewables,February2023187OffshoreRenewableEnergyCatapult,FloatingOffshoreWindCentreofExcellence:StrategicInfrastructureandSupplyChainDevelopment,May2022188CrownEstate,OffshoreWindReport2021,May2022189Regen(DPS0071)190OctopusEnergy(DPS0072);Regen(DPS0071);IndependentreportoftheOffshoreWindChampion,SeizingourOpportunities,March2023;WelshAffairsCommittee,SecondReportofSession2022–23,FloatingOffshoreWindinWales,HC1182191OffshoreRenewableEnergyCatapult,FloatingOffshoreWindCentreofExcellence:StrategicInfrastructureandSupplyChainDevelopment,May2022192WelshAffairsCommittee,SecondReportofSession2022–23,FloatingOffshoreWindinWales,HC1182193RWE,‘Ports,people,andsupplychainpartners,’October202233DecarbonisationofthepowersectorInsimpleterms,dowecontinuetomanufacturethecomponentsoverseas,importitheretoPortTalbotandthenassembleit,ordowerepurposetheportforwhatIreallyhopewearegoingtodo,whichistobringinalotofmanufacturing.19465.TheGovernmentrecentlyannouncedthatupto£160millionofgrantfundingwillbedistributed,viatheFloatingOffshoreWindManufacturingInvestmentScheme,tosupportcriticalportinfrastructurethatwillenablethedeliveryoffloatingoffshorewind.195However,theFloatingOffshoreWindTaskforce,anindustryinitiative,estimatedthat£4billionofinvestmentinportinfrastructurewouldberequiredbytheendofthedecade.196Itcalculatedthatevery£1investedinUKportfacilitieswouldgenerateupto£4.30ofaddedvaluetotheeconomy.197TimPick,theUKOffshoreWindChampion,highlightedthatwhiletheschemeishelpfulinde-riskingcapital,itisnotdesignedtoaddressthekeyriskofconcerntoportoperatorswhichislongertermoffshorewindmarketrevenuecertainty.198Henotedthat“portsseemtostruggletobuildaninvestmentcasetoserviceamarketwhich,althoughinprinciplequiterobust,issubstantiallydefinedbyGovernmentenergypolicy,seabedleasingandContractforDifferenceauctions,aswellasotherenablerssuchasthebuildoutofnationalgridupgrades”.199HerecommendedthattheGovernmentexploresasupportframeworkforOffshoreWindportstargetedatthatriskbyofferingalonger-termrevenuefloor.20066.FloatingoffshorewindoffersthepotentialtoexpandanddiversifytheUK’sportfolioofwindprojects,includingtotheCelticSea.SignificantnewinvestmentinUKportswillbeneededtoenablefloatingoffshorewindtobedeployedatscaleandtoharnesslocalsupplychainsandmanufacturing.TheGovernment’sFloatingOffshoreWindManufacturingInvestmentScheme,thoughwelcome,maynotaddressthekeyconcernofportoperators—longtermmarketrevenuecertainty.Toprovideportswiththeconfidencetomakelong-terminvestmentsinthenecessaryinfrastructureforfloatingoffshorewind,theGovernmentshouldprovidepolicycertaintythatde-riskstherequiredinvestmentinports.Onshorewind67.Thereiscurrently14GWofonshorewindcapacityintheUK.201TheUKwillhave20GWinstalledoncecurrentprojectsarecompleted,includingthoseunderconstructionandthosewithplanningconsent.England,however,onlyhas3GWofonshorewindinstalled.202Regenhaspointedoutthat“thepipelineofapprovedonshoreprojectsreadyfordevelopmentinEnglandisnearemptyfollowingyearsoftightrestrictions”.203While194WelshAffairsCommittee,SecondReportofSession2022–23,FloatingOffshoreWindinWales,HC1182195DepartmentforEnergySecurityandNetZero,FloatingOffshoreWindManufacturingInvestmentScheme,March2023196“GovernmentmuststepupambitiononfloatingwindtosecureindustrialbenefitsforUKports”,RenwableUK,30March2023RenewableUK,‘GovernmentmuststepupambitiononfloatingwindtosecureindustrialbenefitsforUKports’,30March2023197ibid.198IndependentreportoftheOffshoreWindChampion,SeizingourOpportunities,March2023199ibid.200ibid.201WindPower,QuestionforDepartmentforBusiness,EnergyandIndustrialStrategy,UIN97704,tabledon28November2022202HCDebate,25October2022,col.136,[OnshoreWindFarms]203Regen,Planningreformsforonshorewind,February2023Decarbonisationofthepowersector34theScottishGovernmenthassetatargettodeploy20GWofonshorewindby2030,thereisnoequivalenttargetinEnglandandWales.204TheGovernment’sdecisionnottoincludetargetsforexpandingonshorewindintheBritishEnergySecurityStrategywaswidelyseenasamissedopportunitytoharnessoneofthecheapestandfastestsourcesofelectricitytodeploy.205Beforethespikeininternationalgasprices,RenewableUKsaidthatdeploying30GWofonshorewindby2030couldsaveUKconsumersanestimated£16.3billion—£25perhouseholdperyear.206Thesesavingswouldbepossiblebecausethecostofelectricityfromnewonshorewindprojectsislowerthanthewholesaleelectricityprice.OnshorewindgenerationbroughtforwardthroughtheContractsforDifferenceschemewouldthereforepaymoneybacktoconsumers.Deploying30GWofonshorewind,RenewableUKsuggested,wouldcreatealmost30,000jobs,particularlyinScotland,Wales,NorthernIrelandandtheNorthofEngland.20768.InEngland,changestotheplanningsystemin2015ledtoadefactobanonnewonshorewind.OnshorewindfarmsarenotclassifiedasNationallySignificantInfrastructureProjects,meaningthatplanningdecisionsaboutdevelopmentsaretakenlocally.InJune2015,thethenGovernmentannouncedchangestotheNationalPlanningPolicyFramework(NPPF).UndertheNPPF,localplanningauthoritiesshouldonlygrantpermissionforoneormoreturbinesiftheproposedsitehasfirstbeenidentifiedassuitableplaceforwinddevelopmentinalocalorneighbourhoodplan,andif,afterconsultation,“itcanbedemonstratedthattheplanningimpactsidentifiedbytheaffectedlocalcommunityhavebeenfullyaddressedandtheproposalhastheirbacking”.Thesechangesledtoa96%dropinthenumberofplanningapplicationsfornewonshorewindcapacityinEngland.208RWE,theUK’slargestpowergenerator,saidthatmeetingtherequirementsforonshorewinddevelopmenthasbeennearlyimpossible.209Veryfewlocalauthorityplanshaveidentifiedsitessuitableforonshorewinddevelopment.RenewableUKtoldus“ifjustonepersonobjectstoanonshorewindfarmplanningapplicationitcanberejectedbythelocalauthority”.210RenewableUKtoldusthatonly9%ofpeoplepreferthecurrentsystem,whereawindfarmcanbeblockedifonlyonememberofthecommunitydisagrees.Itsaidthatover80%ofthepublicbelievethatonshorewinddevelopmentsshouldbeapprovedifthemajorityofthelocalcommunitysupportit.21169.ThecurrentGovernmentmaintainsthatplanningdecisionsaboutonshorewindarebesttakenbylocalauthoritieswhoknowtheirareasandareclosertocommunities.212However,ithasconsultedonchangestotheNPPF,whichwouldrelaxsomeoftheguidanceontheapprovalofonshorewind.213TheGovernmentisduetopublishitsresponsetothatconsultationbySpring2023.214TheGovernmenthasproposedtogivelocalauthorities204ScottishGovernment,Onshorewind:policystatement2022,December2022205Seeforexample:MCSCharitableFoundation(DPS0010);EnergyUK(DPS0023);UK100(DPS0047);TheRSPB(DPS0050);IndependentRenewableEnergyGeneratorsGroup(DPS0054);GlennmontPartners(DPS0039);RenewableUK(DPS0004);EDF(DPS0059);E.ON(DPS0082);RES(DPS0081)206RenewableUK,Theonshorewindindustryprospectus,October2021207ibid.208UK100(DPS0047).Between2015–2020,therewasa96%dropinplanningapplicationsfornewonshorewindprojectscomparedto2011–2015.209RWE(DPS0088)210“Government’splanningreformsfailtobringbackonshorewindinEngland”,RenewableUK,2March2023211RenewableUK(DPS0004)212DepartmentforLevelling-Up,HousingandCommunities,Levelling-upandRegenerationBill:reformstonationalplanningpolicy,December2022213ibid.214HMGovernment,Powering-UpBritain:EnergySecurityPlan,March202335Decarbonisationofthepowersectorarangeofroutestodemonstratethesuitabilityofasite,inplaceoftherequirementforsitestobedesignatedinlocalplans.215Wheresuitablesiteshavebeenidentified,theGovernmenthassuggestedthatpermissionispredicatedon“satisfactorilyaddressing”,ratherthan“fullyaddressing”theimpactsidentifiedbythelocalcommunityandbydemonstratingprojectshavelocalbacking.21670.However,thereisconcernacrosstheenergysectorthatthechangestotheNPPFproposedbyGovernmentareunlikelytounlocksignificantopportunitiesforonshorewinddevelopmentinEngland.217Regenstatedthattheproposedchanges“donotgofarenoughtoresolvethesignificantplanningbarriersfacinglocalauthorities,developers,andcommunitygroupsinapprovinganddevelopingnewonshorewindprojects”.218Furthermore,thatevenwiththeseamendments,onshorewindwouldstillbesubjectto“stricterrulesthananyotherprojectrequiringplanningpermission[..]orevenfossilfuelgeneratorssuchasdieselorgas”.219Industryhasalsowarnedofthechallengeindefiningsubjectivetermssuchas“satisfactorilyaddressing”clearlyenoughtobuildconfidencefromthesectorandlocalauthorities.220RenewableUKcalledforthemeasuresintroducedin2015tobereversed.22171.TheGovernmentisalsoplanningtoconsultonhowbesttodeveloplocalpartnershipswithcommunitiesthatarewillingtohostonshorewindfarms,sothatthosewhowishtocanbenefitfromdoingso,suchasthroughlowerenergybills.Therearealreadysuccessfulschemesinplacetorewardlocalcommunitiesforhostingonshorewind.Forexample,OctopusEnergyoffersdiscountstohouseholdschoosingtolivenearanonshorewindfarm.222Repoweringonshorewind72.MuchoftheUK’solderonshorewindfarmstockisapproachingtheendofitslifeandneedstoberepowered.223Repoweringinvolvesreplacingoldturbineswithnewertechnology,allowingtheUKtomaintain,orincrease,outputusingfewerturbines.Thedecisiononwhethertorepowerordecommissionassetsthatreachtheendoftheirlifetimeappliestoothertechnologiestoo,butismoreofariskforonshorewindintheshorttomediumterm,accordingtotheGovernment’sanalysis.224Around40onshorewindprojectsareduetoreachtheendoftheiroperatinglifeby2024.225By2027,70projectsmayneedtoberepowered.226TheGovernment,by2030,expects1.4GWofonshorewindturbinestohavereachedtheendoftheirlifetime.227AccordingtoRenewableUK,215DepartmentforLevelling-Up,HousingandCommunities,Levelling-upandRegenerationBill:reformstonationalplanningpolicy,December2022216ibid.217“Government’splanningreformsfailtobringbackonshorewindinEngland”,RenewableUK,2March2023;Regen,Planningreformsforonshorewind,February2023218Regen,Planningreformsforonshorewind,February2023219ibid.220ibid.221“Government’splanningreformsfailtobringbackonshorewindinEngland”,RenewableUK,2March2023222RenewableUK(DPS0004)223ScottishPower(DPS0090)224DepartmentforBusiness,EnergyandIndustrialStrategy,ContractsforDifferenceforLowCarbonElectricityGeneration:ConsultationonpolicyconsiderationsforfutureroundsoftheContractsforDifferencescheme,February2023225ibid.226ibid.227ibid.Decarbonisationofthepowersector36installationsprovidingover8GWofonshorewindcapacity,enoughtopower5millionhomes,willbe“pasttheirexpectedlifespans”by2040.22873.Repoweringcanmakeuseofexistingonshorewindsitesmoreefficiently.RenewableUKtoldusthatwindfarmswhichhavealreadyrepoweredhaveincreasedtheircapacityby160%,usingjusttwo-thirdsoftheturbinestheyusedto.229TheIndependentRenewableEnergyGeneratorsGrouptoldusthatexistingsiteshavebeenselectedbecauseoftheirsuitability,andthatdecommissioningthesesitescouldresultintheneedtofindnew,lesssuitable,siteselsewhere.230TheGovernmentacceptsthatafailuretoreplaceoldturbineswithnewermodelswouldleadtoalossofcheapelectricityandcreatetheneedtosubstitutethiscapacitywithprojectselsewhere.23174.Repoweringhasseveralchallenges.Mostoftheinfrastructureneedstobereplaced,whichmeansthatthecostofrepoweringissimilartobuildinganewwindfarm.232Whilerepoweredsitescanuseexistinggridconnections,theyarelikelytoneedgridreinforcements233tomaximisethebenefitsofnew,moremodernturbines.23475.Furthermore,repoweredassets—includingonshorewindandotherrenewableassets—mayneedfinancialincentives.Thisisbecauseofpricecannibalisation,whichcandrivethewholesalepriceofrenewablesdownsubstantiallytothepointwherecompaniesarenolongermakingareturnontheirinvestment.235AdamBellfromStonehaven(aconsultancy)explained:thereisabigclassofassetsthat,inthemid-2030s,willfindthemselvesgoing,“Wethoughtwewerestillgoingtobemakingmoneyoffthis.Itturnsoutthatwecannotbecausepricesareprettymuchzeroeverytimethatwegenerate”.236ThereissomethingherearoundanewclassofCfDs[ContractsforDifference]forrepoweredorlife-extendedassetsthatenableyoutogointotheinitialauctionandsay,“Actually,IknowIamgoingtobeabletoaccesspricestabilitypostthetermsofthisCfD.Therefore,Icanbidlowerandpassthosesavingsontoconsumers”.237SSEalsotoldusthatmarketsignalsneedtovaluebothnewandexistingtechnologiesequally,otherwise“pricecannibalisationcausedbynewzeromarginalcostgenerationsupportedbyCfDsmaycloseexistinggenerationprematurelyastheyareunabletocovertheirongoingcoststhroughmarketsignals”.238IntherecentPoweringUpBritain:EnergySecurityPlan,theGovernmentpromisedtoconsiderthehowrepoweredprojectscouldbe228RenewableUK(DPS0004)229ibid.230IndependentRenewableEnergyGeneratorsGroup(DPS0054)231DepartmentofLevelling-Up,HousingandCommunities,Levelling-upandRegenerationBill:reformstonationalplanningpolicy,December2022232IndependentRenewableEnergyGeneratorsGroup(DPS0054)233Gridreinforcementsinvolveupgradingthegridsolinesarecapableoftransportinghigheramountsofelectricity.234IndependentRenewableEnergyGeneratorsGroup(DPS0054)235SSEplc(DPS0087);RenewableUK(DPS0004);Q421[AdamBell]236Thisisduetoaphenomenoncalled‘pricecannibalisation’.Pricecannibalisationoccursbecausewhenitiswindyandsunny,variablerenewablestendtogeneratetogether.Insomeperiodsthereisenoughgenerationfromonlyrenewablestomeettotaldemand,andthisdrivesthewholesalemarketpricedowntowardstheirshort-runmarginalcost(closetozero,asthesunandwindarefreeresources).Butbecauserenewablesareexpensivetobuild,theselowwholesalemarketpricesmaynotbeenoughtocovertheircapitalcosts.237Q421[AdamBell]238SSEplc(DPS0087);seealso:RenewableUK(DPS0004);37DecarbonisationofthepowersectorsupportedthroughContractsforDifference.23976.Wealsoheardthattheplanningsystemshouldincludeapresumptioninfavourofrepoweringexistingsites.240TheIndependentRenewableGeneratorsGrouptoldusthattheplanningsystemshouldnotonlyhaveapresumptioninfavourofrepoweringanexistingsite,therebyremovingtheneedtoseekplanningpermission“fromscratch”,butalsoapresumptioninfavourof“bigger,moreefficientwindfarms”.241TheGovernmenthasconsultedonproposalstoamendtheNPPFtosupport“re-poweringofrenewableandlow-carbonenergywhereplanningpermissionisneeded,andprovidingthattheimpactsofanydevelopmentproposalareorcanbemadeacceptableinplanningterms”.24277.TheBritishEnergySecurityStrategydidnotincludeatargetforonshorewind,eventhoughitisoneofthecheapestandquickestsourcesofrenewableelectricitytodeploy.WerecommendthattheUKGovernmentworkswiththeScottishandWelshGovernmentstoagreeaUK-widetargetforthedeploymentofonshorewindby2035,whichshouldinformaspecifictargettoincreasethedeploymentofonshorewindinEngland.78.WewelcometheGovernment’sdecisiontoreviewtheNationalPlanningPolicyFrameworkbutareconcernedthattheproposedchangesdonotgofarenoughtoencouragethenewonshorewindcapacitythecountryneeds.Theplanningsystemneedstogivemoreweighttocriticalinfrastructure,suchasonshorewind,thatisinthenationalinterest.IftheGovernment’sproposedreformstotheNationalPlanningPolicyFrameworkdonotresultinasubstantialincreaseintheamountofonshorewinddevelopmentinEngland,werecommendthattheGovernmentbringsonshorewindprojectsbackundertheregimeforNationalSignificantInfrastructureProjects,aswesuggestedinourreportontheRevised(Draft)NationalPolicyStatementforEnergy.79.WearepleasedthattheGovernmentislookingathowbesttosupportrepoweredassets.Replacingoldonshorewindturbineswithnewtechnologieswillhelpreducetheneedfornewcapacityelsewhere.TheGovernmentshouldintroduceaframeworkwhichsupportstheretentionofexistingonshorewindfarmsandotherrenewableassets,forexampleviatheContractsforDifferencescheme,whentheyneedtoberepowered.TheGovernmentshouldensurethattheplanningregimedeliversaclearpresumptioninfavourofrepoweringandlifeextensionsofonshorewindfarms.Solar80.TheUKcurrentlyhasamixofrooftopandground-mountedsolarinstallationsproviding14GWofsolarcapacity.Projectsforaround40GWofutility-scalesolarcapacityareinthepipeline,althoughonly7GWcurrentlyhaslocalplanningpermission.243Therehasbeenarapidgrowthinthedeploymentofrooftopsolar:installationsofrooftopsolarhavedoubledinthelastyear.244239HMGovernment,Powering-UpBritain:EnergySecurityPlan,March2023240RWE(DPS0088);RenewableUK(DPS0004);EnergyUK(DPS0023);IndependentRenewableEnergyGeneratorsGroup(DPS0054)241IndependentRenewableEnergyGeneratorsGroup(DPS0054)242DepartmentofLevelling-Up,HousingandCommunities,Levelling-upandRegenerationBill:reformstonationalplanningpolicy,December2022243Q56[ChrisHewitt]244Q4[ChrisHewitt]Decarbonisationofthepowersector3881.TheGovernmentisaimingfor70GWofsolarcapacitytobeinstalledby2035.Toachievethis,theGovernmentsaidthatitwouldneedtomaximisethedeploymentofbothrooftopandground-mountedsolar.However,solarcapacityiscurrentlyconstrainedbythelengthoftimerequiredtogainplanningpermissionandconsentandtosecureanetworkconnection.245LightsourceBP,whichinvestsanddevelopssolarenergyprojectsglobally,toldusthatsolarprojectscapableofgenerating4GWand£1.6billionininvestmentarecurrentlybeingheldupbyNationalGridandDistributionNetworkOperators246delayingconnectiondatesintothe2030s.TheNetZeroReview,ledbytheRtHon.ChrisSkidmoreMPandpublishedinJanuary2023,recommendedthattheGovernmentestablishataskforceandpublisharoadmaptohelpachieveits70GWambition.247InMarch2023,theGovernmentacceptedthisrecommendation,withplanstoestablishajointgovernment-industrytaskforceandpublishasolarroadmapin2024.24882.Duringthecourseofourinquiry,therewasuncertaintyregardingthedeploymentofsolarfarmsonagriculturalland.Underthepreviousadministration,theDepartmentforEnvironment,FoodandRuralAffairsconsideredredefiningthe“bestandmostversatile”land,earmarkedforfarming,toincludecategory3bland.249The‘bestandmostversatile’land(BMVland),undertheNationalPlanningPolicyFrameworkandNaturalEngland’sguidelines,includesgrade1,2and3alandbutnot3bland,250whichisconsideredtobemoderatequalitylandforagriculturalpurposes.251ReclassifyingBMVlandtoincludecategory3blandcouldhavesignificantlyrestrictedtheavailabilityoflandonwhichsolarfarmscouldbebuilt.Thespeculationcausedsignificantuneaseacrossthesolarindustry,aswellasconcernfromfarmerswhorelyonhostingsolarontheirlandforadditionalrevenuestreams.252TheGovernment,initsEnergySecurityPlanpublishedinMarch2023,clarifiedthatitwillnotbe“makingchangestocategoriesofagriculturallandinwaysthatmightconstrainsolardeployment”.25383.TheGovernment’saimfor70GWofsolarcapacitytobeinstalledby2035iswelcome.AchievingthisgoalwillrequiretheUKtorampupthepaceatwhichnewsolarcapacityisdeployed.WethereforewelcometheGovernment’sannouncementofasolarroadmapandtheestablishmentofadedicatedgovernment/industrytaskforce.WestronglywelcometheGovernment’sclarificationthatitisnotplanningtochangetheclassificationofagriculturallandinwayswhichwouldconstraintheexpansionoftheUK’ssolarcapacity.245NationalAuditOffice,Decarbonisingthepowersector,HC1131,1March2023;ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023246DistributionNetworkOperatorsowntheelectricitydistributionnetwork.247HMGovernment,MissionZero:IndependentReviewofNetZero,January2023248HMGovernment,RespondingtotheIndependentReviewofNetZero’sRecommendations,March2023249“MinistershopetobansolarprojectsfrommostEnglishfarms”,TheGuardian,10October2022250Grade1landmeansexcellentqualityagriculturalland,i.e.landwithnoorveryminorlimitations.Grade2landmeansverygoodqualityagriculturalland,i.e.landwithminorlimitationsthataffectcropyield,cultivationsorharvesting.Grade3aisclassifiedasgoodqualityagriculturalland,i.e.landcapableofconsistentlyproducingmoderatetohighyieldsofanarrowrangeofarablecrops.Grade3blandisdeemedmoderatequalityagriculturallandwhichislandcapableofproducingmoderateyieldsofanarrowrangeofcrops.251LetterfromRtHon.GeorgeEusticeMPtotheEAC,dated6September2022;Seealso:NaturalEngland,‘Guidetoassessingdevelopmentproposalsonagriculturalland,’February2021252“Factcheck:Issolarpowera‘threat’toUKfarmland?”,CarbonBrief,25August2022253HMGovernment,Powering-UpBritain:EnergySecurityPlan,March202339DecarbonisationofthepowersectorTidal84.IntheBritishEnergySecurityStrategy,theGovernmentpromisedto“aggressivelyexplorerenewableopportunities”affordedbytheUK’sgeographyandgeology,suchastidalenergy.254However,theGovernmenthasnotsetatargetforthedeploymentoftidalenergy.Thosewhoadvocateagreaterrolefortidalenergystatethatitcanofferastable,baseloadformofpowerbecausetidesarepredictableandcanbeforecast“yearsaheadoftime”.255RichardArnold,representingtheMarineEnergyCouncil,therepresentativebodyfortheUK’stidalstreamandwaveenergyindustries,toldusthatforthesereasonsitismoreaccuratetocomparetidalenergywithnuclearandgas,ratherthanwindandsolar.256InMarch2021,theHouseofCommonsEnvironmentalAuditCommitteeconcludedthatthereis“substantialpotentialforthetidalsectortomakeasignificantanddistinctcontributiontotheUK’sfuturemixofenergygeneratedfromrenewablesources”.257Therearedifferenttypesoftidaltechnology—tidalstream,tidalrangeandwaveenergy—atdifferentstagesofdevelopment.258Themostadvancedistidalstream.Approximately18MWoftidalstreamcapacityisinstalledintheUK:butthatfigureisduetoincreasetoover50MWby2027,a400%increaseincapacity,followingrecentContractsforDifferenceawardedtotidalstreamprojects.25985.Themainbarriertothedeploymentoftidalstreamhasbeencost.Thougheligible,tidalstreamprojectshavestruggledtowinaContractforDifferencebecausetheyhaveahigherstrikepricethanotherrenewables.260Unlikeoffshorewind,tidalstreamprojectshavenotbenefitedfromstablesubsidiestobringtheircostsdownovertime.ResearchpublishedbytheRoyalSocietyin2021suggestedthatbuilding124MWofcapacityby2031wouldputtidalstreamonatrajectorytodeliverupto11.5GWofcapacityby2050.Thisisequivalentto11%ofUK’scurrentelectricitydemand.261TheOffshoreRenewableEnergyCatapultestimatedthatat1GWcapacity,tidalstreamgenerationwouldbecostcompetitivewithnewnucleargenerationataround£90perMWhandonapathwaytobringingcostsinlinewithotherrenewables(toaround£50perMWh)by2047.262However,wewerealsotoldthatthecostoftidalis“stubbornlyhigh”andthatitisnotclearwhetherthesetechnologiescanbecostcompetitivewithwind,solarandbatteries.263254DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April2022255MarineEnergyCouncil(DPS0056)256Q70[RichardArnold]257LetterfromtheEACtoRtHon.KwasiKwartengMP,dated30thMarch2021258Tidalstreamusestheflowofthetide.Devicessitwithinthetidalflowandgenerateenergyusingrotorsdrivenbythetidalflow.Tidalstreamlookslikeunderseawind-turbineswhichareshorterandstrongertowithstandtheforceswithinthesea.Tidalrangeusestheenergyinthedifferenceinheightbetweenhighandlowtides.Artificialtidalbarragesorlagoonsmaybeconstructedtocapturethetidalrange.Turbinesinthebarrierorlagoongenerateelectricityasthetidefloodsintothereservoir;waterthusretainedcanthenbereleasedthroughturbines,againgeneratingelectricityoncethetideoutsidethebarrierhasreceded.Waveenergyisafunctionofwindstrength.Thesedevicesturnwaveenergyintoelectricalenergybyharnessingtheverticalcomponentofthewave’senergyandconvertingtoelectricalenergyeitherdirectlyorbyhydraulicmeans.Largescaledeploymentofwavedevicesmayco-locatewithfloatingwindplant.259InNovember2021,theGovernmentannouncedthat£20millionperyearhadbeenringfencedfortidalstreamprojectsinCfDAllocationRound4.See:“UKgovernmentannouncesbiggestinvestmentintoBritain’stidalpower”,DepartmentforBusiness,EnergyandIndustrialStrategy,24November2021260TheRoyalSocietyin2021reportedthatthestrikepricefortidalstreamwas£211MWh.See:RoyalSociety,AreviewoftheUKandBritishChannelIslandspracticaltidalstreamenergyresource,November2021261ibid.262OffshoreRenewableEnergyCatapult,CostreductionpathwayoftidalstreamenergyintheUKandFrance,October2022263Onward(DPS0002);seealso:KathrynPorter(ConsultantatWatt-Logic)(DPS0011)Decarbonisationofthepowersector40SomeformsoftidalenergywillalsohaveaninfrastructurelifecyclethatlastslongerthanthetraditionaltermofaCfD,whichcompoundsthehighcostduetotheneedtosecurehigherratesofreturnsoverashorterperiodoftime.86.InNovember2021,theGovernmentannouncedthat£20millionperyearwouldberingfencedfortidalstreamintheContractsforDifferenceauctionround4.264TheGovernmentcontinuestoprovideringfencedsupporttotidalstreambuthasreducedtheamountto£10millionperyear.265TheMarineEnergyCouncilobservedthat“areducedringfencewilldeliverfewerprojects,increasethecostofprojectdelivery,andriskstheUK’sfirstmoveradvantageinmarineenergy”.266TheMarineEnergyCounciltoldusthattidalstreamdevelopmenthasalmostexclusivelyutilisedUKsupplychaincontent—upto90%.267Thisallowsforexportopportunitiesforthesectorandreducesimportdependencyfromothercountries.87.WeagreethattheGovernmentshouldseektomaximisetherenewableopportunitiesaffordedbytheUK’sgeography,includingthepotentialbenefitsoftidalenergy.Unlikeoffshorewind,tidalstreamprojectshavenotbenefitedfromstablesubsidiestobringtheircostsdown.TheGovernment’srecentdecisiontoreducethetidalsteamringfencefrom£20millionto£10millionintheupcomingroundofContractsforDifferenceschememaydamagetheUK’sfirst-moveradvantageinmarineenergyandincreaseprojectcosts.However,werecognisethatsupportmustprovidevalueformoneyfortaxpayers.88.TheGovernmentshouldjustifytherationaleforloweringtheringfencedamountoffundingfortidalstreaminthelatestContractsforDifferenceauction,andweinvitethefutureEnergySecurityandNetZeroCommitteetoconsiderthatrationaleandtochallengeitifitthinksnecessary.WealsoasktheGovernmenttoconsiderlongertermCfDsfortidalenergy,reflectingthelongerlifecyclefortidalenergycomparedto,forexample,offshorewindturbines.Industryhasrequestedthesettingofatargetoftidalstreamdeploymentinordertosendfurthermarketsignals.WeasktheGovernmenttoconsidersettinga1GWtargetfortidalstreamby2035.NuclearNuclearcapacityintheUK89.Nuclearenergyisanestablishedsourceofstablebaseloadpower.268TheUKhas6GWofnuclearcapacitytoday,downfrom13GWin1999,whichproducesaround15%oftheUK’spowersupply.269TheUK’snuclearcapacityissettofallfurther:alltheUK’snuclearpowerstations,exceptSizewellB,areduetoberetiredby2028.270Bytheendof264“UKgovernmentannouncesbiggestinvestmentintoBritain’stidalpower”,DepartmentforBusiness,EnergyandIndustrialStrategy,24November2021265DepartmentforEnergySecurityandNetZero,ContractsforDifference(CfD):BudgetNoticeforthefifthAllocationRound2023,March2023266“TheMarineEnergyCouncilrespondstotheUKGovernment’sAR5announcement”,MarineEnergyCouncil,16March2023267MarineEnergyCouncil(DPS0056)268NationalGridElectricitySystemOperator(DPS0051)269WorldNuclearAssociation,‘NuclearPowerintheUnitedKingdom,’accessedon9April2023;DepartmentforBusiness,EnergyandIndustrialStrategy,DigestofUKEnergyStatistics:Chapter5Electricity,July2022270NuclearpowerintheUK,POSTnote687,ParliamentaryOfficeofScienceandTechnology,December202241Decarbonisationofthepowersectorthedecade,theUKwillhavejust4.4GWofnuclearcapacityinstalled.271TheNuclearIndustryAssociationtoldusithasbeen“knownfordecadeswhenthesestationswouldretireandthattheimpacthasbeenmoregasburning”.272DameSueIon,aninternationallyrecognisedexpertonnuclearpowerpolicy,toldus:Asthestablenuclearstationsclosedown,currentlytheonlyfirmpowerthatwehavethatisavailabletousiscoalandgas.Intimeswherethereislowwindandlowsolar,itwillbethefossilfuelsthatmakeupthatgapbecausethatiswhatthealternativeis.27390.ThefallinnuclearoutputwillbepartlyoffsetwhenHinkleyPointC(seeBox2),withacapacityofover3GW,comesonlineinthelate2020s.However,NationalGridElectricitySystemOperator(ESO)doesnotexpectnuclearcapacitytoreturntocurrentlevelsuntil2035.274Theroleofnuclearinthefutureenergymix91.TheBritishEnergySecurityStrategyincluded“anambition”fortheUKtoproduce“upto24GW”ofcivilnuclearpowerby2050.Thiscouldmeanthatnuclearenergywouldprovideupto25%oftheUK’selectricity.275Theultimateextentofnewnuclearcapacitywillinpracticebeinfluencedbythedevelopmentofalternativetechnologies(suchasenergystorage)andtheeconomicsofnuclearenergycomparedtootheroptions.ManyscenariosfortheUK’sfutureenergymixcontainsomedegreeofnuclearcapacity,butestimatesoftheoptimalamountofnuclearvaryconsiderably.27624GWismorethandoublethe10GWofnuclearpowertheClimateChangeCommittee(CCC)expectedunderitscentralpathwayforhowtheUKcangettonetzeroby2050inthemostcost-effectivemanner.277ItisalsomorethantheamountthatNationalGridElectricitySystemOperatorhassuggestedisrequired(5.5–17GW),butismorecloselyalignedwithexpectationsfromtheEnergySystemsCatapult(21–37GW).278Alow-carbon,reliablepowersupplyispossiblewithoutnuclearenergy,buttheUKwouldneedtodeploymorestorageandlow-carbonalternativeswhichareatanearlierstageofdevelopment(e.g.gasCCSandhydrogen).Nucleartechnologies92.TheGovernment’sprojectpipelineofnuclearcouldbemadeupofamixtureoftechnologiesincludinggigawatt-scalereactors,SmallModularReactors(SMRs)and,atalaterstage,AdvancedModularReactors(AMRs).Theprecisemixoftechnologiesisstilltobedecided.Thesetechnologiesareexplainedbelow:•Largegigawattsizedreactors:theGovernmenthasnotruledoutbuildingnewgigawatt-sizedreactors,providingthattheyoffervalueformoney.279SimonBowen,whohasbeenappointedtoleadGreatBritishNuclear,hassuggested271ThisincludesSizewellB(1.2GW)andHinkleyPointC(3.2GW).See:EDF(DPS0059)272Q231[LincolnHill]273Q238[DameSueIon]274NationalGridElectricitySystemOperator,FutureEnergyScenarios,July2022275DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April2022276“Q&A:WhatdoestheUK’snewenergysecuritystrategymeanforclimatechange?”,CarbonBrief,8April2022277ClimateChangeCommittee,TheSixthCarbonBudget–electricitygeneration,December2020278“Q&A:WhatdoestheUK’snewenergysecuritystrategymeanforclimatechange?”,CarbonBrief,8April2022279HMTreasury,SpringBudget2023,March2023Decarbonisationofthepowersector42thatatleasttwomoregigawatt-sizedreactors,inadditiontoHinkleyPointCandSizewellC,willbeneededtodeliver24GWby2050.280SizewellC(seeBox3)willusethesamedesignasHinkleyPointC(seeBox2).Byutilisingthesamesupplychain,skillsandexperience,SizewellCexpectstodeliverefficienciesfromHinkleyPointC.281•SmallModularReactors(SMRs)—SMRsusethesametechnologyasexistingreactorsbutaremanufacturedandtestedinfactoriesandassembledonsite.SMRsaresmallerthanconventionalreactors.RollsRoyceSMRestimatedthattheirdesignwouldcostaroundatenthofthecostofaconventionalnuclearreactorandcouldbedeployedbeforetheendofthedecade,ifadecisionismadeinthisParliament.282However,theNuclearConsultingGroup,anindependentinstitutespecialisinginnuclear,suggeststhat“SMRsmaywellprovemoreexpensivethanlargerreactorsperKW/hr—thekeyparameter”.283•AdvancedModularReactors(AMRs)—TheGovernment,inDecember2021,announceditspreferenceforHighTemperatureGasReactors(HTGR)andplanstobuildademonstratorreactorbytheearly2030sthroughanAMRResearch,DevelopmentandDemonstration(AMRRD&D)programme.284Urenco,whichprovidesuraniumenrichmentfacilities,toldusthatthesereactorsuseadvancednuclearfuels,unlikeSMRsandconventionalreactors.285Theyemphasisedthat“tosupporttheirdeploymentwithinthecurrentpolicyframework,theexistingfuelsupplychainwillrequiresignificantinvestmenttomeetthisnewdemandforadvancedfuels”.28693.Thereiscontinuingdebateaboutwhethernuclearpowercanoperateflexiblyenoughtocomplementasystemdominatedbyrenewables.287Nuclearpowerplantsaremoreefficientwhenruncontinuously.288TheCCCandNationalInfrastructureCommissionnotedthattheinflexiblenatureofnuclearpowercouldmakebalancingthegridharder.289However,theNuclearIndustryAssociationcitedexamplesoftheFrenchfleetofnuclearreactorssignificantlyloweringandraisingoutputtohelpmaintainthestabilityofthegrid.290Newnucleartechnologiesarealsoexpectedtooperatemoreflexiblythanexistingnuclearreactors.RollsRoyceSMR,forexample,toldusthat:Unlikeconventionalnuclearreactors,SMRs[smallmodularreactors]withmultipleunitsof470MWintroduceoptionalityandflexibilityintothegrid.PowerproducedbySMRunitscouldbeusedforalternativeapplicationsduringperiodsofhighrenewablesupplyandgeneratepoweragainforthe280OralevidencetakenbytheScienceandTechnologyCommitteeon18January2023,HC(2022–23)626,Qq414–416[MrHendrick]281NNBGenerationCompany(SZC)Limited(DPS0053)282Rolls-RoyceSMR(DPS0006)283NuclearConsultingGroup(NCL0014)284DepartmentforBusiness,EnergyandIndustrialStrategy,AdvancedNuclearTechnologies,January2023285UrencoLimited(DPS0013)286ibid.287Q242[DrDorfman];Q242[DameSueIon]288NuclearpowerintheUK,POSTnote687,ParliamentaryOfficeofScienceandTechnology,December2022289NationalInfrastructureCommission,OperabilityofHighlyRenewableElectricitySystems,February2021;ClimateChangeCommittee,TheSixthCarbonBudget–electricitygeneration,December2020290NuclearIndustryAssociation(NIA)(DPS0097)43Decarbonisationofthepowersectorgridwhenrenewablesupplyfallsordemandishigh.Forexample,powerfromaRollsRoyceSMRthatisnotrequiredforthegridcouldbeusedtomanufacturegreenhydrogentohelpdecarbonise.291DeliveringontheGovernment’sambitions94.TheGovernmenthassaidthatitwilltakeoneproject,SizewellC,toafinalinvestmentdecisionthisParliament,subjecttovalueformoney,followedbyanothertwointhenextParliament.292InitsPoweringUpBritain:EnergySecurityPlantheGovernmentsaidthatitwilldevelop“aprogrammeofnewnuclearprojectsbeyondSizewellC,givingindustryandinvestorstheconfidencetheyneedtodeliverprojectsatspeed,reducingcoststhroughlearningandreplication”.293TheGovernmenthasalsolaunchedGreatBritishNuclear(GBN),anarms-lengthbodyresponsiblefordrivingthedeliveryofnewnuclearprojects.294TheGovernmentsaidthatbytheendof2023,followingacompetition,itplanstoselectthe“leadingtechnologies”ofSMRs(smallmodularreactors)fordeploymentintheUK.295TheGovernmentwillprovideco-fundingtosupportthedevelopmentofthesetechnologiesandwillworkwithsuccessfulbidderson“ensuringtherightfinancingisinplace”,inlinewithitscommitmenttotaketwoFinalInvestmentDecisionsinthenextParliament.29695.Despitetheseactions,itisnotclearthattheGovernment’splansareenoughtoattractprivateinvestmentintonewnuclearprojects.NuclearisanindustrywheretheGovernmentfacesglobalcompetitiontoattractinvestment,297andweweretoldthatothercountriesaremovingfasterthantheUK,withlargecommitmentstobuildnewnuclearfleets.298Forexample,Francehascommittedtobuilding14reactorsaspartofitsplanstoachievenetzero.DameSueIontoldusthat“onedesignforeachParliamentisjustacrazywaytodothings”.299Costsanddelays96.Nuclearcapacityisexpensivetobuild,butitcouldhelpreducetheoverallcostofasystemdominatedbyrenewablesbypreventingtheneedtopaywindandsolargeneratorstocurtailtheiroutput.TheCCCestimatedthatby2050thecostofnuclearpowerislikelytobedoublethecostofoffshorewindandsolar.300Largescalenuclearpowerstationscostsubstantiallymoretobuildthanothersourcesofgeneration.Intheirwrittensubmissiontoourinquiry,researchersfromImperialCollegeLondonarguedthatbuildingmorenuclearcanonlybejustifiedifthecostsaremuchlowerthanHinkleyPointC.301However,accordingtoFrenchutilityEDFwhichisleadingtheHinkleyPointCproject,buildingmorenuclearplantscouldhelpreducevolatilityinenergypricesbyreducingtheUK’sexposuretointernationalgaspricesandloweringtheoverallcostofthesystem,reducingthecurtailmentofintermittentrenewables.302291Rolls-RoyceSMR(DPS0006)292DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April2022293HMGovernment,PoweringUpBritain-EnergySecurityPlan,March2023294ibid.295ibid.296ibid.297NuclearIndustryAssociation(DPS0064)298NuclearIndustryAssociation(DPS0064);Q228[DameSueIon]299Q235[DameSueIon]300ClimateChangeCommittee,TheSixthCarbonBudget–electricitygeneration,December2020301TheIntegratedDevelopmentofLow-CarbonEnergySystems(IDLES)Programme,ImperialLondon(DPS0048)302NNBGenerationCompany(SZC)Limited(DPS0053);EDF(DPS0059)Decarbonisationofthepowersector4497.Largescalenuclearprojectsfrequentlyexperiencedelaysandcostoverruns.303HinkleyPointCinSomersetisnowconsiderablyoverbudgetandnotduetocomeonlineuntil2027(seeBox2).Thenuclearindustrysuggestedthatthestop-startnatureofnuclearconstruction,whereprojectsarebuiltinisolation,ispartoftheproblem.EDF,forexample,toldusthatinternationalexperiencesuggeststhatthereplicationofan“establishedstabledesignandsupplychain”arethemostimportantfactorsindeliveringnuclearprojectsontimeandonbudget.304EDFcitedHinkleyPointCasanexampleofwhereproductivitygainsof20–30%havebeenachievedontheconstructionofthesecondunit.30598.Newer,modulardesignedreactorsareintendedtoaddresssomeofthisproblem,asmostoftheconstructionandtestingtakesplaceinafactorybeforethecomponentsareassembledonsite.306RollsRoyceSMRemphasisedthattheUK“cannotdelivernuclearinthewaywedidinthepast;itwillsimplytaketoolongandcosttoomuch”.307Ittoldusthat:ARolls-RoyceSMRisthefastestwaytogetanuclearreactoronthegridintheUKaswestandtoday.WithacommitmenttodeployinthisParliament,weexpectthefirstSMRunitwillbeonthegridby2029withafurther15reactors—7.5GWofcleanpower—beingdeployedimmediatelyafterthat,ifwecanmakesufficientprogressinthedevelopmentofthenecessaryCfDarchitecture.Oncethefactoryfootprintisestablished,SMRsareproducedthroughaproductionlinemethodology,meaningwecanproducetwocompleteSMRunitsayear—equivalentto1GWofpower—fromourfactories.30899.Largesumsofmoneyareusuallyborrowedtofinancenewnuclearprojects.309ButtheNuclearIndustryAssociationtoldusthatthefinancecommunitylacks“trustandconfidenceinnuclearpower”.310Duetotherisksinvolved,thecostofcapitalmakesupasignificantproportionoftheoverallcostofbuildingnewnuclearpower.311Forexample,two-thirdsofthestrikeprice312forHinkleyPointCwastakenupbyfinancingcosts.313Governmentsupporthasbeenneededtolowerthecostofcapitalbecauseprivateinvestorsareusuallyunwillingtoshoulderthefullextentoftheriskthemselves.Keepingthecostsofcapitallowisseenasanimportantelementinloweringthecostofnewnuclearprojectsonconsumers.314303NuclearpowerintheUK,POSTnote687,ParliamentaryOfficeofScienceandTechnology,December2022304EDF(DPS0059)305ibid.306NuclearIndustryAssociation(DPS0064);Q233[DameSueIon]307Rolls-RoyceSMR(DPS0006)308ibid.309NuclearpowerintheUK,POSTnote687,ParliamentaryOfficeofScienceandTechnology,December2022310NuclearIndustryAssociation(DPS0064)311NuclearpowerintheUK,POSTnote687,ParliamentaryOfficeofScienceandTechnology,December2022312In2012thegovernmentcommittedtoaContractforDifference(CfD)forHinkleyPointC.ThisensuresthattheoperatorEDFbearsriskindeliveringtheprojectandfundseventualdecommissioning,albeitwithagovernmentdebtguarantee.Oncebuilt,theCfDguaranteesEDFaminimum“strikeprice”of£89.50/MWh(inflation-linked,so£114intoday’smoney)for35yearsaftertheprojectcompletion.See:DrWilliamBodel,‘Howcannuclearhelpwithenergycosts–andhowdowepayfornuclear?,’24October2022313NNBGenerationCompany(SZC)Limited(DPS0053);EDF(DPS0059)314NNBGenerationCompany(SZC)Limited(DPS0053);EDF(DPS0059);ParliamentaryOfficeofScienceandTechnology,NuclearpowerintheUK,POSTnote687,December202245DecarbonisationofthepowersectorBox2:HinkleyPointCInSeptember2016,theGovernmentannounceditsdecisiontoproceedwithHinkleyPointCinSomerset.HinkleyPointCisthefirstnuclearpowerplanttobeconstructedintheUKforover20years.Oncecomplete,thesitewillhosttworeactors,providingover3GWofelectricity,enoughtopower6millionhomes.315ThesereactorsareEuropeanPressurisedWaterReactors(EPRs)whichhavebeenadaptedforUKregulators.NNBGenerationCompany(HPC)Limited(NNBG),whichisownedbyEDFandtheChinaGeneralNuclearPowerGroup(CGN),isresponsibleforbuildingandoperatingHinkleyPointC.316CGNown33.5%ofthecompany,butitsequityiscapped.TheGovernmenthasenteredintoaContractforDifferencetofinanceHinkleyPointC.Whenconstructionstarted,EDFestimatedthatHinkleyPointCwouldcost£18billion.317Costshaverisensubstantiallysince.InMay2022,EDFestimatedthenewplantwouldcost£25billionto£26billion.318Thecompany,inFebruary2023,suggestedtheoverallcostscouldriseto£32.7billion,accountingforinflation.319TheFinancialTimesreportedthattherisingcostscouldfallonEDF,asCGNisthoughtunlikelytobewillingtofundbeyondthelimitofitsequitycap.320However,thismaybemademoredifficultbythefacttheparentcompanyhaspostedrecordlossesandrecorddebt.EDFhasalsosaidtheplantwouldstartoperatingayearto18monthslaterthanoriginallyplanned,inJune2027.321Thecompanytoldus,however,thatthe“recentlyannouncedchangestocostandtimescaleestimatesfortheprojectarelargelytheresultoftheCovidlockdownsandtheassociatedrequirementforalargereductioninworkersonsite”.322InNovember2022,theTelegraphreportedthatthecontractforHinkleyPointCbetweenEDFandtheGovernmentwasrevised,sothecompanywillstillbepaideveniftheplantisnotoperatinguntil2036.323315EDF,‘WhatisHinkleyPointC?,’accessedon27March2023316NationalAuditOffice,HinkleyPointC,Session2017–18,HC40,June2017317“HinkleyPointCdelayedbyayearascostgoesupby£3bn”,BBCNews,20May2022318ibid.319“EDFfacesshoulderingmoreofsoaringbillforHinkleyPoint”,TheFinancialTimes,17February2023320ibid.SeealsoPrésentationPowerPoint(edf.fr),page25321“HinkleyPointCdelayedbyayearascostgoesupby£3bn”,BBCNews,20May2022322EDF(DPS0059)323“HinkleyPointnuclearplantfacesriskof11-yeardelay”,TheTelegraph,29November2022Decarbonisationofthepowersector46Box3:SizewellCSizewellinSuffolkisplannedtobehometoanothernewnuclearpowerplant,SizewellC.SizewellCwillhosttwoEPRs(EuropeanPressurisedWaterReactors),thesamedesignasHinkleyPointC.324SizewellCisexpectedtotake9yearstobuildandtocostbetween£20billionand£30billion.Oncebuilt,theplantisexpectedtogenerate3.2GWofelectricity(around7%oftheUK’scurrentelectricitydemand)andoperatefor60years.325NNBGenerationCompany(SZC)Limited,thecompanyresponsibleforbuildingandoperatingSizewellC,toldusthatSizewellCwillusethesamesupplychainasHinkleyPointC.BecauseSizewellCisareplicaofHinkleyPointC,thecompanyexpectstobeabletobuildtheSizewellCmoreefficiently,byapplyinglessonslearntfromHinkleyPointC.326In2022,theGovernmentbecamea50%shareholderinthedevelopmentofSizewellC,afteritboughtoutCNG.327TheGovernmentandEDFarenowseekingfurtherprivateinvestmentinthenewreactors.328AFinalInvestmentDecisionisexpectedinthisParliament.329Itisnotyetclearwheretheextrainvestmentwillcomefrom.SizewellCwillbethefirstprojecttousethenewRegulatedAssetBase(RAB)fundingmodelfornuclear.330TheRABmodelinvolvesplacingalevyonconsumerbillswhichcontributestothecostofconstruction,therebytransferringsomeoftheconstructionrisktoconsumers.Themodel,however,hasbeenusedtofinanceothertypesofinfrastructureprojects.331TheRABmodelisexpectedtoreducethecostofcapitalforinvestorsandtheoverallfinancingrequirementsoftheproject.However,financingprojectinthiswaydoesexposeconsumerstopotentialprojectdelaysandadditionalcosts.Supplyofnuclearfuel100.Nuclearfuelismadefromuranium.Afteruraniumismineditundergoesaseriesofindustrialprocesses(milling,conversion,enrichmentandfuelfabrication)toproducethefuelusedinareactor.332TheUKhasconversion,enrichmentandfuelfabricationfacilitiescapableofturninguraniumoreintonuclearfuelforsaledomesticallyandinternationally.Conversionandenrichmentofuraniumisconcentratedinasmallnumberofcountries.333Russiaisthemarketleaderforenricheduranium;somewesterncountriesrelyonconverteduraniumfromRussiatofilltheirshortfallincapacity.334TheUK’scapacitytoprocessuraniumcouldhelpothercountriesshiftawayfromRussiansupplies.335324NNBGenerationCompany(SZC)Limited(DPS0053)325ibid.326ibid.327“SizewellCnuclearpowerplantbackedbygovernment”,BBCNews,29November2022328“UKgovernmenttakesmajorstepsforwardtosecureBritain’senergyindependence”,DepartmentforBusiness,EnergyandIndustrialStrategy,29November2022329HMGovernment,Powering-UpBritain:EnergySecurityPlan,March2023330UKgovernmenttakesmajorstepsforwardtosecureBritain’senergyindependence,DepartmentforBusiness,EnergyandIndustrialStrategy,29November2022331ParliamentaryOfficeofScienceandTechnology,NuclearpowerintheUK,POSTnote687,December2022332WorldNuclearAssociation,‘NuclearFuelCycle,’accessedon9April2023;APPGonNuclearEnergy,ResistingRussia’sEnergyWar:UKNuclearInvestmentforAlliedEnergySecurity,September2022333WorldNuclearAssociation,‘NuclearFuelCycle,’accessedon9April2023334APPGonNuclearEnergy,ResistingRussia’sEnergyWar:UKNuclearInvestmentforAlliedEnergySecurity,September2022335Q252[LincolnHill]47Decarbonisationofthepowersector101.TheGovernment’sEnergySecurityPlanrecognisestheneedtostrengthentheUK’snuclearfuelsupplychain.336TheretirementoftheUK’snuclearpowerstationshasledtoadeclineintheUK’scapacitytoprocessnuclearfuel.TheSpringfieldFuelsconversionfacilityinLancashireceasedoperatingin2014,althoughtheAll-PartyParliamentaryGrouponNuclearEnergyhasnotedthatthefacilityisstillunder“undercareandmaintenance”.337TheGovernmenthasawardedWestinghouse£13millionthroughtheNuclearFuelFundtoexplorethepossibilityofre-introducingauraniumconversionfacilityatSpringfieldsinLancashire.338102.TheUKalsohasafuelfabricationfacilityattheSpringfieldssitenearPreston.However,thisfacilityisatrisk.TheplantcurrentlymanufacturesfuelfortheUK’sadvancedgas-cooledreactors(AGRs),allofwhicharesettocomeofflinebeforetheendofthedecade.ThefuelforHinkleyPointC,includingthesupplyofuranium,conversion,enrichment,andassemblymanufacturing,willbesourcedoutsidetheUKfromcompaniesmajority-ownedbyEDF,afteracontractwassignedbyEDF,OranoandFramatomeinSeptember2016.339DameSueIonarguedthattheUKshouldbelookingtosourcefuelforitsnuclearreactorsdomestically.340Urenco,acompanyspecialisinginuraniumenrichment,hascalledontheGovernmenttocommitto“requiringUKfuelforboththenewdomesticfleetofHTGRsaswellasnewlargescaleplantsandsmallmodularreactors.”341Thefirmtoldusthat:Thiswillincentiviseandenableinvestmentin,andfinancingof,theUKnuclearfuelsupplychaintomeetthedemandforcurrentfuelrequirementsaswellasadvancednuclearfuelsandsupportthedeploymentandscalingupofnewandadvancednuclear.Inparallel,theGovernmentmustalsocommittothedeploymentofacertainnumberofHTGRunitstoprovideeconomiesofscaleandmakedevelopingtheadvancedfuelsupplychainfortheseunitscommerciallyviable.ThiswouldhelpthenuclearfuelsupplychaintounderstandtherequiredinvestmentsneededtodelivertheGovernment’sambitionsfornewnucleartechnologiesandtheirkeyroleindecarbonisingthepowersector.342103.TheBritishEnergySecurityStrategysetanambitionfortheUKtodeploy24GWofcivilnuclearpowerby2050.ThissignificantlyraisedtheleveloftheGovernment’sambitiononnuclearpower,aboveestimatessuggestedbytheClimateChangeCommitteeandothers.Buttobeaneffectivepartofalow-carbon,secureandaffordableelectricitymix,thecostofnuclearpowermustcomedown.NuclearprojectsintheUKandelsewherehavebeenbesetwithdelaysandoverspends.104.Inresponsetothisreport,werequestthattheGovernmentsetsout:a)itscurrentestimatesofthetotalcostofdeliveringtheGovernment’s24GWambition;336HMGovernment,Powering-UpBritain:EnergySecurityPlan,March2023337APPGonNuclearEnergy,ResistingRussia’sEnergyWar:UKNuclearInvestmentforAlliedEnergySecurity,September2022338NuclearIndustryAssociation(DPS0098)339EDF,UniversalRegistrationDocument2021,March2022340Q253[DameSueIon]341UrencoLimited(DPS0013)342ibid.Decarbonisationofthepowersector48b)itslatestofficialestimateofthetotalcostofSizewellCandHinkleyPointC;c)howitplanstofinanceits24GWambition,includingwhetherfutureprojectswillalsoadopttheRegulatedAssetBasemodel;andd)theimpactoftheincreasingcostsofHinkleyPointCandSizewellConitsplansfornuclearandhowitisensuringsufficienttransparencyoversuchcosts.105.Internationalexamplessuggestthatthebestwaytobringthecostofnuclearenergygenerationdownistobuildaprogrammeofnewnuclearreactors,sothatsupplychainsandskillscanbedevelopedandtransferredfromoneprojecttothenext.TheGovernmenthastakenstepsinthisdirection,withplanstoestablishaprogrammeofnewnuclearprojects,supportedbyGreatBritishNuclear,andtolaunchacompetitiontoselecttheleadingsmallmodularreactors.TheGovernment’snuclearroadmap,duelaterthisyear,shouldsetouttheoptionsfordeliveringthenuclearcapacitytheUKwillneedby2050,includingoptionsforfinancingthesenewprojects.GreatBritishNuclearshouldadviseonhowsuchaprogrammeshouldbephased,includinghowtodecidehowmuchnuclearcapacityisneededandthetypeofnucleartechnologiestheUKshoulddeployandwhen.106.Asidefromtheneedtoimporturanium,theUKhasthecapabilitytoundertakecriticalpartsofthenuclearfuelcycle,suchasuraniumconversion,enrichmentandfuelfabrication.Theexportpotentialofthesestrategicassetsshouldbemaximised,especiallynowthatcountriesarelookingtoreducetheirdependenceonRussiafortheseservices.TheGovernmentshouldensurethatcriticaldomesticassetsinthenuclearsupplychainaresupported,whiletheUK’scurrentageingfleetretires.CarbonCaptureandStorage107.CarbonCaptureandStorage(CCS)involvesthecaptureofcarbondioxide(CO2)emissionsfromindustrialprocesses,suchassteelandcementproduction,orfromtheburningoffossilfuelsinpowergeneration,suchasnaturalgas.Thiscarbonisthentransportedfromwhereitwasproduced,viashiporinapipeline,andstoreddeepundergroundingeologicalformations.343108.ThereisamixofviewsontheextenttowhichCCSshouldbeusedinthepowersystem.344WhiletheGovernmentestimatedthat10GWofpowerCCSwillbeneededby2035,risinggaspricesandcostreductionsinrenewablesmeanthatthescopeforpowerCCSmayhavenarrowed.345Nonetheless,mostfutureenergyscenarioscontainsomeCCScapacityintheformofdispatchablepower(i.e.toprovidebackuppowerwhencleanerresourcesarescarce),eithercombinedwithgas(gasCCS)orforbluehydrogenproduction.346Scenarios343NationalGrid,‘Whatiscarboncaptureandstorage?,’accessedon17April2023344Seeforexample:Ember,Apathoutofthegascrisis,23September2023;GreenAlliance(DPS0067);HighviewPower(DPS0069);TheRoyalSociety(DPS0083);LCPDelta,Deliveringacleanelectricitysystemby2030?,December2022;Aurora,Outofgas?,16August2021;ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023345DepartmentforBusiness,EnergyandIndustrialStrategy,PowerwithCarbonCapture,UsageandStorageCallforevidenceonthefuturepolicyframeworkforthedeliveryofpowerwithCarbonCapture,UsageandStorage,July2022346Bluehydrogenisproducedmainlyfromnaturalgas,usingaprocesscalledsteamreforming,whichbringstogethernaturalgasandheatedwaterintheformofsteam.Theoutputishydrogen.Thisisacarbonintensiveprocess,soCCSisusedtotrapandstorethiscarbon.49Decarbonisationofthepowersectoralsouseitforbaseloadpowerviabioenergyplants(BECCS),whichcouldalsobeusedforgreenhousegasremovals,347ifthebiomassissourcedsustainably.348Theexactcapacityrequiredforthesetechnologiesvariesacrossscenariosandiscontingentonanumberoffactors,someofwhicharecurrentlyhardtoquantify,suchascosts,efficienciesandlifecycleemissions.349(HydrogenandBECCSarediscussedindetailnextinthischapter.)109.WhilesomestakeholdersarguedthattheGovernmentshouldfocusonlyongreenhydrogen350fordispatchablepowerratherthanfossilfuel-basedalternativessuchasgasCCSandbluehydrogen,351theCCCnotedthatitappearsimplausibleforalldispatchablegenerationneededtobemetbygreenhydrogenby2035.Thisisduetolikelylimitsontherateatwhichrenewablegenerationcapacitycanfeasiblybebuilt.352TheCCCalsohighlightedthataportfolioapproachlimitstheriskofrelyingonothertechnologiesthatarealsoatanearlystageofdevelopment.353110.CCShasnotyetbeendeployedatscale,partlybecausefacilitiesarecapital-intensivetodeployandexpensivetooperate.Thecostofanewgaspowerstation,providingelectricityfornearlyamillionhomes,isaround£350million.BuildingasimilarsizedgaspowerstationwithCCSisexpectedtoroughlydoublethecost.354Thethink-tankEmber,whichexpectsthataroundtwotofourgasplantswithCCSwillberequiredby2030(totalling2.4GW),noted:Thesepowerplantswillonlyrunduringperiodsofhighsystemstress(weestimatetheywillaccountforjust0.5%oftotalgeneration)andsotheircostperunitofelectricitygeneratedwillbeextremelyhigh,especiallyastheyaredependentonfossilgassupply.BuildingaCOpipelinetoaremote,little-usedgasplantmakeslittlesense,sogasCCSworksbestaspartofanindustrialcluster,sittingalongsidehard-to-electrifysectorssuchascementandchemicals.355111.However,thecostsofCCSareexpectedtofallasthemarketexpands.GuyNewey,theCEOofEnergySystemsCatapult,toldusthat:[..]Weoftensay,“CCUShasnotmadetheprogressthatrenewableshavemade,”butrenewableshavehad10billionquidayearofsupportoverthelast10years.Guesswhat?Theyhavecomedownincost.Ithasbeena347Bioenergywithcarboncaptureandstorage(BECCS)worksbycombiningtwotechnologies:bioenergyandcarboncaptureandstorage(CCS).Bioenergyistheuseofplantstocreateenergy,whileCCScapturescarbondioxideemissionsfromsourceslikepowerplantsandfactoriesbeforetheyentertheatmosphere.Thecapturedcarbondioxideisthentransportedandstoreddeepundergroundinplaceslikesalineaquifersanddepletedoilandgasfields.348CarbonCaptureandStorageAssociation(DPS0061);seeforexample:Ember,Apathoutofthegascrisis,23September2023;LCPDelta,Deliveringacleanelectricitysystemby2030?,December2022;Aurora,Outofgas?,16August2021;ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023;NationalGridElectricitySystemOperator,FutureEnergyScenarios2022,July2022349ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023350Greenhydrogenisproducedusingelectrolysis,wherebyelectricityispassedthroughwatertoseparateoutthehydrogenandoxygen.Excesselectricityfromrenewables,suchasoffshorewind,couldbeusedtoproducehydrogenbythismethod.351Seeforexample:ChrisHarrisonandDrJonathanRadcliffe(DPS0018);RenewableUK(DPS0004)352ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023353ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023;seealso:Q105[PhilMacDonald]354“Carboncapture:Whatisitandhowdoesitfightclimatechange?”,BBC,30March2023355Ember,Apathoutofthegascrisis,23September2023Decarbonisationofthepowersector50remarkablesuccessstory.Thesearescaletechnologies.Youhavetobereallycommittedtodoit[..]Thereisnotechnologicalreasonitcannotdothat.Itispoliticalwillandthefinancingcosts.356112.QuestionshavebeenraisedastowhetherCCSplants,inpractice,caneffectivelycaptureenoughcarbon.DemonstrationsaroundtheworldofCCShavehadmixedsuccess.357Theyhaveneverbeenputtotestinaproperregulatoryenvironment(onethatactivelypunishesfailureandincentivisessuccess).TheCCC’sSixthCarbonBudgetanalysisassumedthatCCStechnologycouldcapturebetween90–95%ofcarbonemissionsemittedfromgasandbioenergyplants.However,itnotedthatiftheserateswerelower,thenthevalueofCCSwoulddecrease.358CatherineRaw,ManagingDirectoratSSEThermal,toldustheyhavemultipleCCSprojectsthatcanprovide95%capturerate.359Sheinsteadcautionedthat:Theareasofriskarearounddispatchability.ManyoftheexistingCCSorcarboncapturewithaminesolventsareoperatingataflatrate.Theydonotseetheramp-upsandramp-downsassociatedwithdispatchablepower,whichiswhywearenowspendingtodotheresearchanddevelopmentinordertounderstandtheimplicationsofthatandmakesurethatitdoesnotreduceoverallcapturerates.360113.ThereisalsoongoingconcernbysomethattheuseofCCSinthepowersystemwillopenthedoortoadditionaloilandgasproductionandextraction.WhenweputthistoMatthewWilliamson,UKHeadofHydrogenatBP,hesaid“therewillnotbethatmuchgasthatgoesthroughthesepowerstations.Theyarereallyforintermittency,soitisnotliketheyarebaseloadpower.Thegaswillgothroughthemonlywhentherearelowrenewablerequirements”.361114.WhenweaskedDrDavidJoffe,HeadofNetZeroattheCCCwhetherwewillhaveadeployableCCSfacilityinsufficienttimetosupporttheGovernment’s2035target,hesaid:Idonotthinkweknow.[..]Gasgeneration,evenwithoutCCS,isexpensive.GaswithCCSisevenmoreexpensive,sotherearechallenges.Intermsofthetechnology,Ihavesomeconfidencebutnotfullconfidence.Thatiswhyweneedtogetonwithdoingittocheckthatitworksand,ifitdoesnotwork,wehaveothersolutionsaswell.362115.TheUKiswellplacedtoadoptCCS.TheUKhasvastresourcesforstoringCO2,equivalenttothirdofEurope’stotalcapacity.363StudiessuggestthattheUKContinentalShelfcouldsafelystore78billiontonnesofCO2,whichmightbetheequivalentof200yearsoftheUK’sannualCO2emissions.364However,thereisincreasedglobalcompetitionforinvestmentinCCS.In2022,61newCCSfacilitieswereaddedtotheprojectpipeline356Q23[GuyNewey]357Q106[PhilMacDonald];ESGInvestor,FossilFuelSmokescreenorNetZeroSalvation?,29March2023358ClimateChangeCommittee,SixthCarbonBudget,9December2020359Q106[CatherineRaw]360Q103[CatherineRaw]361Q112[MatthewWilliamson]362Qq22–23[DrJoffe]363Q114[OliviaPowis]364HMGovernment,PoweringUpBritain:EnergySecurityPlan,30March202351Decarbonisationofthepowersectorglobally,bringingtheglobaltotalofCCSprojectsto30inoperation,11underconstructionand153indevelopment.365TheUShasmoreCCSprojectsthananyothercountry,anditsInflationReductionActof2022,whichprovidestaxincentivesforcompaniesbuildingCCSprojects,islikelytoencouragefurtherdevelopmentofthetechnology.TheEU’sanswertotheIRA,theNetZeroIndustryAct(NZIA),alsoincludessupportforCCS.PolicyrequirementsforCCS116.TheDepartmentexplainedthatthecurrentchallengesinpowerCCSinclude:•TheneedforaCO2transportandstoragenetwork,includingpipelineandnon-pipelinetransport;•PowerCCShasnotbeendeployedatscalebefore.Multipleprojectswillneedtobedeployedtoreducecostsandinvestmentrisk;and•CurrentmarketconditionsdonotfullyvaluethebenefitspowerCCSbringstotheelectricitysystem.366117.TheCarbonCaptureandStorageAssociation(CCSA),thetradebodyforCCS,toldusthatthesectorneedsthefollowingactionstohappeninthisParliamentsothatCCScanbedeployedatthescalenecessarytodecarbonisepower:•FinalisebusinessmodelsforpowerCCS,hydrogenwithCCSandCO2transportandstorage;•AcceleratebusinessmodelstosupportbioenergyCCS(BECCS);•DrawupaCCSdeploymentplan,settingoutthefrequencyandscaleofrevenuesupportcontractstobeawardedtocaptureprojectsupto2030;•PasstheEnergyBilltoensurethatCCSbusinessmodelsacrossthevaluechain(includingCO2transport&storage)canbeimplemented;•StreamlineplanningandpermittingprocessestoensureprojectscandeployatpaceandupdatingtheNationalPolicyStatementstorecogniseCCSblueprints;and•LaunchtheTrack-2clusterssequencingprocess.367GovernmentactiontosupportCCS118.CCSpolicyintheUKhashadaturbulenthistory,asshownbythecancellationsin2011and2015oftwomajorfundingcompetitionsatalatestage.368TherehassincebeenarenewedfocusindevelopingpolicysupportforCCS.In2020,£1billionofgovernmentinvestmentwasallocatedtosupportthedeploymentofCCSinfourindustrialclusters.TheGovernmentcommittedtodeployingCCSintwoindustrialclustersbythemid-2020sandfourclustersby2030,withtheaimofcapturingandstoring20–30milliontonnes365GlobalCCSInstitute,Buildingmomentumasweshiftintoaphaseofaction,accessedon17April2023366DepartmentforBusiness,EnergyandIndustrialStrategy(DPS0016)367CarbonCaptureandStorageAssociation(DPS0061);Seealso:WhitetailCleanEnergy(DPS0068)368Business,EnergyandIndustrialStrategyCommittee,TwentiethReportofSession2017–19,Carboncaptureusageandstorage:thirdtimelucky?,HC1094Decarbonisationofthepowersector52ofCO2peryearby2030.ThisincludeddeliveringatleastonepowerCCSprojectbythemid-2020s.369TheHynet370andEastCoastclusters371wereselectedforinitialsupportandaresettoenteroperationbythemid-2020s,withtwofurtherclustersexpectedtocomeonlineby2030.Twentyprojectswerethenshortlistedforconsiderationtoformpartofthoseclusters.372119.This‘clustersequencing’processwascomplementedbytheSpringBudget2023announcementofalonger-termfundingpackageofupto£20billionfortheearlydeploymentofCCSintheUKover20years.373However,noneofthismoneyisreflectedintheformalbudgetpolicycostings,soitisunclearwherethefundingwillcomefrom.On30March2023,theGovernmentthenannouncedthateightprojectsfromtheHynetandEastCostclustershavebeenchosentoproceedtothenextstageofCCSsupportnegotiations.374Theprojectsincludeanewgas-firedpowerstationandseveralbluehydrogenproductionfacilities.Thisrepresentstheoutcomeof‘phase2’of‘Track-1’oftheGovernment’sCCSinitiative.TheGovernmentalsoannounceditsintentiontoexpandbothclusters,withaviewtoaddingfurtherprojectstoincreaseoperationalcapacityby2030.Itstatedthataprocesstoachievethatoutcomewillbelaunchedlaterthisyear.Inaddition,theGovernmenthasopenedasecondwaveoftheCCSclustersinitiative(Track-2)aimedatsupportingthedevelopmentoftwofurtherCCSclustersintheUK.Ithopesthatthoseclusterswillalsobeoperationalby2030.375TheGovernmentalsosaidthatitrecognisestheimportanceofprovidingfurthercertaintyforindustrybeyondits2030ambitionsandwillsetoutavisionfortheUKCCSsectorin2023.376120.Finally,theGovernmentisprogressingbusinessmodelsacrosstheCCSvaluechain.Since2019,theGovernmenthasprovidedupdatesonthedevelopmentofthebusinessmodeltoincentiviseCO2transportandstorage.Updateswerepublishedin2022topreparethebusinessmodelaheadofnegotiationswithTrack1projects.TheGovernmentwillbepublishingfurtherupdatesacrosstheCCSbusinessmodelsin2023tosupportnegotiationswiththeTrack1projects.PrimarylegislativemeasurestoenablethebusinessmodelswereintroducedthroughtheEnergyBill,whichisprogressingthroughParliament.121.TheGovernment’srecentconfirmationof£20billioninvestmentover20yearsfortheearlydevelopmentofCarbonCaptureandStorage(CCS)iswelcome,allowingtheimplementationoftheinitialclusterstocommence.However,noneofthis£20billionisreflectedintheformalbudgetpolicycostings,soitisunclearhowitwillberaised.TheGovernmentwillneedtocomeforwardpromptlywithclarityforprojectsinvolvedintheTrack1expansionandTrack2clusters.WerecommendthattheGovernmentannouncestheclustersequencingTrack-1expansionprojectsasquicklyaspossibleandprovidesfurtherdetailontheforwardtimelineforselectingthenextCCSclustersthat369DepartmentforBusiness,EnergyandIndustrialStrategy,TheCarbonCaptureandStorageInfrastructureFund:anupdateonitsdesign,May2021370HyNetprojectsarelocatedacrosstheNorthWestandNorthWales.371TheEastCoastClustercoversTeessideandHumber.372DepartmentforBusiness,EnergyandIndustrialStrategy,UK’sindustrialheartlandsboostedbynextstageofcarboncaptureclusters,12August2022373HMTreasury,SpringBudget2023,21March2023374HMGovernment,PoweringupBritain:EnergySecurityPlan,30March2023;EastCoastclusterprojectsinclude:NetZeroTeessidePower;bpH2Teesside;TeessideHydrogenCO2Capture.HyNetclusterprojectsinclude:HansonPadeswoodCementWorksCarbonCaptureandStorageProject;ViridorRuncornIndustrialCCS;ProtosEnergyRecoveryFacility;BuxtonLimeNetZero;HyNetHydrogenProductionPlant1(HPP1)375HMGovernment,PoweringupBritain:EnergySecurityPlan,30March2023376HMGovernment,RespondingtotheIndependentReviewofNetZero’sRecommendations,30March202353Decarbonisationofthepowersectorneedtobeoperationalthisdecade.WeurgetheGovernmenttoprovideclarityonhowthe£20billionfortheearlydevelopmentofCCSwillbefunded.TheGovernmentshoulddeveloparobustregulatoryregimethatteststhecarboncaptureratesofCCSfacilitiesandpenalisesfailure,whichinturnshoulddriveinnovation.BioenergyUnabatedbioenergyintheUKpowersector122.TheUKreliesonbioenergy377forasignificantportionofitselectricity.In2021,almost13%ofelectricitygeneratedintheUKcamefrombioenergy,upfrom3.6%in2011.378Mostelectricityfrombioenergy(almost9%ofelectricitygeneratedintheUKin2021)comesfromplant-basedbiomass,379oftenintheformofwoodpelletsimportedfromNorthAmericaandEurope.380AcoalitionofenvironmentalNGOstoldusthat“in2019theUKimported8.5millionmetrictonsofwoodpelletstoburnforelectricity—morewoodthantheUKproducesintotal”.381Othercommonsourcesincludelandfillgas(1.1%),energyfromwaste(1.5%)andanaerobicdigestion(1.1%).382Thelifecycleemissionsofbiomasspowerplantsvarydependingonthetypeofbiomassusedandthescaleoftheirsupplychain.TheClimateChangeCommitteehasnotedthatbiomassplantshavemuchhigheremissionsthanmostothertypesofrenewableelectricity.383Largergenerators,suchasDrax,haveextensiveglobalsupplychains.DrDanielQuiggin,SeniorResearchFellow,EnvironmentandSocietyProgrammeatChathamHouse,toldusthatwhilethesupplychainemissionsofallbiomassfeedstocksaredecarbonising,theUKhasmovedto“moreandmorehigh-emissionfeedstocks”.384377Bioenergyisenergyderivedfromplantoranimalmaterial.Thiscanincludewood,energycrops,wasteproductsandbiogas.Bioenergycanbeusedtogenerateheat,electricityortransportationfuels.Forexample,woodcanbeburnedtoproduceheat,ethanolcanbeusedtogeneratefuel,andbioenergycropscanbeusedtogenerateelectricity.378BiomassUK(DPS0057)379DepartmentofBusiness,EnergyandIndustrialStrategy,DigestofUKEnergyStatistics(DUKES):renewablesourcesofenergy,Capacityof,generationfromrenewablesourcesandsharesoftotalgeneration,28July2022380RSPBUK,TheWildlifeTrusts,WWFUK,FriendsoftheEarth,Greenpeace,WildlifeandCountrysideLink,SoilAssociation,Sustain,FeedbackGlobal,Fern,Biofuelwatch,CutCarbonNotForests,NRDC,SouthernEnvironmentalLawCenter,DogwoodAlliance(DPS0091)381ibid.382DepartmentofBusiness,EnergyandIndustrialStrategy,DigestofUKEnergyStatistics(DUKES):renewablesourcesofenergy,Capacityof,generationfromrenewablesourcesandsharesoftotalgeneration,28July2022383ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023384Q142[DrQuiggin]Decarbonisationofthepowersector54Box4:InternationalguidelinesonreportingemissionsfrombiomassUndertheIntergovernmentalPanelonClimateChange’s(IPCC)guidelines,carbondioxideemissionsfromthecombustionofbiomassarereportedaszeroforacountry’senergysectortoavoiddouble-counting.385TheAssociationforRenewableEnergyandCleanTechnology(REA)toldusthat“anycarbonstocklossassociatedwithharvestiscountedasaCO2emissioninthelanduse,landusechangeandforestry(LULUCF)sector”.386TheIPCC,however,hasstatedthatthis“shouldnotbeinterpretedasaconclusionaboutthesustainability,orcarbonneutralityofbioenergy”.TheIPCCdoesnot“automaticallyconsiderorassumebiomassusedforenergyas“carbonneutral”,evenincaseswherethebiomassisthoughttobeproducedsustainably”.387123.TherehasbeensomecontroversysurroundingthesustainabilityofwoodpelletsusedtoproduceelectricityintheUK.Carbondioxideisemittedfromtheinitialcombustionofbiomassaswellaswhenbiomassisharvested,processedandtransported.Burningwoodemitsmorecarbondioxidethanburningcoalbecausewoodhasalowerenergydensity(morewoodneedstobeusedtoproducethesameamountofenergyasburningcoal).388Afterunabatedgas,burningwoodistheleadingsourceofemissionsfromthepowersector.389However,theAssociationofRenewableEnergyandCleanTechnologytoldusthat“whensourcedsustainably,emissionsarebalancedoutbyregrowthaspartofacontinuouscycle”,whereas“burningfossilfuelstransferscarbonfromgeologicalstorageandcausesapermanentincreaseinatmosphericCO2”.390124.Drax’spowerplantistheUK’ssinglebiggestemitterofcarbonandbyfarthebiggestemitterintheUK’spowersector.391Thecompany’sannualreportandaccountsshowedthatin2020itspowerstationemitted13.3Mtofcarbondioxide.392ThesecondlargestemitterintheUK’spowersectorwasRWE’sPembrokeGasPowerStation,with4.3MtofCO2emissions.393125.Woodpelletsaremadefromavarietyofsources,somemoresustainablethanothers.Sawmillresidues,woodchipsandotherwasteproductsfromtheforestindustryareconsideredmoresustainable.Thisisbecausetheyarewasteproductsthatwouldotherwisebeburnedorlefttorot.Draxtoldusthatitsourcesmostofitspelletsfromresiduesfromsawmillsandtheforestryindustry.394Thecompanyalsouseswholetrees.Thisincludesthinningswhicharetreesremovedfromtheforesttosupportthegrowthandhealthoftheforest.395BBCPanoramaandenvironmentalgroupshave,however,raisedconcernsthatDraxhasusedhigherqualitywoodfromwholetreestoproducewoodpellets,whichcould385IntergovernmentalPanelonClimateChange,FrequentlyAskedQuestions[accessedon9April2023]386CorrespondencefromtheAssociationofRenewableEnergyandCleanTechnologytotheBusiness,EnergyandIndustrialStrategyCommitteeon8December2022387IntergovernmentalPanelonClimateChange,FrequentlyAskedQuestions[accessedon9April2023]388Ember,UKbiomassemitsmoreCO2thancoal,October2021389ibid.390CorrespondencefromtheAssociationofRenewableEnergyandCleanTechnologytotheBusiness,EnergyandIndustrialStrategyCommitteeon8December2022391Ember,UKbiomassemitsmoreCO2thancoal,October2021392ibid.393ibid.394Qq148–149[WillGardiner]395Q149[WillGardiner]55Decarbonisationofthepowersectorbeusedmoresustainablyforotherpurposes.396Thecarbonpaybackperiod397ofamaturetreerangesfrom44to104years.398Usingbiomassfeedstockswithlongcarbonpaybackperiods,accordingtotheEuropeanAcademiesScienceAdvisoryCouncil399islikelytoincreaseatmosphericlevelsofcarbondioxideforaperiodoftimethatis“likelytoexceedthedecadeorsoremainingbeforethe1.5°CParisAgreementtargetisreached”.400Ifso,itcouldbeseenasbeinginconflictwiththepurposeofshiftingtorenewableenergy.401However,REAemphasisedthatthecriticalpointistheoverallcarbonstockofaforest.Itstressedthat“therearehundredsofmillionsoftreesintheforestfromwhichtheUKharvestsbiomass,allatdifferentstagesofgrowth.Thesetreesaregrowingallthetime,increasingthecarboninventoryoftheforest”.402ItaddedthatthecarbonstocksoftheUK’smainsuppliesofbioenergyareeitherbeingmaintainedorincreasing.403However,somemaintainthattheoperationsofwoodpelletsuppliershaveledtoanetlossofforests.404126.Mostelectricitygeneratedfrombioenergycomesfromfacilitiesinreceiptofgovernmentsubsidies.405Drax,forexample,receivessubsidiesfromtheRenewablesObligation406andthroughtheContractsforDifferenceprocess.Ember,athink-tank,hasestimatedthatbetween2012and2027Draxwillhavereceivedatotalof£11billionintaxpayers’money.407GovernmentsupportforbiomassplantsthroughContractsforDifferenceandtheRenewablesObligationisduetoendin2027,withothersubsidiessettoendintheearly2030s.408Thereisuncertaintyaboutthefutureofbioenergyplantswhengovernmentsubsidiesarephasedout.TheCCChasmadeclearitsopinionthatthere396“Drax:UKpowerstationownercutsdownprimaryforestsinCanada-BBCNews”,BBC,October2022;CutCarbonNotForests;RSPBUK,TheWildlifeTrusts,WWFUK,FriendsoftheEarth,Greenpeace,WildlifeandCountrysideLink,SoilAssociation,Sustain,FeedbackGlobal,Fern,Biofuelwatch,CutCarbonNotForests,NRDC,SouthernEnvironmentalLawCenter,DogwoodAlliance(DPS0091)397Carbondebtisatermusedtodescribetheselifecycleemissions.Thetimetakentorepaythecarbondebtisknownasacarbonpaybackperiod.Differentbiomassfeedstocks(energycrops,agriculturalresidues,forestryandwoodybiomassandorganicwaste)havedifferentcarbonpaybackperiods.398DrDanielQuiggin(NETS0024)399TheEuropeanAcademies’ScienceAdvisoryCouncilisanindependentbodymadeupofthenationalscienceacademiesfromtheEUMemberStates,Norway,SwitzerlandandtheUK.400EuropeanAcademies’ScienceAdvisoryCouncil,Forestbioenergyupdate:BECCSanditsroleinintegratedassessmentmodels,February2022401EuropeanAcademies’ScienceAdvisoryCouncil,Forestbioenergyupdate:BECCSanditsroleinintegratedassessmentmodels,February2022;RSPBUK,TheWildlifeTrusts,WWFUK,FriendsoftheEarth,Greenpeace,WildlifeandCountrysideLink,SoilAssociation,Sustain,FeedbackGlobal,Fern,Biofuelwatch,CutCarbonNotForests,NRDC,SouthernEnvironmentalLawCenter,DogwoodAlliance(DPS0091)402LetterfromtheAssociationofRenewableEnergyandCleanTechnologytotheBusiness,EnergyandIndustrialStrategyCommittee,dated8December2022403ibid.404CutCarbonNotForestsCampaign(DPS0022)405DepartmentforBusiness,EnergyandIndustrialStrategy,BiomassPolicyStatement,November2021406TheRenewablesObligation(RO)schemewasintroducedinGreatBritainin2002,andNorthernIrelandin2005,toencourageelectricityfromselectrenewablesources.Underthescheme,energysuppliersareobligedtoprovideOfgemwithacertainnumberofcertificates,knownasRenewableObligationCertificates,ofthepowersuppliedtotheircustomersfrom1Aprilto31Marcheachyear.RenewableObligationCertificatesareissuedtoaccreditedgeneratorsfortheeligiblerenewablepowertheyproduce.Ofgemexplainthatsupplierscanmeettheirannualobligationby“presentingROCs,makingapaymentintoabuy-outfundoracombinationofthetwo.”FormoreinformationseeOfgem,RenewablesObligation(RO),accessedon18April2023407Ember,‘SubsidiesforDraxbiomass,’March2023408ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023;BiomassUK(DPS0057)Decarbonisationofthepowersector56shouldnotbearoleforlarge-scaleunabatedbioenergyplants409beyond2027.410BiomassUK,atradebody,hascalledontheGovernmenttoconfirmthatexistingfacilitieswillstillbeneeded.411Ittoldusthat:Inorderforsuchsitestocontinuetoplaytheirroleinproducingrenewablegeneration,andtobeencouragedtoinvestintheretrofittingofBECCS,Governmentmustmakeclearthattheyrecogniseandactivelywantsuchsitestocontinuetogeneratelow-carbonpowerbeyond2027.WithoutclearcommitmentsfromGovernment,thereisariskthattheskillsbaseandsupplychainswillcontract,endangeringtheUK’sabilitytomeetitsclimatetargets.412127.TheCommitteehasbeenconcernedtohearreportsaboutallegedmisreportingbyDraxtoOfgeminordertodrawdownpublicfunds.WenotethatOfgemhasstartedaspecialauditprocess.WecallonOfgemtoensureathoroughinvestigationoftheevidencethatsupportedDraxsubmissions,specificallyinrespectofthesourcingofwoodbiomass,andforOfgemtorequestaccesstoanyinternalorindependentexternalauditsundertakenatDraxtoinvestigatethisissue.WeaskOfgemtoreportbacktotheCommitteeoncethisinvestigationhasconcluded.Bioenergywithcarboncaptureandstorage(BECCS)128.Biomass,ifsourcedsustainably,couldbeusedtodecarbonisesectorsoftheeconomybesidespower.Whencombinedwithcarboncaptureandstorage,bioenergyoffersthepotentialtoremovegreenhousegasemissionsfromtheatmosphere.413Bioenergywithcarboncaptureandstorage(BECCS)wasthelargestsourceofnegativeemissions414intheGovernment’sNetZeroStrategy.415MostscenariosfortheUK’sfuturepowersupply—includingthosefromtheCCC,NationalGridElectricitySystemOperator(ESO),EnergySystemsCatapultandNationalInfrastructureCommission—forecastanongoingroleforbioenergywhencombinedwithcarboncaptureandstorage(CCS),aseitherasourceofstablepowerorasalow-carbonalternativetogas,whichcanbeusedflexiblytohelpbalancesupplyanddemand.416TheCCCexpectsthatBECCSplantswillruninflexibly,duetotheirhighcapitalcostsandthevalueofgreenhousegasremovalstheseplantsoffer.417Despitethis,neitherbioenergynorBECCSwerementionedintheBritishEnergySecurityStrategy,tothedisappointmentofthebiomassindustry.418409BiomassplantsthathavenotbeenretrofittedwithCarbon,CaptureandStorage(CCS)410ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023411BiomassUK(DPS0057)412ibid.413Bioenergy,includingheat,electricityandfuels,ismadefromarangeofbiologicalmaterials,includingwasteandresiduesfromagricultureandforestry.Addingcarboncaptureandstoragetoprocessofproducingbioenergymeanstheemissionsfromproductioncanbecapturedandstored,overthelong-term.414ReachingNetZerorequiresmorethanjustreducingemissions.Toaccountforprocessesthatwillbeexceptionallydifficulttodecarbonisecompletely(suchassteelorcementmaking),greenhousegasesfromtheatmospherewillalsoneedtoberemoved,therebybalancingoutat‘net’zero.‘Negativeemissions’technologies(NETs)areexpectedtoenablethisbyremovinggreenhousegasesfromtheatmosphere–usuallycarbondioxide.415HMGovernment,NetZeroStrategy:BuildBackGreener,October2021416ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023;BiomassUK(DPS0057);CarbonCaptureandStorageAssociation(DPS0061);NationalGridElectricitySystemOperatoranticipatesthatbetween5–12GWofBECCSwillbeneededby2050.TheNationalInfrastructureCommissionexpectsupto8GWcouldbeneededby2050.417ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023418TheAssociationforRenewableEnergy&CleanTechnology(REA)(DPS0055);BiomassUK(DPS0057)57Decarbonisationofthepowersector129.Biomassisafiniteresourceandrisksaddingtoglobalgreenhousegasemissionsifnotsourcedsustainably.TheGovernmentneedstodecidewhereresourcesofbiomasscanbeusedtobesteffectinpowergeneration.Forexample,UniversityCollegeLondon’sInstituteforSustainableResourcesarguedthatthepowersector,unlikeotherhardertoabatesectors,alreadyhasloworzerocarbonalternativesandthereforetheuseofBECCSshouldbereservedforothersectors.419TheGovernment’sforthcomingcross-departmentalbiomassstrategyisexpectedtospecifytherolebiomasswillplayinachievingnetzerointhepowersectorandelsewhereintheeconomy.420TheGovernmenthassaidthatthestrategy,originallyduein2022,willnowbepublishedbytheendofJune2023.421130.TheGovernment,inlinewiththeCCC’sadvice,doesnotintendtosupportfuturelarge-scalebiomass-basedelectricitywhichisnotlinkedwithcarboncaptureandstorage(CCS).422TheCCCadvisedthatexistingbiomassplantsshouldbeconvertedtoBECCS“asearlyasfeasible”.423However,thetechnologyhasyettobedeployedcommercially.InthePoweringUpBritain:EnergySecurityPlan,theGovernmentsaiditis“preparingforthedeploymentofpowerBECCS”andmade“substantialprogress”lastyearwiththelaunchofitsconsultationonPowerBECCSbusinessmodelsandaprojectsubmissionprocess.424Aresponsetothisconsultationisdueshortly.425131.TheAssociationforRenewableEnergyandCleanTechnology(REA),theUK’slargestrenewableenergyandcleantechnologybody,toldusthatmostbiomasssiteswillbelookingtoretrofitCCSby2030,althoughtheywillneedsupporttodoso.426DraxplanstoconverttwounitsatitspowerstationinYorkshiretoBECCSby2027.427Thecompanytoldusthatitplannedtomakeafinalinvestmentdecision,“subjecttoanappropriateinvestmentframework”beinginplace.428Italsotoldusthataninvestmentintheirfacilitywould“unlockfutureinvestment”fromthemandotherdevelopmentsandwouldprovidelessonstohelpexpandtheuseofBECCS,bothintheUKandglobally,duringthe2030s.429However,theGovernmentrecentlyconfirmedthatDrax,andanotherPowerBECCSprojectbyLynemouthPowerLtd,werenot“selectedforinitialdeploymentinTrack-1negotiation”.430Draxhassaidnonethelessthatithasbeen“invitedtoenterformalbilateraldiscussionswiththeGovernmentimmediately,tomovetheprojectforward”.431132.Weheard,however,arangeofconcernsaboutrelianceonBECCS:419UCLInstituteforSustainableResources,theCO2REconsortium,andresearchersattheUniversityofSouthampton,Businessmodelforpowerbioenergywithcarboncaptureandstorageconsultation,October2022420HMGovernment,TheGovernmentResponsetotheCommitteeonClimateChange’s2020ProgressReporttoParliament,October2020421HL826[biomassstrategy]onWednesday14December2022col.658;HMGovernment,TheGovernmentResponsetotheCommitteeonClimateChange’s2020ProgressReporttoParliament,October2020;HMGovernment,Powering-UpBritain:EnergySecurityPlan,March2023422DepartmentforBusiness,EnergyandIndustrialStrategy,BiomassPolicyStatement,November2021423ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023424HMGovernment,Powering-UpBritain:EnergySecurityPlan,March2023425ibid.426TheAssociationforRenewableEnergy&CleanTechnology(REA)(DPS0055)427Drax(DPS0028)428ibid.429ibid.430HMGovernment,Powering-UpBritain:EnergySecurityPlan,March2023431“DraxentersformaldiscussionswithUKGovernmentonlarge-scalePowerBECCS”,Drax,30March2023Decarbonisationofthepowersector58•Scalingupbiomassfeedstocks.432WeheardconcernsaboutthepossibilityofscalingupbiomassfeedstockssustainablytosatisfydomesticandglobaldemandforBECCS.TheCCCadvisedthattheUKshouldshifttousingdomesticsuppliesofbiomass,ratherthanimports,asmuchaspossible.433Forexample,undertheCCC’s6thCarbonBudgetBalancedNetZeropathway,upto700,000hectaresofland(equivalentto3%oftheUK’stotallandarea,fourtimesthesizeofGreaterLondon)couldbeneededtogrowenoughenergycropstosatisfydomesticdemandforBECCS,alongsideimportedfeedstocks.434Policymakerswillfacetrade-offswithothersustainabilityandlandusepriorities(e.g.biodiversityandagriculture).DrDanielQuiggin,SeniorResearchFellowatChathamHouse,toldusthatscalingupBECCSrisksexacerbatingproblemsthatalreadyexistinbiomasssupplychains:435•Theextenttowhichthetechnologycancapturecarbon.ModelsoftheUK’sfuturepowersupplyassumehighcapturerates.436However,itisnotyetclearwhetherBECCSplantswillbeabletoachievethehighamountsofcarboncaptureexpected.437•TheefficiencyofBECCSfacilities.Carboncaptureandstoragealsorequiresalotofenergy.DrDanielQuigginfromChathamHouseexplainsthat:Post-combustioncapturerequiresheattoreleasetheCO₂moleculescapturedbythesolvent,andadditionalenergyisrequiredtocompressthecapturedCO₂sothatitcanbepipedtostoragesites.This‘energypenalty’hastheconsequenceofreducingtheefficiencyofthefacilityinconvertingtheembodiedenergyofthebiomassintoelectricity.Assuch,thecapturerateandenergyefficiencyoftheBECCS-to-powerfacilityareintrinsicallyandinverselyconnected,creatingatrade-offbetweenpowerproductionandCO₂capture.Orinotherwords,themoreefficientatproducingpoweraBECCSfacilityis,thelessCO₂thatiscaptured.438•Theamountofuncapturedemissionsfromelsewhereinthesupplychain.Significantportionsoftheemissionsfromthebioenergyproductionlifecyclecomefromearlieroninthesupplychainbeforebiomassiscombusted.439TheCCCexplainedthatpartofthereasonforshiftingfromimportedbiomasstodomesticsuppliesisbecause“itischallengingtoensurethatbiomassimportedtotheUKmeetsthenecessarysustainabilitystandards,giventhelesserregulatoryoversightthatispossiblearoundlanduseandforestmanagementinothercountries”.440432Biomassfeedstocksincludeawiderangeofmaterialsharvestedfromnatureorbiologicalportionofwaste.Themosttypicalexampleiswood(firewood,woodresidues,woodwaste,treebranches,stump,woodpellets),whichisthelargestbiomassenergysource.Otherexamplesofbiomassaregrass,bamboo,corn,sugarcane,animalwaste,sewagesludgeandalgae.433ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023434CutCarbonNotForestsCampaign(DPS0022)435Q141[DrDanielQuiggin]436ClimateChangeCommittee,TheSixthCarbonBudget–electricitygeneration,December2020.437ChathamHouse,BECCSdeploymentTherisksofpoliciesforgingaheadoftheevidence,October2021438ibid.439EuropeanAcademies’ScienceAdvisoryCouncil,Forestbioenergyupdate:BECCSanditsroleinintegratedassessmentmodels,February2022;CutCarbonNotForestsCampaign(DPS0022)440ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March202359Decarbonisationofthepowersector•ThecostofBECCSfacilities.AddingCCSislikelytoincreasethecostofelectricityfrombioenergy.441133.Duringourinquiry,wevisitedStockholmExergi’scombinedheatandpowerplant,whichistriallingtheuseofbioenergywithcarboncaptureandstorage.WeweretoldthatmostofSwedenisactiveforest.Eventhoughtheforestisharvested,thereisanetgrowthinthecarbonstockoftheforesteachyear.However,thecountrystillimportssomebiomassfromelsewhere.Thetechnologyisprovingeffective.Thecompanyestimatesthattheplant,onceoperational,cancapture800,000tonnesofcarbondioxideperyear.TheEUCommissionexplains:ByusingtheexcessheatoftheCO2capturefacilitytosupplyStockholm’sdistrictheatingnetwork,theextraenergyrequiredfortheCCSprocess(i.e.theenergypenalty)willbegreatlyreduced.Thisenergypenaltyisnormallyintherangeof15–29%,oftheenergyproduced,whileBeccsStockholmwillreduceittoamere2%.Importantly,90%oftheCO2inthefluegaswillbecapturedbyuseoftheHPCtechnology.442134.TheUK’sbiomassindustryisadiversesectormadeupoflarge-scalepowerplantsthroughtosmaller-scale,morelocal,generators.Theoverallcostsoflarge-scalebioenergypowerplants,whichconvertedfromcoal-firedplants,areveryexpensiveandrelyheavilyonimportedfeedstocks,whichmaynotbeproducedsustainably,andwhichmayhavesignificantlifecycleemissions.Existingsupportschemesforunabatedbioenergyareduetoendby2027.Wedonotbelievethatthehistoricallocationofsubsidiestolargescalebiomass,suchasDrax,hasrepresentedeithervalueformoneyorthebestuseofpublicfunds.135.Webelievethatthereshouldbenoextensionbeyond2027fortaxpayersupportforunabatedbioenergyplants,andthattheaimshouldbetophaseoutsuchplantsinfavourofmoresustainablealternativesassoonaspossible.Thiscouldincludebioenergywithcarboncaptureandstoragebutonlyinascenariowhereviableandfunctioningcarboncaptureandstorageisinuse.Furthersubsidyshouldnotbegiventounabatedbiomass.Anyfuturesubsidiesshouldonlybeprovidedtocompanieswhichcanevidencetheuseoflocal,wastebiomassandnotcompaniesthatrelyonimportedbiomass.136.BioenergywithcarboncaptureandstoragehasyettobecommerciallydeployedintheUK.WehaveconcernsaboutwhetherbiomassfeedstockscanbescaledupsustainablytomeetdomesticandglobaldemandandwhetherBECCSfacilitieswillprovidevalueformoney.Toensuresufficientoversightofsustainabilitystandards,theUKneedstodevelopdomesticsuppliesoffeedstocks.WedonotopposetheuseofBECCSforpowerinprinciple,butfuturetaxpayersupportforBECCSmustbecontingenton:a)robust,transparentevidencethatthefulllifecycleemissionsfromBECCSfacilitiesintheUKarecarbonneutralwithinatimeframecompatiblewithourclimatetargets;andb)detailedassessmentthatBECCSfacilitiesprovidevalueformoney.441ibid.442EuropeanCommission,BeccsStockholm:BioEnergyCarbonCaptureandStoragebyStockholmExergi,April2022Decarbonisationofthepowersector60137.TheGovernmentwasduetopublishabiomassstrategylastyear,settingouttheroleofbiomassinhelpingtoachievetheGovernment’snetzerotarget,includingwhetherbiomasswouldbebestusedtogenerateelectricityorforotherpurposes.TheGovernmentshouldpublishitsbiomassstrategywithoutdelayandsetout:a)theGovernment’sassessmentoffuturedemandforbiomassfeedstocksintheUKandglobally;b)theextenttowhichtheUKcanrelyondomesticbiomassfeedstockstomeetfuturedemandandmechanismstosupportdomesticbiomasssupply;andc)thetimeframeforscalingupthesupplyofdomesticbiomassfeedstocks.138.WeurgetheGovernmenttoensurethatthereisarobustcontingencyplaninplaceifBECCSprovesunviable,eitherintermsofitssustainabilityorefficiency.WeurgetheGovernmentnottorelyuponunproventechnologiesattheexpenseofothersimplerandcheaperapproaches,whichcouldbetakennow,suchasdeployingmeasurestoreduceenergydemand.HydrogenHydrogenproduction139.Low-carbonhydrogenproductionhasvariouspotentialusesacrosstheeconomybyreplacinghigh-carbonfuelsusedtoday,especiallyinsectorsthatarehardtoelectrify(industryandshipping)andisexpectedtohavearoleinfuturepowergeneration,althoughthescaleofthisremainsuncertain.443Therearedifferentwaystoproducehydrogen,including:•Greenhydrogen—producedusingelectrolysis,wherebyelectricityispassedthroughwatertoseparateoutthehydrogenandoxygen.Excesselectricityfromrenewables,suchasoffshorewind,couldbeusedtoproducehydrogenbythismethod.Whilethisisthemostsustainableformofhydrogen,theCCChasnotedthattheextentofgreenhydrogenwillbeconstrainedbytheamountofrenewablecapacityavailabletomeetfuturedemandforelectricity,aswellashydrogen.444By2035,theCCC’sbalancedpathwayexpectedgreenhydrogentocomprisejustover20%ofhydrogensupply.However,thiswouldincreaseto44%by2050,asthecostsfallandsupplyconstraintsease.445•Bluehydrogen—producedmainlyfromnaturalgas,usingaprocesscalledsteamreforming,whichbringstogethernaturalgasandheatedwaterintheformofsteam.Theoutputishydrogen.Thisisacarbonintensiveprocess,soCCSisusedtotrapandstorethiscarbon.AccordingtotheCCC,usingCCScanreducethelifecycleemissionsoftheprocessbyjust60%to85%whencomparedwithusingunabatedgas.446Intheabsenceofsufficientgreenhydrogen,theCCC443ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March2023;EnergySystemsCatapult(DPS0024)444ibid.445ClimateChangeCommittee,TheSixthCarbonBudget,December2020446ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March202361Decarbonisationofthepowersectorrecommendedthatbluehydrogenisusedtoestablishamarketforhydrogeninthenearterm.Ithassuggestedthatby2035mosthydrogenwouldbeproducedinthisway.447However,theuseofbluehydrogenhassignificantchallenges:Ȥtherehasbeenrecentevidencethathydrogenemissionsescapingfromgaspipelineshaveastrongerwarmingeffectintheatmospherethanpreviouslythought;448ȤitsuseperpetuatestheUK’srelianceonimportedgas;Ȥitrequireslarge-scaleCCSinfrastructure;andȤinthecontextofhighgasprices,itislesscost-effective.Predictionssuggestthatgreenhydrogenwillbecomemorecosteffectivethanbluehydrogenwithinthe2020s.449Demandforhydrogen140.Weheardthatitisimportantforthesupply-sideofhydrogentodevelopintandemwithsourcesoffuturedemand.450TheleveloffuturedemandforhydrogenintheUK,however,isnotclearanddependsondecisionsthattheGovernmenthasyettotake,suchastheextenttowhichhydrogenwillbeusedforheating,duein2026.Asaresult,scenariosassessingtheextentofhydrogencapacityneededby2035acrosstheeconomyvaryconsiderably.NationalGridElectricitySystemOperator(ESO),forexample,estimatedthatGreatBritaincouldneedbetween3.9and22.3GWofhydrogenproductioncapacityby2035,dependingonitsuseforheating.451141.TheCCChascautionedthatthereislikelytobeascarcityinthemediumtermofhydrogenproducedintheUKandagapbetweenpotentialdemandandsupply.ThemorehydrogentheUKusesin2035,thelargerthegapwillbe.452Asaresultoftheseconstraintsandnewevidenceontherisksofbluehydrogen,theCCCcautionedagainstalargeroleforhydrogeninheatingwhich,initsview,mayhinderitsuseforothersectors,suchaspower,whichwillrelyonitmoreinordertodecarbonise.453TheCCCrecommendedthattheGovernmentdevelopa“cross-sectoralinfrastructurestrategy”that“mustnarrowthespace”forfuturehydrogenuses.454Itaddedthat:ThereisanimportantroleforGovernmentinsettingstrategicdirectionforpowerandnon-powerusesofhydrogen.Hydrogeninfrastructurewillberequiredregardlessofdecisionsin2026onitsuseforbuildingsheat—theGovernmentshouldidentifyasetoflow-regretinvestmentsthatcanproceednowandfast-trackbusinessmodelstodeliverit.455447ibid.448ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March2023;Seealso:ChrisHarrisonandDrJonathanRadcliffe(DPS0018)449ChrisHarrisonandDrJonathanRadcliffe(DPS0018)450RenewableUK(DPS0004);ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March2023451NationalGridElectricitySystemOperator,FutureEnergyScenarios:BridgingtheGaptoNetZero,March2023452ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March2023453ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March2023;Seealso:ChrisHarrisonandDrJonathanRadcliffe(DPS0018)454ibid.455ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March2023Decarbonisationofthepowersector62Hydrogeninthepowersector142.Hydrogencouldhelpbalancesupplyanddemandinthreeways:•Low-carbonsourceofdispatchablepower.Hydrogencanbeuseddirectlytopowerturbinesthatgenerateelectricity,therebyactingasasubstitutefornaturalgas.456Hydrogenisoneofjustafewlow-carbonsourcesofdispatchablepower,457alongsidegasCCS,thatofferanalternativetounabatedgas;•Greenhydrogenasauseofexcesselectricity.Electrolysers,whichareusedtomakegreenhydrogen,couldprovideaflexiblesourceofdemandwhenthereisexcesssupplyfromrenewables.458Usingexcesssupplyofrenewableelectricitytoproducegreenhydrogenreducestheneedtopaygeneratorstocurtailtheiroutputandmayhelpalleviatenetworkconstraintsiflocatedeffectively;459and•Sourceoflong-termstorage.Hydrogenproducedduringperiodsofexcesssupplycanbestoredoverlongperiodsandusedtogenerateelectricitylater.460ModellingcommissionedbytheCCCsuggestedthathydrogen-firedgenerationcouldcomprisebetween46%and100%oflow-carbondispatchablesupplyby2035,dependingonarangeofscenarios.461ThescaleofhydrogendemandinthepowersectorwilldependonthebalancebetweenhydrogenandgasCCS,butuncertaintyovertheirfuturecostsandefficienciesmeansthattheprecisefuturebalanceremainsunclear.462143.TheBritishEnergySecurityStrategydoubledtheGovernment’sambitiononhydrogen.By2030,theGovernmentwantsupto10GWofhydrogenproductioncapacitytobeinstalled,“subjecttoaffordabilityandvalueformoney”,including5GWofelectrolytichydrogen.463Whilethisnewambitionwaswelcomedinevidencetoourinquiry,theCCCsuggestedthattheGovernment’sambitionsforhydrogenaretowardsthelowerendoftheextentofcapacitythatcouldberequiredtodecarboniseelectricityby2035.464RenewableUKandJohnsonMattheybothcalledforadetailedroadmapsettingouthowtheGovernment’sambitionswillbeachieved,inordertogiveinvestorstheconfidencetotakedecisions.144.Companiesarealreadybuildinghydrogenturbinesandcomponentsforhydrogen-to-powerplants.However,intheUKHydrogenStrategy,theGovernmentsaidthatitdoesnotexpectthefirst100%hydrogenturbinestocomeintooperationbeforetheendofthe2020s.465Instead,theGovernmentsuggestedthathydrogencouldbeblendedwithnaturalgasandusedingaspowerplants.TheCCCnotedthat“itappearstechnicallyfeasiblethatmodestretrofitstoexistingpowerplantscouldbemadetoconvertsomegasplantsto456NationalGridElectricitySystemOperator,FutureEnergyScenarios:BridgingtheGaptoNetZero,March2023457Adispatchablesourceofelectricityreferstoasourceofelectricitygeneration,suchasapowerplant,thatcanbeturnedonoroff;inotherwordstheycanadjusttheirpoweroutputsuppliedtotheelectricalgridondemand.Thisgenerationcanbeplannedwithahighdegreeofconfidenceforhours,daysand,normally,weeksaheadandreliedontobeabletoruncontinuouslyifrequired.458NationalGridElectricitySystemOperator,FutureEnergyScenarios:BridgingtheGaptoNetZero,March2023459NationalGridElectricitySystemOperator,FutureEnergyScenarios:BridgingtheGaptoNetZero,March2023;ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March2023460NationalGridElectricitySystemOperator,FutureEnergyScenarios:BridgingtheGaptoNetZero,March2023461ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March2023462ibid.463DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April2022464ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March2023465HMGovernment,UKHydrogenStrategy,August202163Decarbonisationofthepowersectorhydrogen.However,thesuitabilityofpowerplantswillneedtobeassessedonacase-by-casebasis”.466TheCCCalsosuggestedthatnewgas-poweredplantscouldbebuiltinsuchawaythattheyarehydrogen-ready,sothattheycouldtransfertousinghydrogenlater.145.Thereareseveralfinancialandtechnicalchallengessurroundingsuchplants.Theseinclude:•theinvestmentrisksofdeployingfirst-of-a-kindtechnology;•uncertaintyabouthowlongtheseplantswouldrunandtherevenuestheywouldgenerate.Usinghydrogeniscurrentlymoreexpensivethanusinggas,whichincreasestherunningcostsofhydrogen-to-powerplants;and•theavailabilityofequipmenttopowerturbinespurelyusinghydrogen.467Forthesereasons,theDepartmentinformedusthat“existingroutestomarketsuchastheCapacityMarket468maythereforebeincapableofprovidingsufficientinvestmentcertaintyandcoveringtheupfrontinvestmentrequired”.469Infrastructuretostoreandtransporthydrogen146.Infrastructuretotransportandstorehydrogenwillneedtoexpandasitsuseacrosstheeconomygrows.Hydrogencanbestoredforlongperiodsoftimeundergroundinsaltcavernsorpossiblyindepletedgasfieldsandundergroundaquifers.TheCCChassuggestedthatuptoalmost3Terawatthours(TWh)ofhydrogenstoragecouldbeneededby2030,risingtoover5TWhby2035andover11TWhby2050.470Buildinghydrogenstoragewillrequireplanningconsent,environmentalimpactassessment,communityengagementandgeologicalengineering.471Co-ordinationacrosstheGovernmentandindustrywillberequiredtoaligntheseelements.472147.TheCCCalsoexpectsthataround3,800kmofpipelineswouldberequiredtotransporthydrogenaroundby2035,anditwarnedthat:Thescaleofhydrogennetworkrequiredishighlydependentonthedecisionsyettobetakeninhighdemandsectors.However,latehydrogennetworkdeliveryhaspotentialtoactasablockertostorageandproductioninfrastructureneededtosupportthe2035powersystemdecarbonisationtarget.Thismustbeakeyconsiderationinstrategicdecisionsaroundinfrastructurebuild.473148.TheGovernmentmadeacommitmentintheBritishEnergySecurityStrategytodesignnewbusinessmodelsforhydrogentransportandstorageinfrastructureby2025.474However,SSE,alargeenergygenerator,toldusthat:466ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March2023467DepartmentforBusiness,EnergyandIndustrialStrategy(DPS0016)468TheCapacityMarketisdesignedtoensuresufficientreliablecapacityisavailablebyprovidingpaymentstoencourageinvestmentinnewcapacityorforexistingcapacitytoremainopen.469DepartmentforBusiness,EnergyandIndustrialStrategy(DPS0016)470ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March2023471NationalGridElectricitySystemOperator(DPS0051)472ibid.473ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,9March2023474DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April2022Decarbonisationofthepowersector64whilstacommitmenttodeliveringhydrogenstoragebusinessmodelsby2025iswelcome,thiswouldbetoolatetodevelophydrogenstorageprojectsby2030givenleadtimesof7–8years.Hydrogentransportandstoragebusinessmodels,alongsidesupportforhydrogenofftake,needtobedeliveredintandemwithhydrogenproductionbusinessmodelstodeliverasustainablehydrogeneconomy.Progressingtransport,storageandofftakemodelssignificantlyby2023willbeimportanttodeliverahydrogenvaluechain.475TheUK’spositionasagloballeader149.HydrogenisoneindustrywheretheUKiswellplacedtotakealeadgloballyduetoitsnaturalwindresourcesandstoragecapabilities.However,weheardthattheUK’spositionmaybeatriskwithoutfurtherpoliciesandinvestmenttosupporthydrogenproduction.476Othercountriesaremakingsignificantinvestmentsinhydrogencapacity,andweweretoldthatmanufacturersaremovingtocountrieswherethereismoreclarity.477CatherineRaw,ManagingDirectoratSSEThermal,explainedthattheInflationReductionActusestaxincentivestoreducethecostofhydrogen,makingitcompetitivewithotherformsofpower.Thishasenabledcompaniestomakeinvestmentdecisions.HydrogenprojectsintheEUhavealsoreceivedlargesumsofpublicmoney.150.Aspartits“EnergySecurityDay”,on30March2023,theGovernmentlaunchedaconsultationonthefundingmodelsforhydrogenproduction,transportandstorage.478TheGovernmentalsoannouncedthewinnersofthefirstroundofthe£240millionNetZeroHydrogenFund,whichwillsupportthedevelopmentofnewlow-carbonhydrogenproductiontode-riskinvestmentandreducelifetimecosts.Theseincludedseveralsmallgreenhydrogenprojectsandafewbigblueones.479151.Hydrogenlookssettobeanimportantpartofadecarbonisedpowersystem,bothasasourceoflow-carbondispatchablepowertoreplacegasandasasourceofenergystoragewhichcantakeadvantageofexcesssupplyofrenewables.However,givensupplyconstraints,theGovernmentneedstodeterminethesectorsoftheeconomyinwhichuseofhydrogenwillbeprioritised.WerecommendthattheGovernmenttakesforwardtherecommendationsoftheClimateChangeCommitteetodevelopacross-sectoralinfrastructurestrategythatnarrowsthespaceforfuturehydrogenusesandfinalisethebusinessmodelsforhydrogenthisyear.152.Bluehydrogenmayhavevalueasatransitionalmeasurewhichbuildsamarketforhydrogenandprovidessupplyovertheshorterterm.However,excessrelianceonbluehydrogencouldleavetheUKexposedtovolatileinternationalgaspricesandriskincreasinggreenhousegasemissionsduetothethreatofmethaneleakage.Inresponsetothisreport,weaskthattheGovernmentsetsouthowitsplansforbluehydrogenwilladdressrecentevidencethathydrogenemissionsescapingfromgaspipelineshavea475SSEplc(DPS0087)476ChrisHarrisonandDrJonathanRadcliffe(DPS0018)477Ørsted(DPS0073);ChrisHarrisonandDrJonathanRadcliffe(DPS0018)478DepartmentforEnergySecurityandNetZero,Hydrogenproductionandindustrialcarboncapturebusinessmodels:Consultationonrevenuesupportregulationsrelatingtodirectionstoacounterparty,publicationofinformationandeligibility,March2023479DepartmentforEnergySecurityandNetZero,NetZeroHydrogenFundstrands1and2:summariesofsuccessfulapplicantsround1(April2022)competition,30March202365Decarbonisationofthepowersectorstrongerwarmingeffectintheatmospherethanpreviouslythought.Itshouldincludeinthatresponseanaccountofhowitwillensurethateffortstoconstrainandmonitormethaneleakageatpointofextraction,transportationandstoragearerobust.153.WhilsttheGovernment’scommitmenttodeliveringhydrogenstoragebusinessmodelsby2025iswelcome,itappearsthatthiscouldbetoolatetoallowthedevelopmentofhydrogenstorageprojectssothattheyareinoperationintimetomeettheGovernment’stargetfor10GWofhydrogenby2030,givenpossibleleadtimesofseventoeightyears.Inresponsetothisreport,theGovernmentshouldconfirmwhetheritstillbelievesthathydrogenstorageprojectscanbedeliveredby2030and,ifso,howthatwillbeachieved.Energystorage154.Currently,energystorageintheUKconsistsof2.8GWofpumpedhydropower(seeTable1belowformoredetail)and2GWofbatterystorage.480MostmodelsexpecttheUKwillneedbetween20and30GWofelectricitystorageby2035.481AsLauraSandysCBE,ChairoftheEnergyDigitalisationTaskforce,explained:ifonelooksatthefoodsystem,beforewehadrefrigerationwelost60%offood.Whatarethestoragerequirements?Theyarethesamething—refrigerationofelectrons.Frozenfoodislong-durationstorage.Itisabsolutelycrucialtostabiliseandbringthesystemcostsdown.[..]Itisthebigstrategicgapthatwehaveinthisdecarbonisationsystem.482155.Therearevarioustechnologiescapableofperformingthisrole(seethetablebelow),whichvaryinsizefromsmalldomesticbatteriestolarge-scalegrid-connectedfacilitiesandwhichstoreenergyoverdifferenttimescales(hydrogenstorageisdiscussedintheprevioussection):a)Short-durationstorage:technologiessuitedtostoringenergyovera0–4hourtimeframe;b)Medium-durationstorage:thesetechnologiesareusedtoaddressbalancesbetweensupplyanddemandwithinaday(4–12hours)oracrossmultipledays(12–200hours);c)Long-durationstorage:thesearetechnologiescapableofstoringenergyoveramuchlongertimeframe,namelyweeks,months,seasonsandyears.Thesetechnologieshelpbalanceinter-seasonalvariationsandarefoundinlargerfacilities.483480GreenAlliance,Thebuildingblocksofasecure2035zerocarbonpowersystem,January2023;ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023481ibid.482Q428[LauraSandysCBE]483LongerDurationEnergyStorage,POSTnote688,ParliamentaryOfficeofScienceandTechnology,20December2022Decarbonisationofthepowersector66Table1:Selectedelectricitystoragetechnologycharacteristicsandcommercialreadiness484TechnologyDescriptionCommercialreadinessResponsetimeDischargedurationLithiumbatteriesMovementoflithiumionsbetweentheanodeandcathodeinanelectrochemicalreactionresultsinabatterychargeanddischargeMaturetechnologydeployedwidelyintheUKatdistributionandtransmissionlevelMillisecondsShort-medium(upto6–8hours)FlowbatteriesEnergystorageintheelectrolytetanksisseparatedfrompoweringenerationstacks.ThestacksconsistofpositiveandnegativeelectrodecompartmentsdividedupaseparatororionexchangemembranethroughwhichionspasstocompleteelectrochemicalreactionsDeployed,andincreasinglycommercialised,withagrowingnumberofcompaniesworldwide,includinginEuropeMillisecondsMediumLiquidairstorageElectricityiscompressedandcooledintoliquidform,whichisthenevaporatedandrunthroughturbinestoproduceelectricityLimitedapplicationsworldwide.Twopre-commercialdemonstratorsintheUK2minutesMediumCompressedairenergystorageElectricityisusedtocompressairandstoreitincavernsorundergroundvessels.ExpandingairisreleasedthroughturbinestogenerateelectricityTwofacilitiesworldwide:Germany(290MW)andUS(110MW)3–10hoursMedium&longPumpedhydrostorageElectricityisusedtopumpwaterfromalowtoahighreservoirwhichisthenreleasedbackthroughturbinestogenerateelectricityMaturetechnology,deployedintheUKandworldwideFewsecondsMedium&long156.Whilethereisalreadyasubstantialpipelineofbatterystorage(around30–40GW)andaclearroutetomarket,485deployinglong-durationenergystorageiscurrentlythebiggestchallenge.Severaltechnologies,atdifferentlevelsofmaturity,aresuitableforlong-durationstorage.Pumpedstoragehydropower,forinstance,iswellestablished,whereasothersuitableoptions(suchascompressedairstorage)areatanearlierstageof484NationalGridElectricitySystemOperator,PotentialElectricityStorageRoutesto2050,accessedon15April2023485Q200[MerlinHyman]67Decarbonisationofthepowersectordevelopment.486Thebusinesscaseforstoringenergylong-term,overseasonsandyears,includinghydrogenstorage,isparticularlychallengingbecausetheassetmaynotbeusedforlongperiodsoftime(forinstanceawarmerwinter).487Theseassetsareexpectedtohavealonglifespan,whichcreatesuncertaintyovertherevenuesthatwillbegeneratedovertheirlifetime.488Furthermore,projectshavesteepupfrontcosts,withtheirfirst-of-a-kindnatureaddingtothecapitalcost.489Therewasaconsensusacrosstheevidencethat,asaresultofthesechallenges,currentmarketmechanismswillnotprovidethecorrectlevelandstructureofpaymentstounlockinvestmentinlongdurationstoragecapacityfortheUK.490Clarityonthefuturebusinessmodelforsuchassetsisneededtode-riskinvestments.491157.TheGovernmentlaunchedacallforevidencein2021ontheroleforlong-durationelectricitystorage,recognisingthatisnotcurrentlyattractingenoughinvestment,norisitbeingbuiltatsufficientscale.492TheGovernmenthassincecommittedtodevelopingpolicy,suchasarevisedcapandfloormechanism,tode-riskinvestmentinlargescalelong-durationelectricitystorageby2024.493AdamBell,HeadofPolicyatStonehaven(aconsultancy)andformerHeadofEnergyStrategyattheDepartmentforBusiness,EnergyandIndustrialStrategy(BEIS),explainedthatdevelopingthispolicyischallengingbecause:Long-durationenergystorageisanincrediblyheterogenouscategory.Thatincludespumpedstorage.Itincludesliquidairstorage,compressedairstorageandverybigbatteriesthatyouonlyinvokeoccasionally.Youneedtofindamechanismthatproperlyvaluesallofthosesortsofassetclassesandgivesthemthesortsofreturnstheyneedtogetaway,whileatthesametimeensuringthatyouprotectconsumers.Someofthoserequirementsacrossthosedifferentsortsofassetsaredifferent.494MrBellalsowarnedthatthispolicyareaispoorlyresourcedwithintheDepartment,statingthat“therearejustaboutfivepeopleinthelong-durationenergystorageteam,andtheyareallquitebusy”.495158.Thedeploymentoflong-durationenergystorageisessentialtoensuringthatazero-carbonpowersystemcanoperate24/7,365daysayear.Theseprojectsarecapitalintensiveandfacebarrierstodeploymentduetoalackoflong-termmarketsignals.TheGovernment’s2024ambitiontodevelopappropriatepolicytoenableinvestmentinthesetechnologiesiswelcome,butweareconcernedthatthishasnotbeenmadeenoughofapolicypriority.486LongerDurationEnergyStorage,POSTnote688,ParliamentaryOfficeofScienceandTechnology,20December2022487SSE(DPS0087);RWE(DPS0088);SGN(DPS0052)488InternationalHydropowerAssociation(DPS0092);RenewableUK(DPS0004)489ibid.490Q1[JamesRichardson];InternationalHydropowerAssociation(DPS0092);ScottishPower(DPS0090);TheAssociationforRenewableEnergy&CleanTechnology(REA)(DPS0055);WWF(DPS0063)491TheAssociationforRenewableEnergy&CleanTechnology(REA)(DPS0055)492Business,EnergyandIndustrialStrategy,Facilitatingthedeploymentoflarge-scaleandlong-durationelectricitystorage:callforevidence,July2021493Business,EnergyandIndustrialStrategy,Facilitatingthedeploymentoflarge-scaleandlong-durationelectricitystorageGovernmentResponse,August2022494Q427[AdamBell]495Q428[AdamBell]Decarbonisationofthepowersector68159.WerecommendthattheGovernmentestablishesanappropriatepolicyframeworktosupportinvestmentdecisionsinlong-durationenergystoragethisyear,toenableprojectstobecompletedbytheendofthedecade.Thisincludessettingoutatargetrangeforlong-durationenergytechnologiesandputtinginplacearevenuestabilisationmechanism.WerecommendthattheGovernmentensuresthatthereisasufficientnumberofstaffwithintheDepartmentworkingonthiscrucialpolicyarea.Inresponsetothisreport,weaskthattheGovernmentsetsouthowmanystaffareworkingondevelopingthispolicyandhowthiscomparestootherteamssuchasthoseworkingoncivilnuclearenergy.Demandreduction160.Aswithseveralotherinquiriesthatwe(andotherselectcommittees)haveundertaken,496wefoundconsensusthatinvestmentinenergyefficiencyiscrucialtodecarbonisation,energysecurityandcuttingbills.497WitnessesagreedthattheGovernmenthadfailedtorespondwiththenecessaryurgencytoaddresspolicygapsinthisarea.498ResearchbytheCentreforEnergyDemandSolutions(CREDS)foundthatby2050electricitygenerationcouldgrowbyasmuchas150%oraslittleas44%comparedto2020,dependingontheextentofdemandreductionandflexibility.499CREDSemphasisedthatitisdifficultandexpensivetoachievenetzerowithoutsignificantreductionsinenergydemandandbroaderchangestohowenergyisconsumed.500161.Demandreductionisachievablethroughacombinationofenergyefficiencymeasures,forinstanceadoptingmoreefficientend-usetechnologiessuchasheatpumps,andtheuseofmoreenergy-efficientmaterialsandprocessessuchashomeinsulation.TheCREDSscenariossuggestthatenergydemandcouldbereducedby52%by2050comparedwith2020.501Thiswouldlessentheburdenonthescaleofdeploymentoflow-carbonelectricityinfrastructureandsubstantiallyreducetheinvestmentandrunningcostsofthefutureenergysystem.502However,followingthescalingbackofGovernment-sponsoredenergyefficiencyschemes,energydemandfromdomesticbuildingshasremainedatmuchthe496Seeforexample:Business,EnergyandIndustrialStrategyCommittee,ThirdReportofSession2022–23,Energypricingandthefutureoftheenergymarket,HC236;EnvironmentalAuditCommittee,FourthReportofSession2022–23,Acceleratingthetransitionfromfossilfuelsandsecuringenergysupplies,HC109;EnvironmentalAuditCommittee,FourthReportofSession2019–21,EnergyEfficiencyofExistingHomes,HC346;Business,EnergyandIndustrialStrategyCommittee,Twenty-FirstReportofSession2017–19,EnergyEfficiency:BuildingTowardsNetZero,HC1730497Seeforexample:EnergyUK(DPS0023);Regen(DPS0071);CentreforResearchintoEnergyDemandSolutions(DPS0031);ThermalStorageUK(DPS0037);GlennmontPartners(DPS0039);AssociationforDecentralisedEnergy(DPS0040);TheRSPB(DPS0050);TheAssociationforRenewableEnergy&CleanTechnology(REA)(DPS0055);EDF(DPS0059);LocalGovernmentAssociation(DPS0019);BRE(DPS0079);GreenAlliance(DPS0067)498ibid.499CentreforResearchintoEnergyDemandSolutions,Theroleofenergydemandreductioninachievingnet-zerointheUK,October2021500CentreforResearchintoEnergyDemandSolutions(DPS0031)501ibid.502CentreforResearchintoEnergyDemandSolutions(DPS0031).Seealso:WSP(DPS0078)69Decarbonisationofthepowersectorsamelevel.503ThenumberofUKenergyefficiencyinstallationssuchasinsulatingloftsandcavitywalls,deliveredthroughGovernmentschemes,peakedin2012at2.3million.By2021,annualinstallationswere96%lower,atfewerthan100,000.504162.IntheAutumnStatement2022,theChancellorannouncedanambitiontoreduceenergyuseinbuildingsandindustryby15%by2030comparedto2021levels.505ThissitsalongsidetheGovernment’stargetforasmanyhomesaspossibletomeetEPCBandCby2035,withfuel-poorhomesmeetingthesamestandardby2030.506TheGovernmentestimatedthatitsEPCCby2035targetwillcostbetween£35billionand£65billioninpublicandprivateinvestment.507163.Whiletherearesomeexistingschemestodeliverenergyefficiencyimprovementsforsocialhousing,publicbuildingsandlow-incomehouseholds,theyaredeliveringtoofewupgradestomeetGovernmenttargets.Forexample,thefourthroundoftheEnergyCompanyObligation(ECO)schemewasopenedinJuly2022,allocating£4billionoffundingforenergyefficiencymeasuresbetween2022and2026,paidforthroughenergybills.Thisisexpectedtomakeupgradestothehomesof450,000lowincomeandfuelpoorhouseholds.508However,analysisbyNationalEnergyAction,afuelpovertycharity,foundthatatthecurrentpaceofinstallations,itwilltakeapproximately300yearsfortheGovernmenttohititstargetforallfuel-poorhomestoreachEPCC—farbehindthe2030deadline.509164.On28November2022,theGovernmentannouncedits“GreatBritishInsultationScheme”,allocatinganadditional£1billion(paidforviaenergybills)tofundupgradesto300,000inefficientpropertiesby2026,mostofwhichwouldnotpreviouslyhavebeeneligibleforsupport.510AttheAutumnStatement2022,theChancelloralsopledgedafurther£6billioninvestmentforenergyefficiencyavailablebetween2025and2028.511Itiscurrentlyunclearhowthisfundingwillbeallocated,buttheGovernmentisexpectedtoconsultonimprovingtheenergyperformanceofowner-occupiedhomesthisyear.512165.DespitetheGovernmentconsultingin2020onraisingtheminimumenergyefficiencystandardsforprivaterenters,whohavelittlescopetoimprovetheenergyefficiencystandardsoftheirhomes,theGovernmenthasyettopublisharesponsetothe503NationalInfrastructureCommission,InfrastructureProgressReview2023,27March2023;TheClimateChangeCommitteecalculatedthatUKconsumerswouldhavesaved£1billionontheirenergybillsin2022ifratesofhomeinsulationhadcontinuedattheir2012level,andthezero-carbonhomesstandardhadcomeintoforcein2016asoriginallyintended.See:LetterfromLordDeben,ChairmanoftheClimateChangeCommitteetoRtHonKwasiKwartengMP,dated24Feb2022504LetterfromLordDeben,ChairmanoftheClimateChangeCommitteetoRtHonJeremyHuntMP,ChancelloroftheExchequer,dated9November2022505HMTreasury,AutumnStatement2022,17November2022506AnEPCgivesapropertyanenergyefficiencyratingfromA(mostefficient)toG(leastefficient)andisvalidfor10years.507NationalInfrastructureCommission,InfrastructureProgressReview2023,27March2023508DepartmentforBusiness,EnergyandIndustrialStrategy,EnergyCompanyObligationECO4:2022–2026GovernmentResponse,April2022509NationalEnergyAction,‘NewdatashowsGovernmentisnow300yearsbehindtargetstohelplow-incomehomesmeetenergyefficiencytargets,’February2023510HMGovernment,PoweringupBritainEnergySecurityPlan,March2023;seealso:BEIS,EnergyCompanyObligationECO+:2023–2026Consultation,November2022511HMTreasury,AutumnStatement,November2022512HMGovernment,PoweringupBritainEnergySecurityPlan,March2023Decarbonisationofthepowersector70consultation.513Furthermore,deliveringaneffectiveenergyefficiencyprogrammewillrequireabuilding’sperformancetobeaccuratelymeasured,butthecurrentEPCratingsystem—whichisbasedonthecostofthefuelusedforheating—doessoonlycrudely.514166.Energyefficiencyisthequickestandmostcost-effectivewaytoreducegasdemandandlowerhouseholdenergybills.Ifsignificantstridesarenotmadetoreducedemand,itwillbecomeincreasinglychallengingandexpensivetodecarbonisetheelectricitysystem.WecallontheGovernmenttobringforwardthe£6billionfundingpackageforenergyefficiencyallocatedfortheperiod2025to2028tonow.TheGovernmentshouldprioritisedeliveringalocallyco-ordinatedprogrammeofenergyefficiencyandhomeretrofit.Thisshouldbepairedwithacommunicationscampaignonthebenefitsofhomeimprovementsandfuelswitching.WerecommendthattheGovernmentusesnewpowersintheEnergyBilltourgentlyreformtheflawedEPCratingsystem,sothatitgivesamoreaccuratereflectionofoverallenergyuseandemissions,assoonastheBillisenacted.513DepartmentforBusiness,EnergyandIndustrialStrategy,ImprovingtheEnergyPerformanceofPrivatelyRentedHomesinEnglandandWales,September2020514OctopusEnergy(DPS0072);KathrynPorter(ConsultantatWatt-Logic)(DPS0011);CentreforResearchintoEnergyDemandSolutions(DPS0031)71DecarbonisationofthepowersectorChapter6:DeliveryriskstotheGovernment’s2035target167.WeheardthroughoutourinquirythatthereareawholehostofdeliveryriskstoachievingtheGovernment’stargettodecarbonisepowerby2035:•Theplanningsystemisamajorconstraintondeliveringnewenergyinfrastructure.Weheardthatplanningauthoritiesandenvironmentalregulatorsareunder-resourcedandthatthereisunclearguidanceandalackofstreamliningintheprocess;•Weweretoldthatelectricitynetworkconstraintsanddelaystosecuringaconnectiontothegridareimpingingontheabilitytodeploylow-carbontechnologies.Alackofinvestmenttoupgradethenetworks,particularlyatthetransmissionlevel,meansthatelectricitygridsarenolongerkeepingpacewiththebuild-outofrenewables.Meanwhile,thequeuetoconnecttothegridisbasedonafirstcomefirstservedbasis,resultinginviableprojectsgettingstuckbehindthosewhichmaybespeculative.Wewerealsowarnedthatnetworkoperatorshavebeenabletomakeexcessivereturns,whichifnotadequatelyaddressed,willriskerodingthepublic’sconfidenceinthetransition;•Whileflexibilityanddemand-sideresponsewillneedtobeattheheartofthetransitiontoensurethesystemisoptimised,thereisalackofmarketsignalstorewardtheseservices;•Thecurrentregulatoryandmarketstructuresoftheretailsectorwillnotdeliveraconsumerexperiencethatcanadequatelysupportthetransitiontodecarbonisedpowersystem;and•Theelectricitywholesalemarketwasdesignedforasystembasedonfossilfuelsandneedsreform,butthereisalackofconsensusacrosstheindustryonthedirectionandpacethatthisshouldtake.Planningandconsent168.AcrosstheUK,theplanningsystemisamajorconstraintonthedeliveryofnewenergyinfrastructure.Thisisaproblemacrossmultipletechnologiesandinfrastructure,butespeciallyforrenewables.515Inthecaseofonshorewind,theplanningpermissionrequirementsfornewonshorewindturbineshaveledtoveryfewnewprojectscomingforward(seeChapter5).Foroffshorewindandsolarprojects,securingpermissionthroughtheplanningprocesscanaccountforasubstantialamountofthetimeittakestoimplementnewprojects.516TheGovernmentnotedthatthedevelopmentanddeploymentofoffshorewindfarmscantakeup13years.Around3–5yearsisneededtomovethroughtheplanningandconsentingregime.517515RenewableUK(DPS0004);ScottishPower(DPS0090);SSEplc(DPS0087);RWE(DPS0088);Ørsted(DPS0073);Lightsourcebp(DPS0044)516ibid.517RenewableUK(DPS0004);DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April2022Decarbonisationofthepowersector72169.TheGovernmentrecognisestheimportanceofensuringthattheplanningsystemsupportsthedeliveryofits2035target.InitsPowering-UpBritainplanannouncedon30March2023,theGovernmentstatedthat:Aneffectiveplanningsystemisneededtosupportbothlargescalenationallysignificantinfrastructurelikeoffshorewind,nuclearpowerandCCUS,andsupportlocaldecisionsonrenewableandlowcarbonenergy.Thatiswhyinordertosupportournetzeroandenergysecuritygoalsthegovernmentiscommittedtoensuringfaster,fairerandmoreeffectiveplanningregimes,includingthroughchangestotheNationalPlanningPolicyFramework—generallyforlocalplan-makinganddecisions,theenergyNationalPolicyStatements—specificallyfornationallysignificantdecisions,andElectricityActplanning.518170.Thereareavarietyofbodies—national,localanddevolved—involvedintheplanningofenergyinfrastructure.Weheardthatspeedinguptheplanningandconsentofnewenergyinfrastructurewillrequirestreamliningtherelevantprocesses,providingclearguidancetotherelevantbodiesandensuringthatthesebodiesareadequatelyresourced.519Wheremattersaredevolved,weencouragetheUKGovernmenttoworkcloselywithdevolvedadministrations.NationalPolicyStatementsforEnergy171.TheNationalPolicyStatements(NPS)forEnergy,publishedin2011,setouttheGovernment’spolicyforthedeliveryofenergyinfrastructure.TheyprovidethelegalandpolicyframeworkfordecisionsbytheSecretaryofStateonapplicationsforenergydevelopmentthataredeemed“nationallysignificant”underthePlanningAct2008.520TheGovernment’sEnergyWhitePaper,inDecember2020,outlinedthatthesestatementswouldneedtoberevisedtoreducethecountry’srelianceonfossilfuelsinfavourofcleanerenergysources.521172.On6September2021,thethenSecretaryofState,theRtHon.KwasiKwartengMP,laidreviseddraftsbeforeParliamentandsaidthatthethreerequirementsfordesignationshouldalltakeplaceby28February2022.522TheGovernmentconsultedonitsrevisedNPSfrom6Septemberto29November2021.523WelaunchedaninquiryontherevisedNPSinNovember2021andpublishedourfinalreporton25February2022.524Wemadeaseriesofrecommendations.However,overallweemphasisedthattherevisedstatement(EN-1)shouldbeamendedfurther“tomaketheGovernment’scommitmenttonetzero518HMGovernment,Powering-UpBritain,April2023519RenewableUK(DPS0004)520NationallySignificantInfrastructureProjects(NSIPs)arelargescaledevelopmentscoveringenergy,transport,waterandwaste,whichrequireaspecifictypeofconsentknownas“developmentconsent.”TheGovernmentproducesNationalPolicyStatements,orNPSs,whichsetobjectivesforthedevelopmentofnationallysignificantinfrastructureinaparticularsector.Theyalsoprovidealegalframeworkforplanningdecisions.521HMGovernment,EnergyWhitePaper:PoweringOurNetZeroFuture,December2020522TheSecretaryofStateforBusiness,EnergyandIndustrialStrategyneedstoofficiallydesignatearevisedNPSforenergybeforeitcanreplacetheexistingone.UnderthePlanningAct2008,therevisedNPSneedstobesubjecttopublicconsultation,asustainabilityappraisalandparliamentaryscrutinybeforeitcanbedesignated.523DepartmentforBusiness,EnergyandIndustrialStrategy,Planningfornewenergyinfrastructure:reviewofenergyNationalPolicyStatements,September2021524Business,EnergyandIndustrialStrategyCommittee,EnergyNationalPolicyStatements,accessedon10April202373DecarbonisationofthepowersectormoreexplicitandtoprovideaclearandunambiguousdirectiontotheSecretaryofStatetoprioritisetheimportanceofclimatechangeindecision-making”.525173.Therewasthennosignofprogressuntil30March2023,whentheGovernmentlaunchedanotherconsultationonfurtherrevisionstofiveofthestatements,whichwererequiredtoreflecttheGovernment’sNetZeroStrategyandtheBritishEnergySecurityStrategy.526TheGovernmentrepliedtoourreportonFriday14April2023,andwepublishedtheresponseonThursday27April2023.TheGovernmenttoldusthatthedraftNPS“alreadyre-affirmsthegovernment’scommitmenttonetzero”.527Communitybenefits174.Throughthisinquiry,wehaveheardfromlocalpeopleandcommunitieswhoareconcernedabouttheimpactofnewlow-carboninfrastructureinthecommunitiesandenvironmentinwhichtheylive.528Thedeploymentofnewinfrastructurecanhelpsupportlocalcommunities,bringinginvestmentandjobsintolocalareas.However,newinfrastructurecanalsocausedisruption.Wehavehearddirectlyfrompeopleconcernedabouttheuseofthecountrysideforlargesolarandbatterystorageprojects.Therearealsoconcernsabouttheneedforsignificantonshoretransmissiontosupporttheexpansionofoffshorewind,especiallytheimpactthishasoncoastalcommunitiesandhabitats.Weweretoldthatbettercommunityengagement,wherelocalcommunitieshelpidentifyviablesolutions,couldhelpthedeliveryofenergyinfrastructureprojects.175.Thereareexampleswherecommunitiesreceivebenefitsfromhostingnewenergyinfrastructure.Forexample,communitieswhichhostonshorewindfarms,insomecases,receivediscountsontheirenergybills.529RWE,amajorenergygenerator,toldusthatacommunitybenefitfund,withacertainmandatedlevel,wouldbebetterthanbespokediscountschemes,asitwouldhelpensurethatfundsaretargetedtohouseholdsmostinneedoffinancialsupport.530Therearealsoexampleswheresomelocalenergyinfrastructureiscommunity-owned.531TheLocalGovernmentAssociation,forexample,toldusthat‘SolarTogether’,aschemeinWalthamForest,encourages“groupbuyingofsolarinfrastructuretodrivedownpriceandincreaseconfidence”.532TheEnergySavingTrusttoldusthat:[theBritish]EnergySecurityStrategymissedasignificantopportunitytoexplorethebenefitsofcommunityownershipofrenewableswhichwouldnotonlyhelpmeetnetzeroobligations,butalsoallowthegenerationof525Business,EnergyandIndustrialStrategyCommittee,NinthReportofSession2021–22,Revised(Draft)NationalPolicyStatementforEnergy,HC1151526DepartmentforEnergySecurityandNetZero,Consultation:PlanningforNewEnergyInfrastructure:ReviseddraftNationalPolicyStatementsforenergyinfrastructure,March2023527Revised(Draft)NationalPolicyStatementforEnergy:GovernmentresponsetotheCommittee’sNinthReportofSession2021–22,FourthSpecialReportofSession2022–23528MrsRosiePearson(DPS0005);DrGoaman(DPS0008);MrsHelenHogan(FounderMemberatCampaignAgainstRuralExploitation)(DPS0015);SayNotoSunnicaCommunityActionGroupLtd(DPS0036);JohnStacey(DPS0080)529RenewableUK(DPS0004)530RWE(DPS0088)531LocalGovernmentAssociation(LGA)(DPS0019);EnergySavingTrust(DPS0074)532LocalGovernmentAssociation(LGA)(DPS0019)Decarbonisationofthepowersector74incomeforcommunities,contributingtobotheconomicregenerationandcommunityempowermentandplayaroleindeliveringajusttransitiontonetzero.533176.Theplanningsystem,nationallyandlocallywithinEnglandandalsoinScotlandandWales,isamajorconstraintonthetimelydeliveryoflow-carbonenergyinfrastructure.Therearemanyreasonsforthis,someofwhichwedonotcoverinthisreport,andweacknowledgetheneedforeffectivecontrolswherejustified.Butweareinnodoubtthatstepswillneedtobetakentoacceleratetheplanningprocessforlow-carbonenergyinfrastructure.177.TheGovernmentshouldensurethatbodieswithintheplanningsystem(suchaslocalauthorities,thePlanningInspectorate,andtheMarineManagementOrganisation)areadequatelyresourcedtoprocessandcommentonapplicationsfaster.TheDepartmentforEnergySecurityandNetZeroshouldworkwiththeDepartmentforLevelling-Up,HousingandCommunities,aswellaslocalgovernmentandthedevolvedadministrations,toensurethattheplanningsystemembedsandgivesprioritytotheUK’slegallybindingnetzerotargetandtheUKGovernment’stargettodecarbonisepowerby2035.178.InDecember2020,theGovernmentconfirmedthattheNationalPolicyStatementsforEnergy,whichwerepublishedin2011,wouldneedtobeupdatedtoreflectourtransitionawayfromfossilfuelsandtowardscleaner,greenersourcesofenergy.Wearedisappointedthatnow,in2023,theGovernmenthasnotyetfinalisedthesestatements.TheGovernmentisconsultingonmaterialchangestothestatementswhichreflectrecentshiftsinGovernmentpolicy.Thesechangeswillalsobesubjecttoparliamentaryscrutiny.Duetothedelayinrevisingthesestatements,weurgetheGovernmenttomakesuretheremainingworkisdeliveredatpace.Infuture,revisionstotheNPSshouldtakeplaceinconjunctionwithchangestotheGovernment’sforthcomingdeliveryplan,sothatthetworemainaligned.179.Localcommunitieswhohostcriticalcleanenergyinfrastructureshouldbenefitfromdoingso.WecallonGovernmenttoworkwiththeCrownEstatetousetheupcominglicencingroundforoffshorewindintheCelticSeaasanopportunityforimprovingtheassessmentanddeliveryofsocialvaluetolocalcommunities,suchasinCornwall.Upgradingtheelectricitynetworkinfrastructure180.Throughoutourinquirywewerewarnedbystakeholdersthatelectricitynetworkconstraints534anddelaystosecuringaconnectiontothegridarenowthebiggestblockerstoachievingtheGovernment’stargettodecarbonisethepowersystemby2035.535AsnotedbyNationalGrid,inordertodelivertheGovernment’stargetofupto50GWofoffshorewindby2030,inthenextsevenyearstheindustrywillhavetoinstallmorethanfivetimestheamountoftransmissioninfrastructureinEnglandandWalesthanhasbeenbuiltinthelast30years.536Theamountthatnetworkoperatorscanchargeenergybill533EnergySavingTrust(DPS0074)534Aconstraintiswhenthereismoreelectricityinapartofthenetwork(transmissionordistribution)thanthenetworkcansafelyhandle.535ForexampleRegen(DPS0071);Ørsted(DPS0073);Lightsourcebp(DPS0044);SSEplc(DPS0087);RWE(DPS0088);GreenAlliance(DPS0067);HitachiEnergy(DPS0020);Q2[GuyNewey];Q53[DanMcGrail];Q215[MerlinHyman]536NationalGrid,‘We’reengagingonourearlyplanstotransformournetworkfornetzero,’16March202375DecarbonisationofthepowersectorpayersformakingupgradestothegridissetbyOfgem.Insettingthatamount,Ofgemhastobalanceincreasingcostsforcustomerswiththeneedtoensurethatthereissufficientinvestmenttorunasecurenetworkthatcandeliveronnetzero.WefoundameasureofconsensusthatOfgemhasnotsofarsucceededinsecuringabalancewhichpermitstheinvestmentrequiredtoensurethatelectricitygridsarefitforthefutureandthatnetworkupgradescankeeppacewiththebuildoutofrenewables.537However,wealsofoundthatnetworkcompanieshavenotalwaysmadeuseoftheirallocatedfundingtoreinforcethenetwork.538181.GuyNewey,ChiefExecutive,EnergySystemsCatapult,characterisedthegridas“startingtocreak”.539NationalGridElectricitySystemOperator(ESO)540ishavingtointervenefarmorefrequentlytoensurethesystemremainsbalanced.541Thetotalcostofbalancingthesystemfor2022/2023was£4.2billion.542Tomanageconstraints(whenthereismoreelectricityinapartofthenetworkthanthenetworkcansafelyhandle),NationalGridESOpaidout£1.38billionin2022toreducethesupplyofcheaprenewableenergyontheperipheryofthenetworkandincreasesupplyfromgasplantsclosertodemandinstead.543Theturn-upactionissignificantlymoreexpensivetoinvokethantheturn-downofagenerator.Theaveragecosttoturndownawindfarmgeneratorisaround£50perMWh,whiletheaveragecosttoturnupacombinedcyclegasturbine(CCGT)plantisaround£200perMWh.544WillMezzullo,HeadofHydrogenatCentrica,toldusthatsomestudiesestimatethatby2035,around30terawatthoursofelectricity,equivalenttopowering8millionhomesforawholeyear,mayneedtobecurtailed.545182.AccordingtoRegen,anindependentcentreofenergyexpertise,around78%ofconstraintcostsin2021/22relatedtoScottishboundaryconstraints.546Costsareexpectedtoreducefrom2027whennewmajortransmissioninvestmentscomeonline,547butthesemighthavebeeninplacesoonerifOfgemhadsignedofftheinvestmentmorespeedily.WhenweaskedOfgemwhyithadnotauthorisedinvestmenttoincreasecross-bordertransmissioncapacity,AkshayKaul,InterimDirectorofInfrastructureandSecurityofSupplyatOfgem,toldusthat“theanalysisonwhethertheyshouldorshouldn’tgoaheadhasfluctuated”.548Constraintsarealsooccurring—andarepredictedtooccur—moregenerallyacrossthenetwork,asseenrecentlyinWestLondon.549537ForexampleRegen(DPS0071);Ørsted(DPS0073);Lightsourcebp(DPS0044);SSEplc(DPS0087);RWE(DPS0088);GreenAlliance(DPS0067);Q2[GuyNewey];Q53[DanMcGrail];Q215[MerlinHyman]538Forexample:NationalGridElectricityTransmissionunderspentitscapexbudget23%(£1bn)inRIIO-ET1(2013–2020).See:Ofgem,RIIO-ET1AnnualReport2020–21,28September2022539Q31[GuyNewey]540NationalGridElectricitySystemOperatorisresponsibleforbalancingtheNationalElectricityTransmissionSystem(NETS)inasafe,reliableandefficientway.541NationalGridElectricitySystemOperator,MarketsRoadmap,March2023;Supplyanddemandforelectricitymustbebalancedonasecond-by-secondbasis.Ifimbalancesbetweensupplyanddemandoccur,partsofthecountrymaylosesupply.542Q344[ClaireDykta];TheroleofNationalGridElectricitySystemOperatoristoensureelectricitysupplymeetsdemandsecondbysecond,whichiswhatismeantby‘balancing’thegrid.543NationalGridElectricitySystemOperator,MarketsRoadmap,March2023544Regen,Sevensolutionstotherisingcostoftransmissionnetworkconstraintmanagement,August2022545Q208[WillMezzullo]546Regen,Sevensolutionstotherisingcostoftransmissionnetworkconstraintmanagement,August2022;ThemainScottishconstraintsrelatetodelaysintheapprovalanddeploymentofbothwestcoastandeastcoastAhigh-voltagedirectcurrent(HVDC)“bootstrap”linkstoEngland.Theseshouldnowbedeployedby2028.547Ofgem,EasternHVDC–ConditionalDecision:FinalNeedsCase,8July2022548Q347[AkshayKaul]549GreaterLondonAuthority,WestLondonElectricalCapacityConstraints,July2022Decarbonisationofthepowersector76183.Griddevelopmentcurrentlyonlytakesplacewhenthereisoverwhelmingestablisheddemandforit,ratherthaninanticipation.AkshayKaultoldusthatthiswasbecauseoftheGovernment’sconnectandmanagepolicyimplementedin2010whichallowedgenerationprojectstoconnecttothetransmissionsystembeforethegridwasreadytotransporttheirpower.550However,thispolicydoesnotpreventOfgemfromallowingnetworkcompaniesfrommakinganticipatoryinvestment.Afailuretoapprovenewinvestmentislikelytoincreasecostsinthelong-term,despiteOfgem’sobligationtoprotectfutureconsumers.551TheBritishEnergySecurityStrategy,publishedinApril2022,statedthattheGovernmentwill:ensureOfgemexpeditesitsapprovalsprocesstobuildnetworksinanticipationofmajornewsourcesofgenerationanddemand.GovernmentwillsetouttheimportanceofstrategicnetworkinvestmentinitsforthcomingStrategyandPolicyStatementforOfgem.552Aspartofits“EnergySecurityDay”on30March2023,theGovernmentrestateditsintentiontoconsultontheStrategyandPolicyStatementforOfgem.553184.TheEnergySystemsCatapultalsowarnedusthatOfgem’scurrentregulatoryframeworkfornetworkslacksmechanismsforstrategicplanningandcoordinationofenergyinfrastructureatbothnationalandlocallevels.Networkregulationhasbeenstructuredinsilos,whichrisksnetworkcompaniesnotbeingclearlyincentivisedtothinkandplanstrategicallyfromawholesystemperspective.554Actiontodeliveramorestrategicapproach185.StepsarenowbeingtakenbytheGovernment,OfgemandNationalGridESOtotacklenetworkconstraints,minimisedelaystosecuringconnectionsandmovetowardsamorestrategicapproachtonetworkplanningandco-ordination.Theseinclude:a)TheBritishEnergySecurityStrategy(April2022):theGovernmentsetanambitiontoreducetimelinesforstrategiconshoretransmissionnetworkinfrastructurebythreeyearsandhalvethetimescalefortheend-to-endprocessbythemid-2020s.555InJuly2022,theGovernmentappointedanElectricityNetworksCommissionertodeveloprecommendationsonhowtoachievethisgoal.556TheCommissionerisexpectedtodeliverhisrecommendationsinJune2023.TheGovernmenthascommittedtorespondingwithanactionplanduring2023;557550Q341[AkshayKaul]551NationalGrid(DPS0086)552DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April2022553HMGovernment,PoweringUpBritain:EnergySecurityPlan,30March2023554EnergySystemsCatapult(DPS0024);Seealso:OctopusEnergy(DPS0072);EnergyLocalLtdCIC(DPS0017)555DepartmentforBusiness,EnergyandIndustrialStrategy,BritishEnergySecurityStrategy,April2022556DepartmentforBusiness,EnergyandIndustrialStrategy,NewElectricityNetworksCommissionerappointedtohelpensurehome-grownenergyforBritain,6July2022557HMGovernment,PoweringupBritain:EnergySecurityPlan,31March202377Decarbonisationofthepowersectorb)TheEnergyBill:thiswillenablecompetitionstoberunforthebuild,ownershipandoperationofonshoreelectricitynetworksinGreatBritain,buildingontheexistingcompetitionregimewhichexistsinrespectofoffshoretransmissionassets;558c)ElectricityNetworksStrategicFramework(August2022):BEISandOfgemsetoutasharedvisionforthetransformationoftheelectricitynetwork,bringingtogetherpolicyonnetworkinvestment,smartsolutionsanddata,networkplanningandmanagementandconnectionstothenetwork;559d)HolisticNetworkDesign(July2022)andCentralisedStrategicNetworkPlan:NationalGridESOsetoutastrategicapproachtoplanningthetransmissionnetworktomeettheGovernment’sambitiontoconnectupto50GWofoffshorewindtotheelectricitygridby2030.Implementingtherecommendeddesignwouldincreasecapitalcostby£7.6billionbutwouldsave£13.1billioninconstraintcosts.560ThisispartofatransitiontowardsaCentralisedStrategicNetworkPlanwhichwillcoverboththeonshoreandoffshoreelectricitytransmissionnetwork.Itwillalsoprovideguidancetodecisionmakersonthedevelopmentofthewiderenergysystem,encompassing2050targetsforCCS,hydrogenandgasinfrastructurealongsideelectricity;561ande)AcceleratedStrategicTransmissionInvestmentFramework(December2022):Ofgemconfirmedthatspecificstrategiconshoretransmissionprojectswillbetakenforwardunderastreamlinedregulatoryapprovalandfundingprocess.562ThiswasbasedontheHolisticNetworkDesigntoconnect50GWofoffshorewindby2030.Whiletheseinitiativeshavebeenwelcomedbyindustry,wehavebeenwarnedthatoverallprogressisstillatriskofbeingtooslow,particularlybecauseitisalsocontingentonchangeselsewhere,suchasplanningreform.563Effectiveoversightandcommitmenttoimplementationoftheseinitiativeswillbekeyiftimelinesaretobemet.Assuch,theClimateChangeCommitteerecommendedthataMinister-leddeliverygroup,withtheElectricityNetworksCommissionerinanadvisoryrole,wouldbestsupporttimelyprogress.564186.Alackofnetworkcapacityanddelaystosecuringgridconnectionsaretogetherhamperingthedeliveryoflow-carbonpoweranddrivingpotentialinvestmentsoverseas.Fortoolong,transmissionanddistributionnetworkownershavebeenabletodelayoravoidthelevelofanticipatoryinvestmentrequiredtodeliveranetworkcapableofmeetingtheneedsofthecountry.Ofgem’sapproachtoagreeingfutureinvestment558DepartmentforEnergySecurityandNetZero,EnergySecurityBillfactsheet:Competitioninonshoreelectricitynetworks,Updated20March2023559BEISandOfgem,ElectricityNetworksStrategicFramework:Enablingasecure,netzeroenergysystem,August2022560NationalGridElectricitySystemOperator,Pathwayto2030Aholisticnetworkdesigntosupportoffshorewinddeploymentfornetzero,July2022561DepartmentforBusiness,EnergyandIndustrialStrategy,ElectricityNetworksStrategicFramework:Enablingasecure,netzeroenergysystem,August2022562Ofgem,Decisiononacceleratingonshoreelectricitytransmissioninvestment,15December2022563Ørsted(DPS0073)564ClimateChangeCommittee,Deliveringareliabledecarbonisedpowersystem,March2023Decarbonisationofthepowersector78inpreviousinvestmentroundshasnotbeenproactiveenough,andfrequentchangestoGovernmentpolicyhaveincreasedinvestmentrisk.Together,thesystemhasfailedtodeliverwhatisrequired,andthatmustchange.187.WejoinmanyotherorganisationsfromacrossthesectorincallingonMinisters,Ofgemandnetworkownerstohelprecoverlostgroundbyacceleratinginvestmentinfuturegridcapacitynowaheadofneed.Theincreasingcostsassociatedwithturningoffgenerationsitesduetoalackoftransmissioncapacitymustbehalted.Investmentshouldbeconsideredtoincreasecapacitywhereitiscurrentlyinadequateandanticipatoryinvestmentshouldpreventthisfromhappeninginareasoffuturedevelopment,forexampleinCornwall.188.Therehasbeenaclearlackofstrategicplanningandcoordinationofenergyinfrastructureandnetworkupgrades.Afailuretoplanfromawholesystemperspectiverisksincreasingtheoverallcostsofthetransition.WewelcomethemorestrategicapproachemergingfollowingNationalGridESO’sHolisticNetworkDesignandOfgem’sAcceleratedStrategicTransmissionInvestment(ASTI)framework.WealsowelcomemeasuresincludedintheEnergyBilltoenablecompetitioninonshoreelectricitynetworksinGreatBritain,whichshouldbemadeahighprioritybytheGovernmentandOfgemonceenacted.189.WerecommendthatOfgemseestheAcceleratedStrategicTransmissionInvestment(ASTI)frameworkasastartingpointtoacceleratethedeliveryofthenecessarygridupgradesrequiredtomeettheGovernment’s2035target.Thisworkshouldcontinuebeyond2035toensureadequateoverallcapacityfordeliveringonthe2050netzerotarget.WesupporttherecommendationoftheClimateChangeCommitteefortheGovernmenttoestablishaMinister-ledinfrastructuredeliverygroup,advisedbytheElectricityNetworksCommissioner,toensurethatnetworkinfrastructurebuildistakenforwardatpace.ThisshouldbringtogetherseniorpartiesacrossrelevantGovernmentDepartments,aswellasOfgem,theScottishandWelshGovernments,NationalGridESOandassetowners,tomonitorprogressacrosstheinitiativesrequiredtoexpediteprogress.Securingagridconnection190.Insomecases,developersoflow-carbontechnologiesarebeingtoldthattheywillneedtowaitformorethanadecadetoconnecttothegrid.565Thequeuetoconnecttothetransmissionnetworkhasbeengrowingatunprecedentedlevels.566NationalGridESOisresponsibleforfacilitatingtheconnectionsprocess.Between2018and2022,thevolumeofnewapplicationoffersprovidedperyearbyNationalGridESOtogeneratorswantingtoconnecttothegridgrewtenfold,andthevolumeofoffersthatwillbesentoutinthefirstquarterof2023alonewillexceedthetotalvolumein2022.567191.TheFutureEnergyScenariosmodellingbyNationalGridESOshowsthatGreatBritainneedsbetween123and147GWoflow-carbontransmissiongenerationby2030tobeonanetzerocompliantpathway.568InFebruary2023,GreatBritainhad257GWof565Q215[MerlinHyman,WillMezzullo];Lightsourcebp(DPS0044);Ørsted(DPS0073);RenewableUK(DPS0004)566NationalGridElectricitySystemOperator,GBConnectionsReformCaseforchange,December2022567ibid.568NationalGridElectricitySystemOperator,FutureEnergyScenarios,July2022;NationalGridElectricitySystemOperator’sFutureEnergyScenariosFESlargelycoversenergysupplyanddemandonaGreatBritain-basis.79Decarbonisationofthepowersectorlow-carbonelectricitygenerationwithcontractsforfutureconnectiontothetransmissionnetwork.569Combinedwiththe83GWalreadyconnectedtothegrid,thatisalmostthreetimesasmuchthanisneeded.However,NationalGridESOexpectsjust30–40%ofprojectsinthequeuetocometofruition,withmanypipelineconnectionslikelytobespeculative.570Despitethis,thequeuecurrentlyoperatesonafirstcomefirstservedbasis.571Thismeansthatslow-movingprojectscanblocktheconnectionofmoreviableprojects.572Furthermore,ifprojectsthatareseekingtoconnecttothedistributionnetworkmayhaveanimpactonthetransmissionnetwork,DistributionNetworkOperatorsarerequiredtosubmitastatementofworks573toNationalGridESOforapproval.Thisoftenresultsindistributionconnectionprojectsgettingstuckinthetransmissionqueueandfacingprohibitivelyhighcoststoupgradethetransmissioninfrastructurewhicharesharedbetweenconnectingprojects.574192.On22February2023,NationalGridESOsetoutafive-pointplantodealwithconnectiondelays.575Theplanincludesmeasurestohelpmanagethequeuemoreefficientlyandsupportenergystoragecapacitytoconnecttothenetwork,freeingupcapacityforotherprojects.Aspartoftheplan,NationalGridESOisoperatingaTransmissionEntryCapacityAmnestyuntilApril2023,allowingdeveloperstoterminatetheirconnectioncontractswithoutincurringliabilities.However,NationalGridtoldusthatuptaketodatehasbeenlowerthanitwouldhaveliked.576NationalGridESOisalsodevelopingnewcontracttermsforconnectioncontractsastheexistingmilestonesthatdevelopersarerequiredtomeettoretaintheirplaceinthequeuearenotstringentenough.193.Furthertotheseshort-termactions,NationalGridESOhasinitiatedlonger-termreformviaitsConnectionsReformProject.577ThePhase1reportpublishedinDecember2022setoutaCaseforChange,andNationalGridESOisnowintheDesignPhasetoidentifythelonger-termreformsolutionswhichwillbeconsultedoninMay2023.578Someoptionsarelimited;othersaremoreradical.NationalGridESOhasproposedtwochangestoelectricitysystemgovernance(achievedthroughchangesinenergycodes)toOfgem.Oneoftheseproposedchangeswouldrequireprojectsinthetransmissionconnectionsqueuetomeetclearmilestonesand,ifprojectsdonotmeetthose,NationalGridESOwouldbeabletoprioritiseotherprojectsinthequeue.579ThischangewouldbemosteffectiveifOfgemgivesapprovalforittobeappliedretrospectivelytoprojectsalreadyintheconnectionsqueue.NationalGridESO’sConnectionsReformprocessalsohasanewindustryChallengeGrouptoadviseonconnectionsreform,whichisexpectedto569NationalGridElectricitySystemOperator,GBConnectionsReformCaseforchange,December2022570ibid.571ibid.572Q272[AliceDelahunty]573AdetailedexplanationoftheStatementofWorksprocesscanbefoundhere:RoadnightTaylor,‘WhatareStatementofWorks,ProjectProgression,AppendixGandModificationApplications?,’1November2022574GreenAlliance(DPS0067);SeealsoRegen,Sevensolutionstotherisingcostoftransmissionnetworkconstraintmanagement,August2022575“TheNationalGrid’sconnectionsqueueisspeedingup”,TheTimesRedBox,22February2023576Q282[AliceDelahunty]577NationalGridElectricitySystemOperator,ConnectionsReform,accessed27/03/2023578NationalGridElectricitySystemOperator,GBConnectionsReformCaseforchange,December2022579NationalGridElectricitySystemOperator,ESOlaunchesnewinitiativetoconnectelectricitygenerationtothetransmissionsystemfaster,September2022Decarbonisationofthepowersector80makerecommendationsinlatespring2023.580Aspartofits“PoweringUpBritain”plan,theGovernmentalsoconfirmedthatitwillpublishanactionplaninsummer2023toaccelerateconnections.581194.TheUK’s“firstcomefirstserved”approachtogridconnectionsisfailingtodeliverthevolumeofconnectionsrequired.Projectswhichmaybespeculativeorslow-movingriskbeingprioritisedoverthosethataremoreviable.WhilewewelcomeNationalGridESO’sfive-pointplantotacklequeuemanagementissuesatthetransmissionlevel,wedonotbelievethishasprovedsuccessfultodate.WerecommendthatOfgemallowsNationalGridESOtorequireprojectsalreadyinthequeuetomeetstrengthenedmilestones.Ifprojectsareunabletomeetthese,networkoperatorsshouldbeabletoprioritiseothermoreviableprojectsinthequeue.Inresponsetothisreport,weaskthatNationalGridESOexplainswhatstepsitistakingtoworkwiththeDistributionNetworkOperatorstostopprojectsthatwanttoconnecttothedistributionnetworkgettingstuckinthetransmissionqueue.WewouldwelcomedirectinterventionfromGovernmentontheseissuesifrequired.Investmentinthedistributionnetworksandtheperformanceofnetworkoperators195.Ofgemsetstheamountthatnetworkoperatorscanchargeenergybill-payersformakingupgradestothegridviapricecontrolsusingtheRIIO(Revenue=Incentives+Innovation+Outputs)framework.Itisalsoresponsibleforsettingclearperformanceindicatorsforcompaniestomeet.Thepricecontrolcapiscurrentlyreviewedeveryfiveyearsandisincentive-based,meaningthatcompaniesgetpenaltiesforexceedingthepricecapandincentivesforremainingunderthecap.582Priortotheriseinwholesaleprices,networkcostsconstitutedaround25%oftheaverageconsumerenergybill,andsoitisimportantthatinvestmentinthenetworkiswarrantedandthatcost-effectivealternativestonetworkreinforcement,suchasflexibility,areconsidered.583Toplanfornewregulatoryperiods,networkcompaniessetoutbusinessplansdetailingexpectedexpenditure.ThisisreviewedbyOfgemandusedtosettherevenuesthatcompaniescanrecoupfrombillpayers.196.AsDrJamieStewart,DeputyDirectoroftheCentreforEnergyPolicyattheUniversityofStrathclyde,andProfessorKeithBell,Co-DirectorattheUKEnergy,ResearchCentre(UKERC),haveobserved,themainpointsofcontentionineverypricecontroltendtorevolvearound:howcheaplydoesOfgembelievethenetworkcompaniescanborrowmoney;whatgainscanbeexpectedintheefficiencyoftheiroperations;whatproportionofexistingnetworkassetswillneedtobereplaced;howmuch580NationalGridElectricitySystemOperator,GBConnectionsReformSteeringGroupMembership,accessedon14April2023581HMGovernment,PoweringupBritain:EnergySecurityPlan,31March2023582DrJamieStewardandProfessorKeithBell,‘RIIO-2:Anetworkspricecontrolfitforthenetzerotransition?,’10February2021583Domesticenergyprices,ResearchBriefing9491,HouseofCommonsLibrary,13March202381Decarbonisationofthepowersectorreinforcementofthenetworkwillbeneededtoaccommodateincreasedpowerflows;andwhatwillassetreplacementandreinforcementworksandtheprocurementofnewassetscost.584197.Whilewefoundstrongconsensusformoreinvestmentatthetransmissionlevel,therearedivergentviewsonthelevelofinvestmentrequiredatthedistributionlevelandhowitmightbebestspent.585Thescaleremainsuncertainduetodatalimitationsaroundlowvoltagenetworkusage,anddecisionsyettobetakenonthedecarbonisationofhomeheating.586Governmentfigures(calculatedpriortopublicationoftheBritishEnergySecurityStrategy)putthepotentialinvestmentrequiredby2050atbetween£60billionand£180billion.587InNovember2022,OfgempublisheditsfinaldeterminationsforRIIO-ED2—thepricecontrolframeworkfordistributionnetworksfortheperiod2023–2028.588Therewillbeadoublingofinvestment,comparedwiththepreviousfive-yearperiod,toupgradethedistributionnetworkstohandleincreasedelectrificationofheatandtransport.Thefinaldeterminationsgavethego-aheadfor£22billionworthofinvestment,withfinalbudgetallowances11.8%belowthatsubmittedbyDistributionNetworkOperators.Budgetallowancesfornetworkreinforcementwerereducedby17%.589Thecosttoconsumerswillbekeptthesame,atapproximately£100peryear.Thishasbeenachievedbycuttingnetworkcompanyprofits(fromapreviousexcessiverate)590andbydrivingefficienciesacrosstheiroperations.198.Somestakeholdersacrosstheindustryquestionedwhetherthelevelofinvestmentpermittedwillbesufficient,giventhepotentialuptakeofheatpumpsandelectricvehiclesby2030.MerlinHyman,theCEOofRegen,anindependentcentreofenergyexpertise,saidthat“itishighlylikelythat,undertheseplans,distributionnetworkcapacitywillbeamajorbarriertogovernmenttargetsforlow-carbontechnologiessuchasEVs[electricvehicles],heatpumpsandrenewables”.591ProfessorSirDieterHelm,ProfessorofEconomicPolicyattheUniversityofOxford,arguedthat“theconsequencesoftoofewnetworksare584DrJamieStewardandProfessorKeithBell,‘RIIO-2:Anetworkspricecontrolfitforthenetzerotransition?,’10February2021585Forexamplecompare:LetterfromMerlinHyman,CEOofRegentoJonathanBrearley,CEOofOfgemregardingRIIO-ED2,dated18August2022toCitizensAdvice,ResponsetotheOfgemRIIO-ED2DraftDeterminationsconsultation,25August2022;Seealso:Delta-EE,Exploringalternativeregulationofenergynetworksandsystems,FinalreportforCitizensAdvice,May2022586ClimateChangeCommittee,Deliveringareliabledecarbonisedpower-system,March2023587DepartmentforBusiness,EnergyandIndustrialStrategy,ElectricityNetworksStrategicFramework,AppendixI:ElectricityNetworksModelling,August2022.NotethatBEIS’analysisofinvestmentintodistributionnetworksonlyfactorsinload-relatedinvestment,largelyduetoalackofsufficientdata.Itdoesnotaccountforinvestmentsrequiredtoreplaceoldoragingdistributionnetworkassets–thismeansthatthefigurescouldbeunderestimatingtherealamountofinvestmentrequired.588Ofgem,RIIO-ED2FinalDeterminationsOverviewdocument,30November2022589Ifanelectricitynetworkwillbeoverloadedbyloadgrowthoraspecificnewconnection,thecapacityofthenetworkwillhavetobeincreased.Thisincreasingofcapacityofthenetworkisgenerallytermed‘reinforcement’.590InJanuary2020,theNationalAuditOfficepublishedareviewofthevalueformoneyprovidedbyOfgem’sregulationofelectricitynetworks.Itconcludedthat:Ofgem’sregulatoryframeworkcostconsumersmorethanitshouldhave.Targetsweresettoolow,budgetstoohigh.OfgemaimedtodesigntheRIIO1pricecontrolsothatnetworks’returnsdependedonhowwelltheyperformed.Thelowestreturnwouldbe2.5%andthebestperformingcompanycouldmake10.5%.However,threeoftheninenetworkcompanieswereforecastingreturnsofaround10%,withtheaverageforecastreturnat9.2%.Incomparison,investorshadcometoexpectreturnsfromtheFTSEat3–4%.Companieswerepromisedabonusforgoodperformance.ButOfgemfixedtargetstoofarinadvanceandnetworkcompanieswerealreadybeatingthembeforethepricecontrolstarted.See:NationalAuditOffice,ElectricityNetworks,HC42,30January2020591LetterfromMerlinHyman,CEOofRegentoJonathanBrearley,CEOofOfgemregardingRIIO-ED2,dated18August2022Decarbonisationofthepowersector82much,muchworsethanhavingtoomany”.592Hehighlightedthatifnetworksarenotadequatelyupgraded,theywillblocknetzerofrombeingachieved,butifthey“areslightlyover-invested,thecostsacrossthewholecustomerbasearesmall,andinanyeventtheassetswillinduecourseprobablybeneeded”.593199.However,wewerealsotoldthattechnologydeploymentcurvesarehardtoforecast.594Ofgem’sbaselineallowancesforload-relatedexpenditure(investmentfocusedonincreasingnetworkcapacity)provedoverlygenerousforthepreviouspricecontrol,RIIO-ED1,covering2015–2023,allowingDistributionNetworkOperatorstoeitherbuildmoreinfrastructurethatisrewardedthroughtheRegulatedAssetValue,595ortonotspendonthatinfrastructureandkeepalargeproportionofunderspends.596Stakeholdershaveidentifiedthatthereisariskthatnetworkcompaniesthenaskforthebudgetagaininthenextpricecontrolperiod.597UKPowerNetwork’s(thedistributionnetworkoperatorforelectricitycoveringSouthEastEngland,theEastofEnglandandLondon)RIIO-ED2businessplanstated:AsevidencedduringRIIO-ED1,itisimpossibletopredictaccuratelytheroll-outofLowCarbonTechnologies(LCTs)suchaselectricvehicles,heatpumpsanddistributedgeneration.Inthepast,customershavebeenaskedtopayfornetworkreinforcementthathasproventobeunnecessary.[...]forecastsoftheuptakeofLCTsduringRIIO-ED1provedtobewidelyinaccurate;only20%oftheLCTsthatwereforecastactuallymaterialised.Asaresult,customersendeduppayingforinvestmentthatwasnotrequiredandownersofregulatednetworkbusinessesearnedgreaterthanexpectedreturns.598CitizensAdviceisconcernedthatbaselineallowancesforload-relatedexpenditure599mayalsobetoohighforRIIO-ED2.600ItnotedthatforecastsputforwardbyDistributionNetworkOperatorsdonotaccountforpotentialimplicationsoftheenergyandcostoflivingcrisiswhichmaylowerdemand,suchasconsumersdeferringthepurchaseof592ProfessorSirDieterHelm,‘Energynetworkregulationfailuresandnetzero,’5January2023593ibid.594Q394[RebeccaBarnett]595ThevalueascribedbyOfgemtothecapitalemployedintherelevantlicensedbusiness.Itisanestimateoftheinitialmarketvalueoftheregulatedassetbaseatprivatisation,plussubsequentallowedadditionsathistoricalcost,lessthedeductionofannualregulatorydepreciation.Deductionsarealsomadetoreflectthevaluerealisedfromthedisposalofcertainassetsthatformedpartoftheregulatoryassetbase.Itisalsoindexedtotheretailpriceindextoallowfortheeffectsofinflation.596InED1,Ofgemaimedtoincentivisecompaniestobeefficientbylookingforcostsavingswithinbaselineallowances,alsoknownasTotex(totalexpenditure).WhenevercompaniessavedmoneybyunderspendingontheTotex,theDNOwasallowedtokeepashareoftheunderspend.Therestoftheunderspendwentbacktotheconsumer.DuringED1,companieswereallowedtokeepthelion’sshareofthesavings(fromaround55%formostcompaniesandupto70%foronecompany).InED2,Ofgemhasreducedthesharingfactordowntoabout50%foreachcompany,sothatthereisabetterreturnofunderspendstotheconsumer.See:CitizensAdvice,OurviewsontheOfgemRIIO-ED2FinalDeterminationsfortheelectricitydistributionsector,March2023;Delta-EE,Exploringalternativeregulationofenergynetworksandsystems,FinalreportforCitizensAdvice,May2022597Delta-EE,Exploringalternativeregulationofenergynetworksandsystems,FinalreportforCitizensAdvice,May2022598UKPowerNetworks,PlacingcustomersandcommunitiesattheheartofNetZero:RIIO-ED2BusinessPlan2023–2028,accessedon16April2023599Load-relatedexpenditureisincurredwhenprovidingadditionalcapacityonthenetworktofacilitatenewconnectionsaswellasloadgrowth.600CitizensAdvice,ResponsetotheOfgemRIIO-ED2DraftDeterminationsconsultation,25August202283Decarbonisationofthepowersectorelectricvehiclesandheatpumpsduetofinancialpressures,initiativestoreducedemandthroughdemand-sideresponse,andconsumerscuttingbackonusageduetothehighenergycosts.601200.OfgemhasrecognisedthatthebaselineforecastishighlyuncertainandhastriedtomitigatetheriskfromlowerbaselineallowancesthroughtheuncertaintymechanismsbuiltintotheRIIO-ED2pricecontrol.602Theseuncertaintymechanismsareintendedtoreleasefurtherfundingforload-relatedexpenditureasneedbecomesclear.However,theirusehasalsocomewithwarningfromsomestakeholders,particularlyaroundtheriskofbureaucracyandcomplexitygettinginthewayoftimelyupgrades.603201.CitizensAdviceraisedaseriesofadditionalconcernsregardingRIIO-ED2assetoutbelow:604•ThevariabilityinplansputforwardbytheDistributionNetworkOperatorsandagreedbyOfgemwillresultinconsumersreceivingdifferentlevelsofservice(suchaswaittimestoconnectsmartproducts)dependinguponwheretheylive.BestpracticeinthisfieldwasnotidentifiedbyOfgemandwasnotrequiredtobeincludedwithinplansandstrategiesofallDistributionNetworkOperators.•Ofgem’sapproachtothecostofequity605over-estimatesthelevelofreturnsrequired,andmanydetaileddecisionsworkinfavourofthenetworkcompanies.Itbelievesthatconsumerscouldpayover£1.5billionmorethanneededacrossRIIO-ED2.Ithasarguedthatincentivetargetsarenotstretchingenough,leavingroomforcompaniestoeithergenerateexcessivereturnsornotdelivervalueformoney.606Therehavebeenanumberofrecenttransactionswherenetworkassetshavebeenpurchased(includingatthetransmissionlevel)atsignificantpremiums,indicatingthatregulatorysettlementscontinuetobegenerousfornetworkowners.607•Thereisaresourceandinformationimbalancebetweenstakeholderssuchasconsumergroupsandnetworkoperatorsthroughoutpricecontrolprocesses,whichharmsconsumerinterests.•Theperformancereportingthatisbuiltintotheregulatoryframeworktohighlightanyshortcomingsincompaniesfulfillingtheirbusinessplancommitmentslacksrigourandscrutiny.601ibid.602Q394[RebeccaBarnett]603Delta-EE,Exploringalternativeregulationofenergynetworksandsystems,FinalreportforCitizensAdvice,May2022604CitizensAdvice,OurviewsontheOfgemRIIO-ED2FinalDeterminationsfortheelectricitydistributionsector,March2023605Therateofreturnoninvestmentthatisrequiredbyacompany’sshareholders.606UKPNMoody’sratingappearedtopointtooutperformanceforthecompanygiventheparametersofED2inbothTotexandinincentives.607NationalGridannouncedon27thMarch2022thesaleofamajorityshareinitsgastransmissionbusiness.Thepricereceivedgivesanenterprisevalueofthecompanyof£9.6bn,comparedtotheregulatoryassetvalueof£6.6bn.Onthe22ndMarch2022,SSEcompletedthesaleofitsshareinScotiaGasNetworks,alsoatapremiumtotheregulatoryassetbase,estimatedataround30%.ThepurchasepriceforWesternPowerDistribution(WPD),announcedinMarch2021,byNationalGridimpliesapremiumofatleast60%totheregulatedassetvalue.InNovember2022,SSEannouncedagreedthesaleof25%stakeinitstransmissionbusiness,atapremiumofaround70%totheregulatedassetvalue.Decarbonisationofthepowersector84202.TheRIIO-ED1process,whichsettheamountnetworkoperatorscouldchargeenergybill-payersformakingupgradestothegridovertheperiod2015–2023,provedoverlygenerous.DistributionNetworkOperatorswereabletoeitherbuildmoreinfrastructurethatisrewardedthroughtheRegulatedAssetValue,ornotspendonthatinfrastructureandkeepaproportionofunderspends.Giventhattechnologydeploymentcurvesarehardtoforecast,weunderstandOfgem’suseofuncertaintymechanismsforRIIO-ED2.Wewillbelookingtotheregulatortoensurethattheybettermanageriskandthatnetworkcompaniesbringforwardtherequiredinvestment.Theuncertaintymechanismswillneedtobeusedefficiently,beforecustomersseeproblems,particularlyiftheeconomicsofheatpumpsorelectricvehicleschangequickly.203.Werecommendthatwhenaneedforinvestmentinthedistributionnetworkbecomesclear,OfgemensurestheuncertaintymechanismsincludedintheRIIO-ED2frameworkareappliedefficiently.Shouldtheseproveinadequatetorespondtoarapidroll-outoflow-carbontechnologies,OfgemshouldtakeequivalentstepstoitsASTIframeworktoensurethatdistributionnetworksareanenablernotblockertonetzero.204.Weareconcernedbytherisksthatcustomersfacedifferentoutcomesindifferentregionsduetoalackofnationaldirectionsettingfordistributionnetworks.WerecommendthatOfgemrevisesitsapproachtotheplanningofdistributionnetworkstoonewhichismoreoutcomefocused.Ofgemshouldsettheminimumexpectationsthatnetworkusersshouldexpect,aswellasbestpractice.DistributionNetworkOperatorsshouldthenfindinnovativewaystomeetthesestandards.205.Regulatorysettlementsfornetworkownersmustdelivervalueformoneyforconsumers.DespiteimprovementsfromOfgemintacklingexcessiveprofitsmadebythesecompaniesinpreviouspricecontrolframeworks,weareconcernedthatnetworkownerscontinuetobeoverlyrewarded.Asymmetriesthroughouttheregulatoryprocessbetweennetworkcompaniesandotherstakeholders,includingconsumerrepresentatives,increasethisrisk.Greatervisibilityofnetworkperformanceisneededtodriveupstandardsandensurenetworksdeliveragainsttheirbusinessplans.206.WerecommendthatOfgemconsultsonhowbesttoaddresstheasymmetriesinresourcesandknowledgebetweennetworkcompaniesandotherstakeholders,suchasconsumergroups,whichinfluenceprocessessuchaspricecontrols.WerecommendthatOfgemintroducesamorerigorousannualperformanceprocessfornetworkowners,andthatthisinformationisgivenappropriatepublicitytoensureconsumerandparliamentaryengagement.Managingthenetworkmoreefficiently207.Systemflexibilityreferstohowelectricitysupplyanddemandismatchedonaweek-by-week,hourby-hour,minute-by-minutebasistokeeppowermovingaroundthesystemsafely.608Flexibleresources—e.g.consumersusingsmartheatingorsmartelectricvehiclecharging,energystorage,ortheproductionofhydrogenthroughelectrolysis—willbe608Q196[SarahHonan]85Decarbonisationofthepowersectorneededtoalleviatepressureonelectricitynetworks,optimiseintermittentrenewablesonthesystem,anddeferoravoidinvestmentinnetworksandbackupgenerationuntilthereiscertaintyaroundneed.609208.Tounlockthepotentialoftheseflexibleassetstheyneedtobeappropriatelyrewardedforthevaluetheyprovidetothegrid,butthesemarketsignalsarecurrentlylacking.WhileamoreflexiblegridisexpectedtosavetheUKbetween£10–£17billionperyearby2050,610LauraSandysCBE,ChairoftheEnergyDigitalisationTaskforce,toldusthatflexibilityisseenasan“afterthought”,611ratherthan“attheheartofwhatweneedtoachieve”.612Shehighlightedthat“weatherdoesnottakepricesignals,butdemanddoes.Wehavetounderstandthatdemandandsupplyarebecomingequalpartners.[..]Wearegoingfrom400peoplerunningtheenergysectortoday[..]to100millionactionsandassets”.Shenotedthat“thenumberofelectricvehicleswewillhaveonthesystemby2035equatestothreenuclearpowerstations”.613Flexibilitymarkets209.NationalGridESOrunsseveralmarketsthatincentiviseflexibleassetstoprovideservicestohelpbalancethesystem.614Currently,thesemarketslargelycontractwithgasplantstoeithergeneratemoreorlesselectricitydependingonsystemrequirements.615NationalGridESO’smaintoolforaligningsupplyanddemandistheBalancingMechanism,whichallowsittopurchasechangesingenerationandconsumptiontocorrectanymisalignments.616Since2020,NationalGridESOhaswidenedaccesstotheBalancingMechanismforsmallerassets(1MW+).617However,over80%ofthisbalancingcontinuestobedonebygasplants,whichinagascrisis,hascausedcoststorise.618210.Ithasbeensuggestedthatbatteriescoulddomuchofthisatlowercost.619MerlinHyman,theCEOofRegen,toldusthat:peopleseethattheirbatterylookslikethecheapestwayofmeetingademandonthesystemandthenitisnotcalledon.Maybeagas-firedpowerstationiscalledoninsteadandtheydonotreallyunderstandwhy.Thatclarityandtransparencyisnotquitethereyet.Thatmeansthat,asaninvestor,Ihaveabitofnervousness.620609ibid.610ImperialCollegeLondon,CarbonTrust,FlexibilityinGreatBritain,2021;RtHonChrisSkidmoreMP,MissionZeroIndependentReviewofNetZero,26September2022;BEISandOfgem,TransitioningtoanetzeroenergysystemSmartSystemsandFlexibilityPlan2021,July2021611Q419[LauraSandysCBE]612Q415[LauraSandysCBE]613Q406[LauraSandysCBE]614ThedifferentmarketsrunbyNationalGridElectricitySystemOperatoraresetoutandexplainedinitsMarketsRoadmap,March2023615NationalGridElectricitySystemOperator;MarketsRoadmap,March2023;Regen,Sevensolutionstotherisingcostoftransmissionnetworkconstraintmanagement,August2022;Q196[SarahHonan]616NationalGridElectricitySystemOperator,‘WhatistheBalancingMechanism?,’accessedon15March2023617“NationalGridESOwidensbalancingmarketaccessforsmallerproviders”,NationalGridElectricitySystemOperator,December2019618Regen,Sevensolutionstotherisingcostoftransmissionnetworkconstraintmanagement,August2022619LCP,‘Has2021changedtheoutlookforbatterystorageinvestment?,’2022620Q221[MerlinHyman]Decarbonisationofthepowersector86TheAssociationforDecentralisedEnergy,atradebody,arguedthatthecriteriausedbyNationalGridESOforbalancingservicesremainrelativelyfocusedonthecharacteristicsofgenerationandstorage,attheexpenseofdemand-sideresponsemeasuressuchastheuseofdatacentresforflexibility.621AssetoutbyRegen,undertimepressureandwithoutautomation,gasplantsareeasierforNationalGridESOtomakeuseofthanbringingtogetherlotsofsmallerassets.Flexibilityservices,suchasdemand-sideresponse(whencustomersincrease,decrease,orshifttheirelectricityuse—inresponsetoasignal—tohelpbalancetheelectricitysystem),arestillrelativelynewandmaybeseenashigherriskforcontrollerswhosepriorityissecurityofsupply.622Furthermore,NationalGridESOisnotrequiredbyitslicenceconditions623toconsidercarbonemissionsinthemarketsitoperates.211.However,novelsolutionstomaximisinglow-carbonflexibilityareemerging.NationalGridESOandtheDistributionNetworkOperatorsareincreasinglylookingforflexibilitytohelpbalancethenetwork.NationalGridESO’sLocalConstraintMarketisagoodexampleofthis.TheschemewillhelprelieveconstraintsacrosstheEngland/Scotlandborderoverthenext3–4years.624Ratherthanpayingrenewablegeneratorsto“turn-down”whenthenetworksareconstrained,theLocalConstraintMarketwillauctionofftheextrademandtooff-takerssuchaspumpedhydroplants,grid-scalebatteries,localindustrialusersandaggregatedelectricvehiclecharging.625CommentingontheLocalConstraintMarket,AdamBell,HeadofPolicyatStonehaven(aconsultancy)toldusthat:thereareanumberofdifferentsortsofinvestorsthatarelookingathowtheycanleveragebeingpositionedjustbehindthegridboundarybetweenScotlandandEnglandtomaximisetheuseoftheirbatteryortheirliquidairstorage,say.Thosesortsofmechanisms,withalittlebitmoretransparencyandforesightastowhatthosepricesaregoingtolooklike[…]willhelpdelivermoreinvestmentinthatsortofcapacityandhelpchangetheshapeofthesystem.626212.NationalGridESOalsostartedharnessingthepotentialofdemand-sideresponseduringthe2022/2023winterperiodviaitsDemandFlexibilityService(DFS).Domesticconsumersandbusinesseswerefinanciallyrewardedforreducingtheirelectricityconsumptionatpeaktimesbyusinglessorshiftingconsumptiontoadifferenttimeofday,withmorethanonemillionhouseholdsandbusinessessigninguptoparticipatethrough30approvedproviders.627Duringthefirstthreemonths,participantsachievedademandreductionofover2GWh.628Thesectorwillneedtocontinuetorolloutdemand-sideresponseinitiativeswhilesystemenablers(processesthatwillallowdemand-side621AssociationforDecentralisedEnergy(DPS0040)622Regen,Sevensolutionstotherisingcostoftransmissionnetworkconstraintmanagement,August2022623NationalGridElectricitySystemOperatormustcomplywithlicenceconditionssetbyOfgem.624NationalGridElectricitySystemOperator,LocalConstraintMarket,accessedon27March2023625ItisthefirsttimethatNationalGridhasusedathird-partyplatformprovider(PicloEnergy)foranend-to-endprocessbutifsuccessful,third-partyplatformsandLocalConstraintMarketscouldbeusedmorewidely.626Q419[AdamBell]627Toparticipatecustomersneededanelectricitysmartmeterinstalledandfortheirelectricityprovidertoofferthescheme.Mostsupplierssignedup.Energyfirmshaddifferentcriteriaforwhocouldsignupandexactlyhowmuchtheywerepayingforsavingenergy.628NationalGridElectricitySystemOperator;MarketsRoadmap,March202387Decarbonisationofthepowersectorresponsetobecomemoremainstream,suchasMarketWideHalfHourlySettlement629andtheroll-outofsmartmeters)areindevelopment,sothatflexibilityserviceprovidersandsupplierscaninvestinbuildingthesystemstoengageindemand-sideresponseatscaleandbereadytohitthegroundrunningwhenthosereformsareready.213.AccordingtoRegen,themarketisbeginningtoworkoutthepatternofconstraints,butthereisstillalackofaclearsignalregardingthelocation,durationandvalueoffutureconstraints.630RegenrecommendedthatNationalGridESObetterforecastsandcommunicateswhenandwherefutureflexibilityserviceswillberequired,enablingflexibilityproviderstobetterplanandinvestinassetsthatwouldalleviateconstraintsandbalancethesystem.631214.Wealsoheardthatgreaterco-ordinationandstandardisationofflexibilitymarketsacrossthelocalandnationallevelisneededtoensurethattheseassetscanfullyofferandreceivethevaluetheyoffertothesystemandthattransactioncostsdonotoutweighthebenefits.632Ofgemsaidthatcurrentmarketarrangementsfordistributedflexibilityare“notfitforpurpose”,withalackofconsistencyinapproachesbetweenDistributionNetworkOwnersandNationalGridESO.633ItsaidthateffortstoalignthesemarketsthroughtheOpenNetworksprogrammeco-ordinatedbytheEnergyNetworksAssociation(thetradebodyfornetworkoperators)“isnotprogressingatthenecessarypaceorbeingimplementedconsistently.Thishascreatedcomplex,uncoordinated,andhardtonavigatemarkets”.634Ofgemisnowconsultingondeveloping“theworld’sfirstdistributedenergy‘super’marketplace”intheformofacommonflexibilityexchange.Thisinfrastructurecouldcompriseacentralplatformfortheend-to-enddeliveryofdistributedflexibility.635Weheardthatthiscouldunlockassetsandhelpoptimisewholesystemcosts.636However,thiswouldprobablytakemanyyearstobecomeoperational.215.NationalGridESO’smarketsforbalancingthesystemandaddressingconstraintscontinuetobedominatedbyfast-actinggasplants.Moreflexibleandresponsivelow-carbonassets,suchasbatteries,couldleadtogreatercompetitioninNationalGridESO’smarketsandoffermorecost-effectiveservices.WerecommendthatNationalGridESOopensupitsmarketstomoreparticipantsandthatitistransparentaboutthechoicesitmakeswhenselectingwhichtechnologieswillbeusedtobalancethesystem.WefurtherrecommendthatNationalGridESOreportsonthecarbonfootprintofall629InApril2021,Ofgemannounceditsdecisiontoimplementmarket-widehalfhourlysettlements(MHHS)acrosstheelectricityretailmarketoverafourandahalfyeartimeperiod.Throughsmartmeters,MHHSallowssupplierstosettletheircustomers’energyinnearrealtime,ratherthanrelyingonestimatesofwhentheyuseelectricity.ItisexpectedthattheMHHSrolloutin2025willfacilitatenewtimeofusetariffswhichallowcustomerstoreducetheirenergybillsbyusingmoreoftheirelectricityduringoff-peakperiodsand/orperiodsofhighwindandsolargenerationandencouragesupplierstooffernewproductsthatallowcustomerstomoveconsumptionawayfrompeakdemandperiods.See:Ofgem,ElectricityRetailMarket-wideHalf-hourlySettlement:DecisionandFullBusinessCase,20April2021630Regen,Sevensolutionstotherisingcostoftransmissionnetworkconstraintmanagement,August2022631ibid.NationalGridElectricitySystemOperatorpublishesamapofplannedtransmissionnetworkreinforcementandcurrentconstraints.AccordingtoRegenthiscouldbeenhancedtoincludefutureconstraintsandtodefinefutureflexibilityservicerequirements.632Seeforexample:TheAssociationforRenewableEnergy&CleanTechnology(REA)(DPS0055);Eaton(DPS0026)633Ofgem,Futureoflocalenergyinstitutionsandgovernance:Consultation,1March2023634ibid.635Ofgem,Thefutureofdistributedflexibility:Callforinput,1March2023636Q415[LauraSandysCBE]Decarbonisationofthepowersector88itsmarkets.Inresponsetothisreport,wealsoaskthatNationalGridESOsetsoutitstransitionplantoensurethatitsmarketsalignwiththeGovernment’stargettodecarbonisethepowersystemby2035.216.DespitewelcomeprogressbyNationalGridESOtodevelopandimplementnewinitiativestoharnessflexibility,thereisstillmoretobedonetoensurethatclearsignalsareprovidedregardingthelocation,durationandvalueoffutureconstraints.WerecommendthatNationalGridESOsendsstrongermarketsignalsidentifyingwhenandwhereconstraintsarelikelytooccur,theirvalueandduration.217.TobuildonthesuccessoftheDemandFlexibilityServiceandensurethatdemand-sideresponsecanbecomemainstream,theindustryneedstheopportunitytodomorelearningbydoing.Whilenecessarysystemreformstakeplacetocreateamoreenablingenvironmentfordemand-sideresponse,werecommendthatNationalGridESOandOfgemworkwithindustryondevelopingatransitionaldemand-sideresponseservicethatcansupportexistingday-to-daybalancingservices.218.Atpresent,flexibilitymarketsaredisjointedanddifficulttonavigate,impedingtheparticipationofsmallassetsandreducingthevalueofdistributedflexibility.WhileOfgemshouldbecommendedforitsproposalsforasingledigitalflexibilityplatform,thisshouldnotdistractfromnear-termactionsthatarerequiredtodriveimmediateprogress.WerecommendthatOfgemputspressureontheEnergyNetworkAssociationandDistributionNetworkOperatorstoensurefasterandmoreconsistentimplementationoftheOpenNetworksProgramme.Improvingthecontrolroom219.WeheardthatchangestoNationalGridESO’scontrolroomarerequiredtoallowittodispatchmultiplesmallerassets.637RachelFletcher,DirectorofRegulationandEconomicsatsupplierOctopusEnergy,toldusthat“oursystemoperatorneedstobecomedigital.Itneedstobecomedigitallyliterateandtobeoperatingthesystemusingmodern,state-of-the-artalgorithmsandmachinelearning,notthroughmanualcommandandcontrolanddecisions”.638Atpresent,NationalGridESOcannotmanagedataondistributedassetslessthan1MW.639AccordingtotheAssociationforDecentralisedEnergy(ADE),atradebody,thisisbecominganincreasingissuebecausetheUKismovingtoaworldwherethousandsofsmallsourcesofelectricitywillbehelpingthegridandNationalGridESOneedstoprocessallthosestreamsofinformationefficiently.640Furthermore,whilstNationalGridESOhascommittedtoupgradingitsITinfrastructurebetween2022and2025,theADEwarnedthatthiscrucialworkmightbedelayedorbenotaseffectiveasitneededtobe,giventhehistoryofpreviousITupgradesbytheESO.641InNovember2022,OfgempublishedanIndependentReviewoftheNationalGridESO’sITInvestmentPlan.Ofthein-scopeinvestments(£556m),thereviewscored13investmentsasred,totalling£307million(55%);13investmentsasamber,totalling£210million(38%)and7investmentsasgreen,totalling£38million(7%).642637Q222[SarahHonan]638Q431[RachelFletcher]639AssociationforDecentralisedEnergy(DPS0040);Distributedenergyreferstoelectricityproductionatornearthepointofuse,ratherthanenergyproducedatlargecentralisedplants.640ibid.641ibid.642Ofgem,BusinessPlan2DraftDeterminations–ElectricitySystemOperator,Annex4,30November202289Decarbonisationofthepowersector220.Tounlockthepotentialrolethatflexibilitycanplayinbettersynchronisingsupplyanddemand,NationalGridESOwillneedtoimproveitsdigitalcapabilities.WerecommendthatNationalGridESOspeedsupprogressonmakingsureitsITupgradesmeanthatitcanhandleflexibilityfromassetssmallerthan1MWandreportstoParliamentonitsprogressinhittingthistarget.Minimumvisibilitystandardsand‘FlexibilityFirst’221.Witnessesalsostatedthatdataandvisibility643isakeybarriertoharnessingflexibilityanddevelopingmarketstructuresatthedistributionlevel.644Digitalisationisavitalenablertothedeliveryofasmart,dynamic,flexibleenergysystem,allowingindividualassets(likeelectricvehiclechargingpointsorheatpumps)to‘see’thelevelofstressonthenetworkandshiftloadtocompensate(i.e.moveelectricityconsumptionfromonetimeperiodtoanother).645AccordingtoE.ON,anenergycompany,currentlevelsofvisibilityonthenetwork,especiallythelowvoltagenetwork,makethisimpossible,anditwouldneedsignificantinvestmentbytheDistributionNetworkOperatorsindigitalisationandtransparentdatasharingwithsuppliersandflexibilityserviceproviders,toputitinplace.646222.Gooddataandvisibilitywillalsobekeytodeterminingwhethernetworkreinforcement647oranalternativemaydeliverbestvalue.WhileDistributionNetworkOperatorshavecommittedtoa‘FlexibilityFirst’principle,co-ordinatedbythenetworkstradebodyEnergyNetworksAssociations,requiringthemtoconsideraflexiblesolutionaheadofinvestinginnetworkreinforcement,itisunclearhowenergeticallythisisbeingdeployedandwhetherallnetworkcompaniesaremakingthemostofsmartsolutions.648Whilstthenetworkupgradesrequiredforheatpumpsandelectricvehiclesareprojectedtocostupto£48billionby2050,otherchangescouldreducethesecostssignificantly,suchaswidespreadsmartcharging,controlsandvoltageregulation,smartplanningandactivenetworkmanagementtechniques.649223.Infuture,dataandvisibilitywillbekeytoascertainingwhethernetworkreinforcementoranalternative,suchasprocuringflexibilityservices,wouldbemostcosteffectiveforconsumers.Buttherehasbeeninsufficientinvestmentinmonitoringcapabilityatlowvoltagestodate,resultinginpoorvisibilityofconnectedassetsandthestateofthedistributionnetworks.Itisalsounclearwhetheralldistributionoperatorsaremaximisingtheopportunitiesofasmarter,moreflexiblegrid.WerecommendfirmerinterventionfromOfgemonminimumvisibilitystandardsforDistributionNetworkOperators.WealsorecommendthatOfgemreviewswhetherithasrobustprocessesinplacetomonitorwhetherDistributionNetworkOperatorsaretakinga‘FlexibilityFirst’approachandmakingsufficientuseofsmartsolutions.643Thelowvoltagepartofthenetworkislargelycomprisedof“dumb”assets,someofwhichweredesignedover50yearsago,thatoperatewithoutloadmonitoringordatacollection.644Regen(DPS0071);E.ON(DPS0082);Onward(DPS0002)645E.ON(DPS0082);seealso:EnergySystemsCatapult,DeliveringaDigitalisedEnergySystemEnergyDigitalisationTaskforcereportChairedbyLauraSandysCBE,2021646E.ON(DPS0082);Seealso:Q426[RachelFletcher]647Ifanelectricitynetworkwillbeoverloadedbyloadgrowthoraspecificnewconnection,thecapacityofthenetworkwillhavetobeincreased.Thisincreasingofcapacityofthenetworkisgenerallytermed‘reinforcement’648OctopusEnergy(DPS0072)649CalumEdmunds,StuartGalloway,JamesDixon,WaqquasBukhshandIanElders,Hostingcapacityassessmentofheatpumpsandoptimisedelectricvehiclechargingonlowvoltagenetworks,March2021Decarbonisationofthepowersector90Retailmarketreform224.Priortotheinternationalgascrisisandsubsequentcollapseof30energyretailerssinceJuly2021,thesuccessofthesuppliermarketwasmeasuredbythenumberofcustomersswitchingbetweensuppliersandthenumberofretailerscompetinginthemarket.650Duringourinquiryonthefutureoftheretailmarket,wefoundthatthisapproachhadledtoaracetothebottom.Supplierswereallowedtoenterthemarketwithoutsufficientcapital,takeexcessiverisksandinsomecasesrelyoncustomercreditbalancestofundtheirday-to-dayoperations.651InJuly2021,theGovernmentpublisheditsEnergyRetailMarketStrategyforthe2020s.652TheStrategy’sflagshippolicywasfor“optin”and“optout”switchingwherebycustomers,unlesstheychosenottobe,wouldbeautomaticallyswitchedtosuppliersofferingthelowestprices.Thecollapseofenergyretailersdemonstratedtheflawsofthisapproach,whichwouldfailtodeliveraretailmarketthatcouldeffectivelysupportthetransitiontoadecarbonisedpowersystem.Followingthecollapseoftheretailmarket,theGovernmentpausedthispolicyworkandcommittedtoprovidea“refresh”oftheStrategy.653Thisisyettobepublished.225.Decarbonisingthepowersectorwillrequiresupplierstohavecloser,moresophisticatedrelationshipswithconsumersandactasaninterfacebetweenthemandthewiderenergysystem.TherolloutofmandatoryMarket-WideHalf-HourlySettlement654andsmartmetersshouldencouragesupplierstodevelopTimeofUsetariffs655andmoreinnovativeproducts,allowingcustomerstoreducetheirbillsbyflexingtheirdemandaccordingtosystemneeds.Duringourinquiryonthefutureoftheenergymarket,EnergyUKtoldusthattheGovernment’sEnergyRetailMarketStrategyshouldbegearedtowardscreatingasectorthatisencouragedthroughrewardtoinnovateandprovidenewandbetterservicestocustomersthatalignwithmeetingnetzero.656Supplierswillalsoplayanimportantroleinsupportingcustomersastheyinvestintechnologiestodecarbonisetheirhomesandmakingsurethatvulnerablecustomerscanaccessthebenefitsofthisnewenergysystem.226.AsGuyNewey,CEOoftheEnergySystemsCatapult,stated:thisvisionofmoresophisticatedsuppliers,orenergyservicecompanies,managingcommodity,flexibilityandasset-financingrisks,harnessingthepotentialofdigitaltechnologyandturningallthatintosimple,integratedpropositions,isaprofoundchangefromthecurrentmarket.Itshouldalso650BEISCommittee,ThirdReportofSession2022–23,Energypricingandthefutureoftheenergymarket,HC236651ibid.652DepartmentforBusiness,EnergyandIndustrialStrategy,Energyretailmarketstrategyforthe2020s,23July2021653DepartmentforBusiness,EnergyandIndustrialStrategy(EPM0027)654InApril2021,Ofgemannounceditsdecisiontoimplementmarket-widehalfhourlysettlements(MHHS)acrosstheelectricityretailmarketoverafourandahalfyeartimeperiod.Throughsmartmeters,MHHSwillallowsupplierstosettletheircustomers’energyinnearrealtime,ratherthanrelyingonestimatesofwhentheyuseelectricity.ItisexpectedthattheMHHSrolloutin2025willfacilitatenewtimeofusetariffs,allowingcustomerstoreducetheirenergybillsbyusingmoreoftheirelectricityduringoff-peakperiodsand/orperiodsofhighgenerationandencouragesupplierstooffernewproductsthatallowcustomerstomoveconsumptionawayfrompeakdemandperiods.655Timeofusetariffsusedifferentpricestoencourageconsumerstouseelectricityattimeswhenmoreisavailablecheaply.656EnergyUK(EPM0028)91Decarbonisationofthepowersectormeantheyshouldberewardedfairlyinthemarketfortheincreasedrisksofmanagingthatcomplexity.Wecannothaveasustainable,innovativeretailmarketwhichislossmakingyearafteryear,asitcurrentlyis.657Giventhesignificantenablingrolethatsuppliersneedtoplaythroughoutthetransitiontoadecarbonisedpowersystem,LauraSandysCBE,ChairoftheEnergyDigitalisationTaskforce,urgedtheGovernmenttoprioritiseretailmarketreformbeforeembarkingonelectricitywholesalemarketreform.658227.Thecurrentregulatoryandmarketstructuresoftheretailsectorwillnotdeliveraconsumerexperiencethatcanadequatelysupportthetransitiontodecarbonisedpowersystem.WerecommendthattheGovernmentprioritisesthereformoftheretailmarketandthatitsupdatedEnergyRetailMarketStrategy:a)clearlysetsouttherolethatsupplierswillbeexpectedtoplayinthetransitiontoadecarbonisedpowersystemaswellasinterimmilestonestoachievethis;b)enablessupplierstoinnovateandbuildsophisticatedrelationshipswithcustomersthroughtheprovisionofabroadersetofenergyservices;c)allowssupplierstobefairlyrewardedforprovidingservicesthatenticecustomerstoshiftandreducedemand,inawaythatreflectstheadditionalrisksthatsupplierswillbetakingon;andd)removesbarriersthatpreventvulnerablecustomersfromaccessingthebenefitsthatthetransitionwilloffer.ReviewofElectricityMarketarrangements228.Thewholesalemarketarrangements,whichgovernhowelectricityistradedbetweengenerators,suppliersandothermarketparticipants,weredesignedatatimewhenfossilfuelsdominatedsupply.Avarietyofpolicies,suchasContractsforDifferenceandtheCapacityMarket,havebeenintroducedintothemarketframeworktosupportthedeploymentoflow-carbontechnologiesandtoensurewehaveenoughsupplyonthesystemaswetransitionawayfromgas.However,theunderlyingstructureofthewholesalemarketinGreatBritainremainsthesame(SeeBox5).Thereisawidespreadconsensusonthecaseforchange,withcurrentmarketarrangementsunlikelytoputtheUKontargettodecarbonisepowerinawaythatdeliverssecurityofsupplycost-effectively.However,thereislessofaconsensusonhowradicalthisreformshouldbe,andonthepaceofreform.657GuyNewey,‘ThedayDECCdied….Andsomethoughtsforthenewenergydepartment,’10March2023658Q406[LauraSandysCBE]Decarbonisationofthepowersector92Box5:WholesaleelectricitymarketarrangementsinGreatBritainThewholesalemarketarrangementsforelectricityhavesomekeycharacteristics.UnderthearrangementsinGreatBritain:Thereisasingle,nationalpricingstructureforelectricity.Thewholesalemarketrunsonnationalpricing,whichmeansthereisonewholesalepriceforelectricityforthewholecountry.Thewholesalepricereflectsthecostofmeetingdemandatanygiventime.659Thispricecanfluctuateduringthedayandisdrivenbyamixoffactors:theextentofdemand,theavailabilityofwindandsolar,thecostoffuelandenvironmentaltaxes.660Underthissystem,thepriceofelectricityisusuallysetbygasplantsbecausethesearethemostexpensiveassetsneededtomeetdemand.Electricityistradedbilaterallyandself-dispatchedbetweenparticipants,ratherthancentrally.BilateraltradinghasbeenpartofthesysteminEnglandandWalessince2001andScotlandsince2005.Thereisabalancingmechanismtomakesuresupplymatchesdemand,runbytheNationalGridESO.Thefirsttradingarrangementswereintroducedin1990andhavebeenreformedafewtimessince.TheElectricityMarketsReforms,introducedbytheGovernmentin2013,largelyretainedthewayelectricityistraded,butintroducedsomekeychangestosupportthedeploymentofrenewables,suchasContractsforDifference.229.TheGovernment,inJuly2022,launchedaReviewofElectricityMarketArrangements(REMA),whichranuntil10October2022.661Thisreviewisconsideringstructuralreformstothewholesalemarket.Another,moredetailed,consultationisexpectedthisautumn(pushedbackfromsummer2023)ontheviableoptionswhichwillbefollowedbyadeliveryplaninthemid-2020s.662TheGovernmentsaidthatdecisionsonshorter-termreformswillbetakenmorequicklywherepossible.663TheGovernmentidentifiedthefollowingobjectivesfortheREMAprocess:•Deliverastepchangeintherateofdeploymentoflow-carbontechnologies,andreduceourdependenceonfossilfuelledgeneration;•Providetherightsignalsforflexibilityacrossthesystem;•Facilitateconsumerstotakegreatercontroloftheirelectricityusebyrewardingthemthroughimprovedpricesignals,whilstensuringfairoutcomes;•Optimiseassetsoperatingatlocal,regional,andnationallevels;and•Ensurethatthesecurityofthesystemcanbemaintainedatalltimes.664230.TheGovernmenthassoughtviewsonawiderangeofoptions,whichaddressvariousproblemswithintheexistingarrangements.Someofthemajorreformsunderconsiderationinclude:659NationalGrid,‘Electricitymarketsexplained,’accessedon20April2023660ibid.661DepartmentforBusiness,EnergyandIndustrialStrategy,ReviewofElectricityMarketArrangements,10October2022662HMGovernment,PoweringUpBritain:EnergySecurityPlan,30March2023663ibid.664DepartmentforBusiness,EnergyandIndustrialStrategy,ReviewofElectricityMarketArrangements,10October202293Decarbonisationofthepowersector•Movingawayfromasingle,nationalpricetoalocationalmarginalprice.665Currently,therearealackofmarketsignalsthatencouragebothsupplyanddemandtolocatewheretheyareneeded.Bymoreaccuratelyreflectingchallengesaroundbalancingsupplyanddemandinpricing,theintentionwouldbetoencouragemoreefficientuseofthenetworkanddeploymentofgeneration.Eventhoughpricescouldvarysignificantlyacrossthecountry,analysisbytheEnergySystemsCatapultconcludedthatmovingtoamarketwithlocationalpricingcouldsavearound£30billionintotalby2035.666However,thesystemcouldbecomemorecomplex.Renewablegenerators,suchasoffshorewind,havelimitedoptionsinwheretheycanlocate,soarelikelytobelessresponsivetopricesignals.Instead,sucharrangementsmaybenefitgasplantsthatareabletolocateclosertodemandcentres.667•Separatemarketsforvariablerenewablesandfirmersourcesofgeneration,withtheaimofdecouplingelectricityfromthepriceofgas.ResponsetotheGovernment’sproposals231.Thereisawidespreadrecognitionthatattractingprivateinvestment,especiallyduringthe2020s,iskey.Manyfavouramoreevolutionaryapproach,whichmodifiesthecurrentframeworkincludingarrangementsforContractsforDifference,theCapacityMarketandBalancingMechanism,forthisreason.SSE,anenergycompany,arguedthatincreasedlevelsofpoliticalrisk(e.g.ofsignificantshiftsinpolicy)willdriveupthecostofcapital.668AnalysiscommissionedbySSEsuggestedthatevery1%increasetothecostofcapitalwouldraisethecostofadecarbonisedenergysystemby£45billionby2050.669AdamBerman,DeputyDirectorofPolicyatEnergyUK,toldusthat:Ultimately,youcancomeupwiththemostwonderfullyefficienthypotheticalsystem[..]but,ifyoudonothavetheinvestmenttobeabletosecureit[..]itreallydoesnotmatterhowsmartthatsystemis.Wewantagoodsystem,anefficientsystemandasmartsystem,butletusdoitincrementallyovertime.Letusmakesureitworks.Letusmakesureitdoesnotscareofftheinvestmentwerequireratherthanspendingallthistimeonreformsthatmaynotevenseethelightofday.670LauraSandysCBEreferredtolocationalpricingasan“economist’sdream”andquestioneditsdeliverability,statingthat“theperfectionwilltakeaverylongtimetobeimplemented.Considerthattherewillbethreeyearsinactuallyidentifyingwherethesenodesare.Thenitgoesouttoconsultationfortwoyears.Thentheremightbeoneortwojudicialreviews.Thenithastogobackouttoconsultation.Thisisgoingtobe2031.Weneedactionalotearlierthanthat”.671665Thenationalpricewouldbereplacedwithdifferentpricesdependingonthezoneornode.Undernodalpricing,thepriceineachlocationreflectsthelocationalvalueofelectricity,accountingforthephysicalconstraintsofthenetwork.Underzonalpricing,thenetworkisdividedintodifferentzones,withtheboundariesrepresentingmajornetworkconstraints.666EnergySystemsCatapult,Location,location,location:ReformingwholesaleelectricitymarketstomeetNetZero,May2022667Q419[AdamBell]668SSEplc(DPS0087)669ibid.670Q410[AdamBerman]671Q419[LauraSandysCBE]Decarbonisationofthepowersector94232.Thosethatargueinfavouroflocationalmarginalpricing,suchastheEnergySystemsCatapult,Onward,OctopusEnergyandtheNationalGridESO,suggestthatitwouldensureasystemdominatedbyrenewablesfunctionsefficientlyandwouldavoidrisingconstraintcosts.672OctopusEnergyarguedthatsettingonehalfhourlypriceforelectricityacrossthewholecountrycannot,withanyaccuracy,signalwhenandwhereflexibilityisneeded,norrewardflexibilityaccordingtoitsvaluetothesystem.Forexample,thecurrentwholesalepriceindicatesthatconsumersshouldalltrytoturndownusageatonetime,buttheremaystillbepartsofthecountrywherethereisasurplusofwindenergybehindatransmissionconstraintandwherethesystemwouldbenefitfromcustomersusingorstoringpowertomakethemostofthosecleanelectrons.673233.RachelFletcher,DirectorofRegulationandEconomicsatOctopusEnergy,toldusthatamorerevolutionaryapproachcouldbeachieved,whilstretainingtheconfidenceofinvestors.674ShehighlightedthatasaresultofContractsforDifference,renewablegeneratorsarenotexposedtowholesaleprices.Instead,theirrevenuesaredeterminedbythestrikeprice.Therefore,shearguedthatGovernmentandindustryneedstobethinkingabouthowtoamendtheContractsforDifferenceschemetoensurethatrenewablesremain“bankable”alongsidelocationalpricing.Shenotedthat“asanindustry,weshouldbegettingourheadsaroundthehow.Howdowekeeprenewableinvestorsconfidentwhilegettingpricesignalsthatwillkeeptheoverallcostoftheenergysystemdown?”.675234.Therearedifferencesofopiniononwhetherexistingmechanisms,ifreformed,wouldbecapableofsupportingthe2035target.AdamBermantoldusthatsuchmechanisms,inmanycases,arealwaysbeingrefinedandthattherewouldbescopetomodifythemsothattheyweremoreadeptataddressingsomeofthechallengesfacingthesystem,suchasalackoflocationalsignals.Hestated:Thereisafundamentalquestionaboutlocationalsignalsinthemarket,ofwhichwecurrentlyhaveveryfew,butultimatelythequestionforusis,“Howdoyousolvethat?”Canyousolveitthroughincrementalchangestopolicieswealreadyhaveinplace,suchascontractsfordifference,thecapacitymarket,thebalancingmechanismorthetransmissioncharges,etcetera?Canyousolveitthroughnon-marketissues,by,attheveryleast,buildingoutmoretransmissioninfrastructureormakingsurewehavesortedouttheplanningsystem?676RachelFletcher,however,cautionedagainstevolvingthecurrentsystemtojust“createmoremarketsthateffectivelyaredictatedandmanmadebysystemoperators,asopposedtoacleanerongoingpricesignalthatreflectswhatishappeningandisnot,effectively,aprocurementexercisefromacentralbody”.677235.WealsoheardthatmechanismssuchasContractsforDifferencealreadyhelpdecoupleelectricityfromthepriceofgas.AdamBermantoldusthatthemorelow-carbonenergyyoubringtothemarket,thelowerenergypriceswillbe.Headdedthatthere“is672NationalGridElectricitySystemOperator(DPS0051);EnergySystemsCatapult(DPS0024);Onward(DPS0002);OctopusEnergy(DPS0072)673OctopusEnergy,‘Wemustreformtheelectricitymarkettomakethisthelastfossilfuelcrisisever,’accessed18April2023674Q418[RachelFletcher]675ibid.676Q419[AdamBerman]677Q426[RachelFletcher]95Decarbonisationofthepowersectornomarketanywherearoundtheworld[…]thathasformallysplittheirwholesalemarketbetweenthedirtierstuffandthecleanerstuff.Thereis,unfortunately,noexampleofbestpracticewecanreallylooktoonthat.Thebestsolutionwecancomeupwithistomovefasterintolow-carbontechnologies”.678236.TheClimateChangeCommitteeadvocatedanevolutionaryapproachintheshortterm,duringthe2020s,toavoidan“investmenthiatus,”withanymorefundamentalreforms,suchasfulllocationalmarginalpricing,consideredforthe2030s.679237.Weagreethatthewholesaleelectricitymarketarrangementsneedreformtohelpdecarbonisepowerinawaythatsecuressupplyandensuresthesystemcanfunctionefficiently,includingmorelocationalsignals.Inprinciple,wefindtheargumentforlocationalpricingappealing,butweareconcernedaboutitsdeliverabilityanditspotentialimpactoninvestorconfidence.TheGovernmentmustsatisfyitselfthatanyreformsitdoespursuedonotcreateaninvestmenthiatus,whichwouldputthe2035targetatrisk.238.WerecommendthattheGovernmentprovidesbeforetheendof2023aclearpathwayonhowwholesalemarketarrangementswillevolvefollowingitsconsultation.ThereareanumberofconstructivestepsthattheGovernmentcouldmaketotheexistingmarketstructureinthenearterm,whichwouldhelpittoprovidemoreeffectivesignalsonthetypeoflow-carbontechnologiesandservicestheUKneedstodecarbonisepower.Theoptimaldegreeoflocationalgranularityshouldweighthebenefitsagainstthelevelofmarketdisruption,andwhetherothermechanismscanachievesimilaroutcomes,withininvestmenttimeframes.Comprehensiveimpactassessmentsshouldbepublishedinduecourse.678Q411[AdamBerman]679ClimateChangeCommittee,NetZeroElectricityMarketDesignExpertGroupreport,September2022Decarbonisationofthepowersector96Chapter7:TheroleofinstitutionsOfgem’sremit239.Ofgem’sremithasnotsubstantiallychangedsinceitsestablishmentin2000.Wefoundthatthereisawidespreadconsensus,amongstakeholderswithintheenergyindustry,thatOfgem’slackofanexplicitmandatefornetzeroisholdingbackreformsthatcouldhelpdriverapiddecarbonisation,anddosoatlowestcost,tothebenefitoffutureconsumers.680AkshayKaul,InterimDirectorofInfrastructureandSecurityofSupplyatOfgem,toldusthatwhiletheregulatorisnotopposedtohavinganexplicitnetzerodutyaddedtoitsremit,Ofgeminterpretsitsdutytocurrentandfutureconsumers,anditsdutytoensuresustainabledevelopmentoftheenergysector,“asentirelyconsistentwiththenetzeromandate”.681HeaddedthatOfgemhas“verymuchtakennetzerotoheart.Itisthefoundationofvirtuallyeverydecisionwemakeasaregulator”.682InresponsetotheRtHonChrisSkidmoreMP’sIndependentReviewofNetZero,theGovernmentrejectedtherecommendationthatOfgembegivenaclearnetzeroobjectiveaspartofitsstatutoryremit,statingthatitdoesnotbelievethischangetonecessary.683240.EventhoughweurgedtheGovernmenttopublishitsalreadyverydelayedStrategyandPolicyStatementforOfgembackinJuly2022,ithasstillnotmaterialised.WerecommendthatanexplicitdutytodeliveronthestatutorynetzerotargetisaddedtoOfgem’sremit.WereiterateourpreviouscallfortheGovernmenttopublishanupdatedStrategyandPolicyStatementforOfgemwhichprovidesaveryclearsenseofdirectiontotheregulatoronhowtomanagethepoliticalanddistributionaltrade-offsintrinsictoitsresponsibilities,aswellasacleardelineationofitsrolesandresponsibilities.FutureSystemOperator241.TheGovernmentintroducedlegislation,aspartoftheEnergyBill,totransfermostofNationalGridESO’sfunctionstoanewpubliclyownedlicensedFutureSystemOperator(FSO).684TheGovernmentintendsthattheFSOshouldbeoperationalby,orin,2024.TheFSO,independentfromNationalGrid,wouldnothaveanyvestedintereststhroughassetownershiporcommercialinterestintheenergysector.Itisintendedtobeanexpert,impartial,publicbodywithresponsibilitiesacrossboththeelectricityandgassystems.AlongsidecurrentElectricitySystemOperatorroles,includingkeepingthelightson,theFSOwouldplanthenetworkfromastrategicwholesystemperspectiveandprovideexpertadvicetotheGovernmentbasedonrobusttechnicalevidence.242.WhiletheFSO’sexactresponsibilitiesareyettobesetoutindetail,wenotearecenttrendforboththeGovernmentandOfgemtoassignresponsibilityforseveralpolicychallengestotheFSO.Forexample,initsPoweringUpBritain:EnergySecurityPlantheGovernmentsaidthattheFSOwilldeliveranewmediumrangeGasSupplySecurityAssessmenttoconsidergassuppliesaccordingtoavailability,reliabilityanddeliverability680Seeforexample:TheAssociationforRenewableEnergy&CleanTechnology(REA)(DPS0055);GreenAlliance(DPS0067);RWE(DPS0088);BPplc(DPS0089);RenewableUK(DPS0004);HitachiEnergy(DPS0020);Regen(DPS0071);SSEplc(DPS0087)681Q391[AkshayKaul]682ibid.683HMGovernment,IndependentReviewofNetZero:governmentresponse,30March2023684EnergyBill,HLBill13097Decarbonisationofthepowersectoragainstafive-to-ten-yeartimehorizon.685Thiswouldrequirepoliticaljudgementsrelatedtoforeignpolicy.OfgemisalsoconsultingonwhethertheFSOshouldhaveresponsibilityforregionalsystemplanning.686Whilewearenotagainstthesepropositionsinprinciple,itisimportanttheGovernmentandOfgemarerealisticabouthowmanyworkstreamsthisneworganisationcanmanage.243.TheFutureSystemOperator(FSO)isexpectedtoprovidestrategicoversightoftheplanningandcoordinationofthepowersystem,butthereisastillalackofclarityoveritsspecificroles,responsibilitiesandpowers,aswellashowitwillinteractwiththeGovernmentandOfgem.ItisvitalthattheFSOisadequatelyresourcedandthatthereissufficientaccountabilityandscrutinyofitswork.244.TheFutureSystemOperator(FSO)shouldbegrantedsufficientpowersandresourcestoeffectivelyplanandco-ordinatethetransformationoftheelectricitysystem.TheFSOshouldbegivenaclearnetzerodirectivewithinitsgovernancearrangements.Inresponsetothisreport,weaskthattheGovernmentconfirmswhetheritisontracktosetuptheFSObyorin2024andoutlinesitsplansforthedivisionofinstitutionalresponsibilitiesbetweenMinisters,OfgemandtheFSO.TheFSOshouldengagewiththeEnergySecurityandNetZeroCommitteeontheprogressitismakingtodeliveradecarbonisedpowersystemby2035andproactivelysharekeydecisions,performanceissuesandrelevantpolicyconcerns.685HMGovernment,Powering-UpBritain:EnergySecurityPlan,March2023686Ofgem,Consultation:Futureoflocalenergyinstitutionsandgovernance,1March2023;OfgemhasproposedthecreationofaseriesofregionalsystemplannerstocoordinatethedevelopmentoflocalenergysystemplansacrossGreatBritainincollaborationwithnetworkoperatorsandcouncils.Itsaidtheroleshouldbeperformedbyasingleindependententitywith“multiplebranches,”identifyingthesoon-to-beFutureSystemOperatorastheleadcandidate.Decarbonisationofthepowersector98Chapter8:Conclusion245.WhilehugestrideshavebeenmadebytheGovernmentandindustryoverthelastdecadetotackleemissionsinthepowersector,theUKmustcontinuetoaccelerateitsshiftawayfromfossilfuelstocleanenergy.However,asuiteofpolicyandregulatorybarriersareblockingprogresstoachievingtheGovernment’stargettodecarbonisethepowersystemby2035.Businesseswhichwanttodrivethetransitionforwardonthegroundaregettingcaughtinredtape.Theabsenceofanoverarchingdeliveryplanandlackofownershipofwholesystemcostshascreatedpolicysilosandsequencingproblems.Low-carbonprojectsarenowfacingdelaysofuptofifteenyearstoconnecttotheelectricitynetwork,aswellasacumbersomeplanningregime.TheGovernmenthaslaunchedanumberofwelcomeconsultationsacrossdifferentsectorsofthepowersystemwhichcouldleadtomuchneededpolicyreform,butaresolutefocusondeliveryisnowessential.TheGovernment’sstrategytodecarbonisethepowersectoralsoincludesnotableomissions.Theseinclude,butarenotlimitedto,policytodeployonshorewind,measurestoreduceenergydemand,supportforlong-durationenergystorage,adecisionontheuseofhydrogenacrosstheeconomyandclarityonwhereprivatefinancefornuclearenergyprojectswillcomefrom.246.TheUKinvestmentpropositionfortheelectricitysectorhasdeterioratedsincethelaunchofourinquiry.Theglobalraceforcapitalinlow-carbonprojectshasintensified.MeanwhiledevelopersofrenewablesprojectsintheUKareexperiencingsubstantialcostinflationandaresubjectedtoawindfalltaxlessgenerousthanthatoftheoilandgassector.Thesefactors,whicharecompoundedbypolicyandregulatorydelays,riskputtingtheviabilityofsomerenewableprojectsindanger.TheGovernmenthasyettosetoutacompetitiveoffertoindustrytoensurethattheUKcancontinuetoattractinvestmentandmaximisetheeconomicopportunitiesofthetransitiontoadecarbonisedpowersystem.Thetimetodosoislimited.247.Toaddressthedeliveryriskstothe2035target,theGovernmentwillneedtoensurethatplanningandenvironmentalauthoritiesareproperlyresourced,thatplanningguidanceisalignedwithitsdecarbonisationgoalsandthattheprocessisstreamlined.Ofgemneedstoapproveinvestmentintheelectricitynetworksaheadofneedandnetworkownersneedtodeliverontheirbusinessplans.Theprocesstosecuringagridconnectionmustbeoverhauled.Demand-sideflexibilityneedstobetreatedasanequalpartnertosupplyandcustomers,whoarepayingforallthisnewinfrastructure,mustbeattheheartofthetransition.Thiswillonlybeachievedwithimprovedmarketsignalstorewardflexibleservicesandreformoftheenergyretailsector.OfgemandtheFutureSystemOperatorshouldbegivencleardutiestodeliveronnetzero.99DecarbonisationofthepowersectorConclusionsandrecommendationsProgresstodecarbonisepower1.TodelivertheGovernment’stargettodecarbonisethepowersystemby2035,theUKneedstodeploylow-carbontechnologiesatafasterratethanhasbeenachievedhistorically.Awholehostofregulatoryandpolicybarrierscontinuetoimpedethedeploymentofcleantechnologies.Theevidencesubmittedtoourinquirymadeclearthat,atthecurrentrateofpolicydelivery,theUKGovernmentwillmissitstargettodecarbonisepowerby2035.WhiletheGovernment’s“PoweringUpBritain”plansoutlineasuiteofactionsthatwouldhelpitgetontrack,itsfocusmustnowbeanunrelentingdrivetodeliverthem.(Paragraph24)2.ThelevelofcoordinationandpaceofdeliveryneededrequirestheGovernmenttooperateinadifferentwaythanithasinthepast.WewelcomethecreationofthenewDepartmentforEnergySecurityandNetZero,butthatDepartmentmustnowacttocoordinatestakeholders,unlockbottlenecks,anddrivethepaceofdeliveryrequired.IfthenewDepartmentoperates‘businessasusual’theGovernmentwillfailtohititsowntargets.(Paragraph25)3.Anoverarchingdeliveryplanforthedecarbonisationofpower,withclearmilestonesandcontingencies,willhelptheGovernmentbringacomplexsetofinterrelatedtaskstogether.Atthemoment,decisionsaretakenonspecifictechnologiesorissuesinsiloswithoutaroadmapforthewholesystem.Thishasledtosequencingproblemsandafailuretotakeownershipofwholesystemcosts.ThiswasillustratedbyNationalGridESOconfirmingsignificantconstraintpayments,largelystemmingfromafailuretoupgradethetransmissiongridbetweenScotlandandEngland.Acomprehensiveplanwillgiveinvestorsmoreconfidencetodeploynew,low-carboninfrastructureintheUKbecausetheywillhaveaclearerunderstandingofhowtheirprojects,andthereformsthesedependon,willfitintoadecarbonisedenergysystem.(Paragraph28)4.WereiteratethecallsofboththeClimateChangeCommitteeandNationalAuditOfficefortheGovernmenttopublishacomprehensive,long-termdeliveryplanforadecarbonisedpowersystemby2035.ThecreationofanewDepartmentforEnergySecurityandNetZeroshouldprovidetheimpetusandMinisterialcapacitytodothis.Thisplanshouldrecognisethetimeneededtodecarbonisethedifferentaspectsoftheelectricitysystemaswellasthesequencinginvolved.Werecommendthatthisdeliveryplansetsoutclearroadmapsandmilestonesaswellascontingencyplansforkeyrisksanduncertainties.Itshouldalsofocusonwholesystemcosts.WeasktheGovernmenttopublishthisdeliveryplannolaterthanbytheendof2023.(Paragraph29)5.TheGovernmenthassetatargettodecarbonisethepowersystemby2035,subjecttosecurityofsupply.TheGovernmenthasnotdefined‘securityofsupply’.After2035,theremayberareoccasionswhentheUKneedstouseunabatedgas-firedstationstomeetshortfallsinsupply.Acleardefinitionof‘securityofsupply’isneededtoensurethattheGovernmentcanbeproperlyheldtoaccountforitsperformanceagainsttheDecarbonisationofthepowersector1002035target.TheGovernmentshoulddefinethe‘subjecttosecurityofsupply’conditioninits2035targetandclarifytheamountofresidualemissionsfromunabatedgasplantsthatitiswillingtoacceptfrom2035onwards.(Paragraph31)6.Announcementsbymajoroilandgascompaniestoprioritisesharebuybacksanddividendsoverinvestmentinrenewables,andtoscalebackontargetstoreducetheimpactoftheiroperationsontheclimateinfavourofextractingmorefossilfuels,suggestthattheindustryhassomewaytogobeforeitfindsagoodbalancebetweenprioritisingprofitanditsresponsibilitytocutemissions.TheinvestmentreliefincludedintheEnergyProfitsLevymeansthattaxpayerswilleffectivelypayoilandgascompaniestocleanuptheirownoperations.Taxpayersupportforoilandgascompaniesshouldbecontingentonthesecompaniesbeingtransparentabouttheirfutureinvestmentsinrenewablesandlow-carbontechnologies,andonevidenceshowinghowtheirplansfordecarbonisationarecompliantwiththecountry’sstatutorycarbonbudgetsandnetzerotarget.(Paragraph40)Retaininginvestmentinlow-carbonenergy7.TheUKhasbecomelessattractivetoenergyinvestors.TheUKisinaglobalraceagainstlargermarketstoattractcapitaltodecarbonisetheeconomy.TheUSandEUhaveintroducedaseriesoflong-termtaxincentivesforcleanenergyinfrastructure.TheUKGovernmenthasyettorespond.WerecommendthatwhenreviewingthecompetitivenessoffiscalincentivesofferedbytheUKtoencourageinvestmentinlow-carbonenergyprojects,theGovernmentshouldconsiderprovidingamoretailoredresponseinthecapitalallowanceregimeforthesector.(Paragraph43)8.ThereisariskthattheGovernmenthasnotaccuratelyreflectedrisingcostsforrenewablesdevelopersinthebudgetforthisyear’sContractsforDifferenceauction,puttingtheviabilityoffutureprojectsintoquestion.WerecommendthattheGovernmentreviewstheparameterssetforitsContractsforDifferenceAllocationRound5toensurethattheyaccuratelyreflectthecostpressuresfacingthesector.(Paragraph47)9.ProvidingthatoilandgascompaniesutilisetheirinvestmentallowancesincludedintheEnergyProfitsLevy,oilandgasextractionwillcontinuetobenefitfromalowereffectiverateofmarginaltaxthanlow-carbondevelopers.Thisrisksofferingperverseincentivestoinvestors.Werecommendthatwheninvestinginlow-carbonelectricitytechnologies,developersshouldreceiveaninvestmentallowancerateequivalenttothatreceivedbytheoilandgassector.WefurtherrecommendthattheGovernmentrevisitsthecaseforVoluntaryContractsforDifferenceforlow-carbonelectricitygeneratorscurrentlysubjecttotheElectricityGeneratorsLevy.(Paragraph51)10.RecentpolicyandregulatoryuncertaintyhasunderminedinvestorconfidenceatpreciselythetimewhentheUKislookingtoattractprivateinvestmentincleanenergyinfrastructure.TheGovernmentshoulddoitsutmosttocreateandmaintainastablepolicyenvironment,whichde-risksinvestmentsinlow-carbontechnologies.(Paragraph53)101DecarbonisationofthepowersectorRoutestomanagingelectricitysupplyanddemand11.TheUK’soffshorewindsectorisasuccessstory.TheGovernmenthasambitiousplanstoscaleupoffshorewinddeployment,maximisingthepotentialoftheUK’snaturalresources.However,unlessrapidlyaddressed,currentbottlenecksintheprocesswillstandinthewayoftheGovernmentachievingitsambitionfor50GWofoffshorewindtobedeployedby2030.WhilewecommendtheGovernmentfortheworkbeingdonetospeedupthedeploymentofoffshorewind,andtoensurelocalcommunitiesthathostcriticaltransmissioninfrastructurebenefitfromdoingso,itisunfortunatethattheGovernmentisonlynowconsultingintheseareas.(Paragraph60)12.Inresponsetothisreport,theGovernmentshouldsetouthowitismonitoringprogressagainstitsambitiontodeploy50GWofoffshorewindby2030.TheGovernmentshouldalsosetouthowitwillberespondingtotherecommendationsoftheUKOffshoreWindChampion.Furthermore,localcommunitieswhichhostcriticalnationalinfrastructuremustseetangiblebenefitsfromdoingso,andconnectionsbetweenoffshorewindfarmsandtransmissionnetworksneedtobebetterco-ordinatedtominimisedisruptionforlocalcommunities.WeasktheGovernmenttosetouthowitwillensureappropriateoversightofCrownEstatedecision-makinginrespectofsocialvalueandimpactforlocalcommunities.(Paragraph61)13.FloatingoffshorewindoffersthepotentialtoexpandanddiversifytheUK’sportfolioofwindprojects,includingtotheCelticSea.SignificantnewinvestmentinUKportswillbeneededtoenablefloatingoffshorewindtobedeployedatscaleandtoharnesslocalsupplychainsandmanufacturing.TheGovernment’sFloatingOffshoreWindManufacturingInvestmentScheme,thoughwelcome,maynotaddressthekeyconcernofportoperators—longtermmarketrevenuecertainty.Toprovideportswiththeconfidencetomakelong-terminvestmentsinthenecessaryinfrastructureforfloatingoffshorewind,theGovernmentshouldprovidepolicycertaintythatde-riskstherequiredinvestmentinports.(Paragraph66)14.TheBritishEnergySecurityStrategydidnotincludeatargetforonshorewind,eventhoughitisoneofthecheapestandquickestsourcesofrenewableelectricitytodeploy.WerecommendthattheUKGovernmentworkswiththeScottishandWelshGovernmentstoagreeaUK-widetargetforthedeploymentofonshorewindby2035,whichshouldinformaspecifictargettoincreasethedeploymentofonshorewindinEngland.(Paragraph77)15.WewelcometheGovernment’sdecisiontoreviewtheNationalPlanningPolicyFrameworkbutareconcernedthattheproposedchangesdonotgofarenoughtoencouragethenewonshorewindcapacitythecountryneeds.Theplanningsystemneedstogivemoreweighttocriticalinfrastructure,suchasonshorewind,thatisinthenationalinterest.IftheGovernment’sproposedreformstotheNationalPlanningPolicyFrameworkdonotresultinasubstantialincreaseintheamountofonshorewinddevelopmentinEngland,werecommendthattheGovernmentbringsonshorewindprojectsbackundertheregimeforNationalSignificantInfrastructureProjects,aswesuggestedinourreportontheRevised(Draft)NationalPolicyStatementforEnergy.(Paragraph78)Decarbonisationofthepowersector10216.WearepleasedthattheGovernmentislookingathowbesttosupportrepoweredassets.Replacingoldonshorewindturbineswithnewtechnologieswillhelpreducetheneedfornewcapacityelsewhere.TheGovernmentshouldintroduceaframeworkwhichsupportstheretentionofexistingonshorewindfarmsandotherrenewableassets,forexampleviatheContractsforDifferencescheme,whentheyneedtoberepowered.TheGovernmentshouldensurethattheplanningregimedeliversaclearpresumptioninfavourofrepoweringandlifeextensionsofonshorewindfarms.(Paragraph79)17.TheGovernment’saimfor70GWofsolarcapacitytobeinstalledby2035iswelcome.AchievingthisgoalwillrequiretheUKtorampupthepaceatwhichnewsolarcapacityisdeployed.WethereforewelcometheGovernment’sannouncementofasolarroadmapandtheestablishmentofadedicatedgovernment/industrytaskforce.WestronglywelcometheGovernment’sclarificationthatitisnotplanningtochangetheclassificationofagriculturallandinwayswhichwouldconstraintheexpansionoftheUK’ssolarcapacity.(Paragraph83)18.WeagreethattheGovernmentshouldseektomaximisetherenewableopportunitiesaffordedbytheUK’sgeography,includingthepotentialbenefitsoftidalenergy.Unlikeoffshorewind,tidalstreamprojectshavenotbenefitedfromstablesubsidiestobringtheircostsdown.TheGovernment’srecentdecisiontoreducethetidalsteamringfencefrom£20millionto£10millionintheupcomingroundofContractsforDifferenceschememaydamagetheUK’sfirst-moveradvantageinmarineenergyandincreaseprojectcosts.However,werecognisethatsupportmustprovidevalueformoneyfortaxpayers.(Paragraph87)19.TheGovernmentshouldjustifytherationaleforloweringtheringfencedamountoffundingfortidalstreaminthelatestContractsforDifferenceauction,andweinvitethefutureEnergySecurityandNetZeroCommitteetoconsiderthatrationaleandtochallengeitifitthinksnecessary.WealsoasktheGovernmenttoconsiderlongertermCfDsfortidalenergy,reflectingthelongerlifecyclefortidalenergycomparedto,forexample,offshorewindturbines.Industryhasrequestedthesettingofatargetoftidalstreamdeploymentinordertosendfurthermarketsignals.WeasktheGovernmenttoconsidersettinga1GWtargetfortidalstreamby2035.(Paragraph88)20.TheBritishEnergySecurityStrategysetanambitionfortheUKtodeploy24GWofcivilnuclearpowerby2050.ThissignificantlyraisedtheleveloftheGovernment’sambitiononnuclearpower,aboveestimatessuggestedbytheClimateChangeCommitteeandothers.Buttobeaneffectivepartofalow-carbon,secureandaffordableelectricitymix,thecostofnuclearpowermustcomedown.NuclearprojectsintheUKandelsewherehavebeenbesetwithdelaysandoverspends.(Paragraph103)21.Inresponsetothisreport,werequestthattheGovernmentsetsout:a)itscurrentestimatesofthetotalcostofdeliveringtheGovernment’s24GWambition;b)itslatestofficialestimateofthetotalcostofSizewellCandHinkleyPointC;103Decarbonisationofthepowersectorc)howitplanstofinanceits24GWambition,includingwhetherfutureprojectswillalsoadopttheRegulatedAssetBasemodel;andd)theimpactoftheincreasingcostsofHinkleyPointCandSizewellConitsplansfornuclearandhowitisensuringsufficienttransparencyoversuchcosts.(Paragraph104)22.Internationalexamplessuggestthatthebestwaytobringthecostofnuclearenergygenerationdownistobuildaprogrammeofnewnuclearreactors,sothatsupplychainsandskillscanbedevelopedandtransferredfromoneprojecttothenext.TheGovernmenthastakenstepsinthisdirection,withplanstoestablishaprogrammeofnewnuclearprojects,supportedbyGreatBritishNuclear,andtolaunchacompetitiontoselecttheleadingsmallmodularreactors.TheGovernment’snuclearroadmap,duelaterthisyear,shouldsetouttheoptionsfordeliveringthenuclearcapacitytheUKwillneedby2050,includingoptionsforfinancingthesenewprojects.GreatBritishNuclearshouldadviseonhowsuchaprogrammeshouldbephased,includinghowtodecidehowmuchnuclearcapacityisneededandthetypeofnucleartechnologiestheUKshoulddeployandwhen.(Paragraph105)23.Asidefromtheneedtoimporturanium,theUKhasthecapabilitytoundertakecriticalpartsofthenuclearfuelcycle,suchasuraniumconversion,enrichmentandfuelfabrication.Theexportpotentialofthesestrategicassetsshouldbemaximised,especiallynowthatcountriesarelookingtoreducetheirdependenceonRussiafortheseservices.TheGovernmentshouldensurethatcriticaldomesticassetsinthenuclearsupplychainaresupported,whiletheUK’scurrentageingfleetretires.(Paragraph106)24.TheGovernment’srecentconfirmationof£20billioninvestmentover20yearsfortheearlydevelopmentofCarbonCaptureandStorage(CCS)iswelcome,allowingtheimplementationoftheinitialclusterstocommence.However,noneofthis£20billionisreflectedintheformalbudgetpolicycostings,soitisunclearhowitwillberaised.TheGovernmentwillneedtocomeforwardpromptlywithclarityforprojectsinvolvedintheTrack1expansionandTrack2clusters.WerecommendthattheGovernmentannouncestheclustersequencingTrack-1expansionprojectsasquicklyaspossibleandprovidesfurtherdetailontheforwardtimelineforselectingthenextCCSclustersthatneedtobeoperationalthisdecade.WeurgetheGovernmenttoprovideclarityonhowthe£20billionfortheearlydevelopmentofCCSwillbefunded.TheGovernmentshoulddeveloparobustregulatoryregimethatteststhecarboncaptureratesofCCSfacilitiesandpenalisesfailure,whichinturnshoulddriveinnovation.(Paragraph121)25.TheCommitteehasbeenconcernedtohearreportsaboutallegedmisreportingbyDraxtoOfgeminordertodrawdownpublicfunds.WenotethatOfgemhasstartedaspecialauditprocess.WecallonOfgemtoensureathoroughinvestigationoftheevidencethatsupportedDraxsubmissions,specificallyinrespectofthesourcingofwoodbiomass,andforOfgemtorequestaccesstoanyinternalorindependentexternalauditsundertakenatDraxtoinvestigatethisissue.WeaskOfgemtoreportbacktotheCommitteeoncethisinvestigationhasconcluded.(Paragraph127)Decarbonisationofthepowersector10426.TheUK’sbiomassindustryisadiversesectormadeupoflarge-scalepowerplantsthroughtosmaller-scale,morelocal,generators.Theoverallcostsoflarge-scalebioenergypowerplants,whichconvertedfromcoal-firedplants,areveryexpensiveandrelyheavilyonimportedfeedstocks,whichmaynotbeproducedsustainably,andwhichmayhavesignificantlifecycleemissions.Existingsupportschemesforunabatedbioenergyareduetoendby2027.Wedonotbelievethatthehistoricallocationofsubsidiestolargescalebiomass,suchasDrax,hasrepresentedeithervalueformoneyorthebestuseofpublicfunds.(Paragraph134)27.Webelievethatthereshouldbenoextensionbeyond2027fortaxpayersupportforunabatedbioenergyplants,andthattheaimshouldbetophaseoutsuchplantsinfavourofmoresustainablealternativesassoonaspossible.Thiscouldincludebioenergywithcarboncaptureandstoragebutonlyinascenariowhereviableandfunctioningcarboncaptureandstorageisinuse.Furthersubsidyshouldnotbegiventounabatedbiomass.Anyfuturesubsidiesshouldonlybeprovidedtocompanieswhichcanevidencetheuseoflocal,wastebiomassandnotcompaniesthatrelyonimportedbiomass.(Paragraph135)28.BioenergywithcarboncaptureandstoragehasyettobecommerciallydeployedintheUK.WehaveconcernsaboutwhetherbiomassfeedstockscanbescaledupsustainablytomeetdomesticandglobaldemandandwhetherBECCSfacilitieswillprovidevalueformoney.Toensuresufficientoversightofsustainabilitystandards,theUKneedstodevelopdomesticsuppliesoffeedstocks.WedonotopposetheuseofBECCSforpowerinprinciple,butfuturetaxpayersupportforBECCSmustbecontingenton:a)robust,transparentevidencethatthefulllifecycleemissionsfromBECCSfacilitiesintheUKarecarbonneutralwithinatimeframecompatiblewithourclimatetargets;and,b)detailedassessmentthatBECCSfacilitiesprovidevalueformoney.(Paragraph136)29.TheGovernmentwasduetopublishabiomassstrategylastyear,settingouttheroleofbiomassinhelpingtoachievetheGovernment’snetzerotarget,includingwhetherbiomasswouldbebestusedtogenerateelectricityorforotherpurposesTheGovernmentshouldpublishitsbiomassstrategywithoutdelayandsetout:a)theGovernment’sassessmentoffuturedemandforbiomassfeedstocksintheUKandglobally;b)theextenttowhichtheUKcanrelyondomesticbiomassfeedstockstomeetfuturedemandandmechanismstosupportdomesticbiomasssupply;andc)thetimeframeforscalingupthesupplyofdomesticbiomassfeedstocks.(Paragraph137)30.WeurgetheGovernmenttoensurethatthereisarobustcontingencyplaninplaceifBECCSprovesunviable,eitherintermsofitssustainabilityorefficiency.WeurgetheGovernmentnottorelyuponunproventechnologiesattheexpenseofothersimplerandcheaperapproaches,whichcouldbetakennow,suchasdeployingmeasuresto105Decarbonisationofthepowersectorreduceenergydemand.(Paragraph138)31.Hydrogenlookssettobeanimportantpartofadecarbonisedpowersystem,bothasasourceoflow-carbondispatchablepowertoreplacegasandasasourceofenergystoragewhichcantakeadvantageofexcesssupplyofrenewables.However,givensupplyconstraints,theGovernmentneedstodeterminethesectorsoftheeconomyinwhichuseofhydrogenwillbeprioritised.WerecommendthattheGovernmenttakesforwardtherecommendationsoftheClimateChangeCommitteetodevelopacross-sectoralinfrastructurestrategythatnarrowsthespaceforfuturehydrogenusesandfinalisethebusinessmodelsforhydrogenthisyear.(Paragraph151)32.Bluehydrogenmayhavevalueasatransitionalmeasurewhichbuildsamarketforhydrogenandprovidessupplyovertheshorterterm.However,excessrelianceonbluehydrogencouldleavetheUKexposedtovolatileinternationalgaspricesandriskincreasinggreenhousegasemissionsduetothethreatofmethaneleakage.Inresponsetothisreport,weaskthattheGovernmentsetsouthowitsplansforbluehydrogenwilladdressrecentevidencethathydrogenemissionsescapingfromgaspipelineshaveastrongerwarmingeffectintheatmospherethanpreviouslythought.Itshouldincludeinthatresponseanaccountofhowitwillensurethateffortstoconstrainandmonitormethaneleakageatpointofextraction,transportationandstoragearerobust.(Paragraph152)33.WhilsttheGovernment’scommitmenttodeliveringhydrogenstoragebusinessmodelsby2025iswelcome,itappearsthatthiscouldbetoolatetoallowthedevelopmentofhydrogenstorageprojectssothattheyareinoperationintimetomeettheGovernment’stargetfor10GWofhydrogenby2030,givenpossibleleadtimesofseventoeightyears.Inresponsetothisreport,theGovernmentshouldconfirmwhetheritstillbelievesthathydrogenstorageprojectscanbedeliveredby2030and,ifso,howthatwillbeachieved.(Paragraph153)34.Thedeploymentoflong-durationenergystorageisessentialtoensuringthatazero-carbonpowersystemcanoperate24/7,365daysayear.Theseprojectsarecapitalintensiveandfacebarrierstodeploymentduetoalackoflong-termmarketsignals.TheGovernment’s2024ambitiontodevelopappropriatepolicytoenableinvestmentinthesetechnologiesiswelcome,butweareconcernedthatthishasnotbeenmadeenoughofapolicypriority.(Paragraph158)35.WerecommendthattheGovernmentestablishesanappropriatepolicyframeworktosupportinvestmentdecisionsinlong-durationenergystoragethisyear,toenableprojectstobecompletedbytheendofthedecade.Thisincludessettingoutatargetrangeforlong-durationenergytechnologiesandputtinginplacearevenuestabilisationmechanism.WerecommendthattheGovernmentensuresthatthereisasufficientnumberofstaffwithintheDepartmentworkingonthiscrucialpolicyarea.Inresponsetothisreport,weaskthattheGovernmentsetsouthowmanystaffareworkingondevelopingthispolicyandhowthiscomparestootherteamssuchasthoseworkingoncivilnuclearenergy.(Paragraph159)36.Energyefficiencyisthequickestandmostcost-effectivewaytoreducegasdemandandlowerhouseholdenergybills.Ifsignificantstridesarenotmadetoreducedemand,itwillbecomeincreasinglychallengingandexpensivetodecarboniseDecarbonisationofthepowersector106theelectricitysystem.WecallontheGovernmenttobringforwardthe£6billionfundingpackageforenergyefficiencyallocatedfortheperiod2025to2028tonow.TheGovernmentshouldprioritisedeliveringalocallyco-ordinatedprogrammeofenergyefficiencyandhomeretrofit.Thisshouldbepairedwithacommunicationscampaignonthebenefitsofhomeimprovementsandfuelswitching.WerecommendthattheGovernmentusesnewpowersintheEnergyBilltourgentlyreformtheflawedEPCratingsystem,sothatitgivesamoreaccuratereflectionofoverallenergyuseandemissions,assoonastheBillisenacted.(Paragraph166)DeliveryriskstotheGovernment’s2035target37.Theplanningsystem,nationallyandlocallywithinEnglandandalsoinScotlandandWales,isamajorconstraintonthetimelydeliveryoflow-carbonenergyinfrastructure.Therearemanyreasonsforthis,someofwhichwedonotcoverinthisreport,andweacknowledgetheneedforeffectivecontrolswherejustified.Butweareinnodoubtthatstepswillneedtobetakentoacceleratetheplanningprocessforlow-carbonenergyinfrastructure.(Paragraph176)38.TheGovernmentshouldensurethatbodieswithintheplanningsystem(suchaslocalauthorities,thePlanningInspectorate,andtheMarineManagementOrganisation)areadequatelyresourcedtoprocessandcommentonapplicationsfaster.TheDepartmentforEnergySecurityandNetZeroshouldworkwiththeDepartmentforLevelling-Up,HousingandCommunities,aswellaslocalgovernmentandthedevolvedadministrations,toensurethattheplanningsystemembedsandgivesprioritytotheUK’slegallybindingnetzerotargetandtheUKGovernment’stargettodecarbonisepowerby2035.(Paragraph177)39.InDecember2020,theGovernmentconfirmedthattheNationalPolicyStatementsforEnergy,whichwerepublishedin2011,wouldneedtobeupdatedtoreflectourtransitionawayfromfossilfuelsandtowardscleaner,greenersourcesofenergy.Wearedisappointedthatnow,in2023,theGovernmenthasnotyetfinalisedthesestatements.TheGovernmentisconsultingonmaterialchangestothestatementswhichreflectrecentshiftsinGovernmentpolicy.Thesechangeswillalsobesubjecttoparliamentaryscrutiny.Duetothedelayinrevisingthesestatements,weurgetheGovernmenttomakesuretheremainingworkisdeliveredatpace.Infuture,revisionstotheNPSshouldtakeplaceinconjunctionwithchangestotheGovernment’sforthcomingdeliveryplan,sothatthetworemainaligned.(Paragraph178)40.Localcommunitieswhohostcriticalcleanenergyinfrastructureshouldbenefitfromdoingso.WecallonGovernmenttoworkwiththeCrownEstatetousetheupcominglicencingroundforoffshorewindintheCelticSeaasanopportunityforimprovingtheassessmentanddeliveryofsocialvaluetolocalcommunities,suchasinCornwall.(Paragraph179)41.Alackofnetworkcapacityanddelaystosecuringgridconnectionsaretogetherhamperingthedeliveryoflow-carbonpoweranddrivingpotentialinvestmentsoverseas.Fortoolong,transmissionanddistributionnetworkownershavebeenabletodelayoravoidthelevelofanticipatoryinvestmentrequiredtodeliveranetworkcapableofmeetingtheneedsofthecountry.Ofgem’sapproachtoagreeingfutureinvestmentinpreviousinvestmentroundshasnotbeenproactiveenough,107DecarbonisationofthepowersectorandfrequentchangestoGovernmentpolicyhaveincreasedinvestmentrisk.Together,thesystemhasfailedtodeliverwhatisrequired,andthatmustchange.(Paragraph186)42.WejoinmanyotherorganisationsfromacrossthesectorincallingonMinisters,Ofgemandnetworkownerstohelprecoverlostgroundbyacceleratinginvestmentinfuturegridcapacitynowaheadofneed.Theincreasingcostsassociatedwithturningoffgenerationsitesduetoalackoftransmissioncapacitymustbehalted.Investmentshouldbeconsideredtoincreasecapacitywhereitiscurrentlyinadequateandanticipatoryinvestmentshouldpreventthisfromhappeninginareasoffuturedevelopment,forexampleinCornwall.(Paragraph187)43.Therehasbeenaclearlackofstrategicplanningandcoordinationofenergyinfrastructureandnetworkupgrades.Afailuretoplanfromawholesystemperspectiverisksincreasingtheoverallcostsofthetransition.WewelcomethemorestrategicapproachemergingfollowingNationalGridESO’sHolisticNetworkDesignandOfgem’sAcceleratedStrategicTransmissionInvestment(ASTI)framework.WealsowelcomemeasuresincludedintheEnergyBilltoenablecompetitioninonshoreelectricitynetworksinGreatBritain,whichshouldbemadeahighprioritybytheGovernmentandOfgemonceenacted.(Paragraph188)44.WerecommendthatOfgemseestheAcceleratedStrategicTransmissionInvestment(ASTI)frameworkasastartingpointtoacceleratethedeliveryofthenecessarygridupgradesrequiredtomeettheGovernment’s2035target.Thisworkshouldcontinuebeyond2035toensureadequateoverallcapacityfordeliveringonthe2050netzerotarget.WesupporttherecommendationoftheClimateChangeCommitteefortheGovernmenttoestablishaMinister-ledinfrastructuredeliverygroup,advisedbytheElectricityNetworksCommissioner,toensurethatnetworkinfrastructurebuildistakenforwardatpace.ThisshouldbringtogetherseniorpartiesacrossrelevantGovernmentDepartments,aswellasOfgem,theScottishandWelshGovernments,NationalGridESOandassetowners,tomonitorprogressacrosstheinitiativesrequiredtoexpediteprogress.(Paragraph189)45.TheUK’s“firstcomefirstserved”approachtogridconnectionsisfailingtodeliverthevolumeofconnectionsrequired.Projectswhichmaybespeculativeorslow-movingriskbeingprioritisedoverthosethataremoreviable.WhilewewelcomeNationalGridESO’sfive-pointplantotacklequeuemanagementissuesatthetransmissionlevel,wedonotbelievethishasprovedsuccessfultodate.WerecommendthatOfgemallowsNationalGridESOtorequireprojectsalreadyinthequeuetomeetstrengthenedmilestones.Ifprojectsareunabletomeetthese,networkoperatorsshouldbeabletoprioritiseothermoreviableprojectsinthequeue.Inresponsetothisreport,weaskthatNationalGridESOexplainswhatstepsitistakingtoworkwiththeDistributionNetworkOperatorstostopprojectsthatwanttoconnecttothedistributionnetworkgettingstuckinthetransmissionqueue.WewouldwelcomedirectinterventionfromGovernmentontheseissuesifrequired.(Paragraph194)46.TheRIIO-ED1process,whichsettheamountnetworkoperatorscouldchargeenergybill-payersformakingupgradestothegridovertheperiod2015–2023,provedoverlygenerous.DistributionNetworkOperatorswereabletoeitherbuildDecarbonisationofthepowersector108moreinfrastructurethatisrewardedthroughtheRegulatedAssetValue,ornotspendonthatinfrastructureandkeepaproportionofunderspends.Giventhattechnologydeploymentcurvesarehardtoforecast,weunderstandOfgem’suseofuncertaintymechanismsforRIIO-ED2.Wewillbelookingtotheregulatortoensurethattheybettermanageriskandthatnetworkcompaniesbringforwardtherequiredinvestment.Theuncertaintymechanismswillneedtobeusedefficiently,beforecustomersseeproblems,particularlyiftheeconomicsofheatpumpsorelectricvehicleschangequickly.(Paragraph202)47.Werecommendthatwhenaneedforinvestmentinthedistributionnetworkbecomesclear,OfgemensurestheuncertaintymechanismsincludedintheRIIO-ED2frameworkareappliedefficiently.Shouldtheseproveinadequatetorespondtoarapidroll-outoflow-carbontechnologies,OfgemshouldtakeequivalentstepstoitsASTIframeworktoensurethatdistributionnetworksareanenablernotblockertonetzero.(Paragraph203)48.Weareconcernedbytherisksthatcustomersfacedifferentoutcomesindifferentregionsduetoalackofnationaldirectionsettingfordistributionnetworks.WerecommendthatOfgemrevisesitsapproachtotheplanningofdistributionnetworkstoonewhichismoreoutcomefocused.Ofgemshouldsettheminimumexpectationsthatnetworkusersshouldexpect,aswellasbestpractice.DistributionNetworkOperatorsshouldthenfindinnovativewaystomeetthesestandards.(Paragraph204)49.Regulatorysettlementsfornetworkownersmustdelivervalueformoneyforconsumers.DespiteimprovementsfromOfgemintacklingexcessiveprofitsmadebythesecompaniesinpreviouspricecontrolframeworks,weareconcernedthatnetworkownerscontinuetobeoverlyrewarded.Asymmetriesthroughouttheregulatoryprocessbetweennetworkcompaniesandotherstakeholders,includingconsumerrepresentatives,increasethisrisk.Greatervisibilityofnetworkperformanceisneededtodriveupstandardsandensurenetworksdeliveragainsttheirbusinessplans.(Paragraph205)50.WerecommendthatOfgemconsultsonhowbesttoaddresstheasymmetriesinresourcesandknowledgebetweennetworkcompaniesandotherstakeholders,suchasconsumergroups,whichinfluenceprocessessuchaspricecontrols.WerecommendthatOfgemintroducesamorerigorousannualperformanceprocessfornetworkowners,andthatthisinformationisgivenappropriatepublicitytoensureconsumerandparliamentaryengagement.(Paragraph206)51.NationalGridESO’smarketsforbalancingthesystemandaddressingconstraintscontinuetobedominatedbyfast-actinggasplants.Moreflexibleandresponsivelow-carbonassets,suchasbatteries,couldleadtogreatercompetitioninNationalGridESO’smarketsandoffermorecost-effectiveservices.WerecommendthatNationalGridESOopensupitsmarketstomoreparticipantsandthatitistransparentaboutthechoicesitmakeswhenselectingwhichtechnologieswillbeusedtobalancethesystem.WefurtherrecommendthatNationalGridESOreportsonthecarbonfootprintofallitsmarkets.Inresponsetothisreport,wealsoaskthatNationalGridESOsetsoutitstransitionplantoensurethatitsmarketsalignwiththeGovernment’stargettodecarbonisethepowersystemby2035.(Paragraph215)109Decarbonisationofthepowersector52.DespitewelcomeprogressbyNationalGridESOtodevelopandimplementnewinitiativestoharnessflexibility,thereisstillmoretobedonetoensurethatclearsignalsareprovidedregardingthelocation,durationandvalueoffutureconstraints.WerecommendthatNationalGridESOsendsstrongeridentifyingwhenandwhereconstraintsarelikelytooccur,theirvalueandduration.(Paragraph216)53.TobuildonthesuccessoftheDemandFlexibilityServiceandensurethatdemand-sideresponsecanbecomemainstream,theindustryneedstheopportunitytodomorelearningbydoing.Whilenecessarysystemreformstakeplacetocreateamoreenablingenvironmentfordemand-sideresponse,werecommendthatNationalGridESOandOfgemworkwithindustryondevelopingatransitionaldemand-sideresponseservicethatcansupportexistingday-to-daybalancingservices.(Paragraph217)54.Atpresent,flexibilitymarketsaredisjointedanddifficulttonavigate,impedingtheparticipationofsmallassetsandreducingthevalueofdistributedflexibility.WhileOfgemshouldbecommendedforitsproposalsforasingledigitalflexibilityplatform,thisshouldnotdistractfromnear-termactionsthatarerequiredtodriveimmediateprogress.WhileOfgemshouldbecommendedforitsproposalsforasingledigitalflexibilityplatform,thisshouldnotdistractfromnear-termactionsthatarerequiredtodriveimmediateprogress.WerecommendthatOfgemputspressureontheEnergyNetworkAssociationandDistributionNetworkOperatorstoensurefasterandmoreconsistentimplementationoftheOpenNetworksProgramme.(Paragraph218)55.Tounlockthepotentialrolethatflexibilitycanplayinbettersynchronisingsupplyanddemand,NationalGridESOwillneedtoimproveitsdigitalcapabilities.WerecommendthatNationalGridESOspeedsupprogressonmakingsureitsITupgradesmeanthatitcanhandleflexibilityfromassetssmallerthan1MWandreportstoParliamentonitsprogressinhittingthistarget.(Paragraph220)56.Infuture,dataandvisibilitywillbekeytoascertainingwhethernetworkreinforcementoranalternative,suchasprocuringflexibilityservices,wouldbemostcosteffectiveforconsumers.Buttherehasbeeninsufficientinvestmentinmonitoringcapabilityatlowvoltagestodate,resultinginpoorvisibilityofconnectedassetsandthestateofthedistributionnetworks.Itisalsounclearwhetheralldistributionoperatorsaremaximisingtheopportunitiesofasmarter,moreflexiblegrid.WerecommendfirmerinterventionfromOfgemonminimumvisibilitystandardsforDistributionNetworkOperators.WealsorecommendthatOfgemreviewswhetherithasrobustprocessesinplacetomonitorwhetherDistributionNetworkOperatorsaretakinga‘FlexibilityFirst’approachandmakingsufficientuseofsmartsolutions.(Paragraph223)57.Thecurrentregulatoryandmarketstructuresoftheretailsectorwillnotdeliveraconsumerexperiencethatcanadequatelysupportthetransitiontodecarbonisedpowersystem.WerecommendthattheGovernmentprioritisesthereformoftheretailmarketandthatitsupdatedEnergyRetailMarketStrategy:a)clearlysetsouttherolethatsupplierswillbeexpectedtoplayinthetransitiontoadecarbonisedpowersystemaswellasinterimmilestonestoachievethis;b)enablessupplierstoinnovateandbuildsophisticatedrelationshipswithcustomersthroughtheprovisionofabroadersetofenergyservices;Decarbonisationofthepowersector110c)allowssupplierstobefairlyrewardedforprovidingservicesthatenticecustomerstoshiftandreducedemand,inawaythatreflectstheadditionalrisksthatsupplierswillbetakingon;andd)removesbarriersthatpreventvulnerablecustomersfromaccessingthebenefitsthatthetransitionwilloffer.(Paragraph227)58.Weagreethatthewholesaleelectricitymarketarrangementsneedreformtohelpdecarbonisepowerinawaythatsecuressupplyandensuresthesystemcanfunctionefficiently,includingmorelocationalsignals.Inprinciple,wefindtheargumentforlocationalpricingappealing,butweareconcernedaboutitsdeliverabilityanditspotentialimpactoninvestorconfidence.TheGovernmentmustsatisfyitselfthatanyreformsitdoespursuedonotcreateaninvestmenthiatus,whichwouldputthe2035targetatrisk.(Paragraph237)59.WerecommendthattheGovernmentprovidesbeforetheendof2023aclearpathwayonhowwholesalemarketarrangementswillevolvefollowingitsconsultation.ThereareanumberofconstructivestepsthattheGovernmentcouldmaketotheexistingmarketstructureinthenearterm,whichwouldhelpittoprovidemoreeffectivesignalsonthetypeoflow-carbontechnologiesandservicestheUKneedstodecarbonisepower.Theoptimaldegreeoflocationalgranularityshouldweighthebenefitsagainstthelevelofmarketdisruption,andwhetherothermechanismscanachievesimilaroutcomes,withininvestmenttimeframes.Comprehensiveimpactassessmentsshouldbepublishedinduecourse.(Paragraph238)Theroleofinstitutions60.EventhoughweurgedtheGovernmenttopublishitsalreadyverydelayedStrategyandPolicyStatementforOfgembackinJuly2022,ithasstillnotmaterialised.WerecommendthatanexplicitdutytodeliveronthestatutorynetzerotargetisaddedtoOfgem’sremit.WereiterateourpreviouscallfortheGovernmenttopublishanupdatedStrategyandPolicyStatementforOfgemwhichprovidesaveryclearsenseofdirectiontotheregulatoronhowtomanagethepoliticalanddistributionaltrade-offsintrinsictoitsresponsibilities,aswellasacleardelineationofitsrolesandresponsibilities.(Paragraph240)61.TheFutureSystemOperator(FSO)isexpectedtoprovidestrategicoversightoftheplanningandcoordinationofthepowersystem,butthereisastillalackofclarityoveritsspecificroles,responsibilitiesandpowers,aswellashowitwillinteractwiththeGovernmentandOfgem.ItisvitalthattheFSOisadequatelyresourcedandthatthereissufficientaccountabilityandscrutinyofitswork.(Paragraph243)62.TheFutureSystemOperator(FSO)shouldbegrantedsufficientpowersandresourcestoeffectivelyplanandco-ordinatethetransformationoftheelectricitysystem.TheFSOshouldbegivenaclearnetzerodirectivewithinitsgovernancearrangements.Inresponsetothisreport,weaskthattheGovernmentconfirmswhetheritisontracktosetuptheFSObyorin2024andoutlinesitsplansforthedivisionofinstitutionalresponsibilitiesbetweenMinisters,OfgemandtheFSO.TheFSOshouldengagewith111DecarbonisationofthepowersectortheEnergySecurityandNetZeroCommitteeontheprogressitismakingtodeliveradecarbonisedpowersystemby2035andproactivelysharekeydecisions,performanceissuesandrelevantpolicyconcerns.(Paragraph244)Conclusion63.WhilehugestrideshavebeenmadebytheGovernmentandindustryoverthelastdecadetotackleemissionsinthepowersector,theUKmustcontinuetoaccelerateitsshiftawayfromfossilfuelstocleanenergy.However,asuiteofpolicyandregulatorybarriersareblockingprogresstoachievingtheGovernment’stargettodecarbonisethepowersystemby2035.Businesseswhichwanttodrivethetransitionforwardonthegroundaregettingcaughtinredtape.Theabsenceofanoverarchingdeliveryplanandlackofownershipofwholesystemcostshascreatedpolicysilosandsequencingproblems.Low-carbonprojectsarenowfacingdelaysofuptofifteenyearstoconnecttotheelectricitynetwork,aswellasacumbersomeplanningregime.TheGovernmenthaslaunchedanumberofwelcomeconsultationsacrossdifferentsectorsofthepowersystemwhichcouldleadtomuchneededpolicyreform,butaresolutefocusondeliveryisnowessential.TheGovernment’sstrategytodecarbonisethepowersectoralsoincludesnotableomissions.Theseinclude,butarenotlimitedto,policytodeployonshorewind,measurestoreduceenergydemand,supportforlong-durationenergystorage,adecisionontheuseofhydrogenacrosstheeconomyandclarityonwhereprivatefinancefornuclearenergyprojectswillcomefrom.(Paragraph245)64.TheUKinvestmentpropositionfortheelectricitysectorhasdeterioratedsincethelaunchofourinquiry.Theglobalraceforcapitalinlow-carbonprojectshasintensified.MeanwhiledevelopersofrenewablesprojectsintheUKareexperiencingsubstantialcostinflationandaresubjectedtoawindfalltaxlessgenerousthanthatoftheoilandgassector.Thesefactors,whicharecompoundedbypolicyandregulatorydelays,riskputtingtheviabilityofsomerenewableprojectsindanger.TheGovernmenthasyettosetoutacompetitiveoffertoindustrytoensurethattheUKcancontinuetoattractinvestmentandmaximisetheeconomicopportunitiesofthetransitiontoadecarbonisedpowersystem.Thetimetodosoislimited.(Paragraph246)65.Toaddressthedeliveryriskstothe2035target,theGovernmentwillneedtoensurethatplanningandenvironmentalauthoritiesareproperlyresourced,thatplanningguidanceisalignedwithitsdecarbonisationgoalsandthattheprocessisstreamlined.Ofgemneedstoapproveinvestmentintheelectricitynetworksaheadofneedandnetworkownersneedtodeliverontheirbusinessplans.Theprocesstosecuringagridconnectionmustbeoverhauled.Demand-sideflexibilityneedstobetreatedasanequalpartnertosupplyandcustomers,whoarepayingforallthisnewinfrastructure,mustbeattheheartofthetransition.Thiswillonlybeachievedwithimprovedmarketsignalstorewardflexibleservicesandreformoftheenergyretailsector.OfgemandtheFutureSystemOperatorshouldbegivencleardutiestodeliveronnetzero.(Paragraph247)Decarbonisationofthepowersector112FormalminutesTuesday25April2023Memberspresent:DarrenJones,intheChairMarkJenkinsonIanLaveryMarkPawseyDraftReport(Decarbonisationofthepowersector),proposedbytheChair,broughtupandread.Ordered,ThatthedraftReportbereadasecondtime,paragraphbyparagraph.Paragraphs1to247readandagreedto.Summaryagreedto.Resolved,ThattheReportbetheEleventhReportoftheCommitteetotheHouse.Ordered,ThattheChairmaketheReporttotheHouse.Ordered,ThatembargoedcopiesoftheReportbemadeavailable,inaccordancewiththeprovisionsofStandingOrderNo.134.[AdjournedtillTuesday9Mayat2:30pm]113DecarbonisationofthepowersectorWitnessesThefollowingwitnessesgaveevidence.TranscriptscanbeviewedontheinquirypublicationspageoftheCommittee’swebsite.Tuesday1November2022JamesRichardson,ChiefEconomist,NationalInfrastructureCommission;GuyNewey,ChiefExecutiveOfficer,EnergySystemsCatapult;RobertBuckley,HeadofRelationshipDevelopment,CornwallInsight;DrDavidJoffe,HeadofNetZero,ClimateChangeCommitteeQ1–38DanMcGrail,ChiefExecutive,RenewableUK;ChrisHewett,ChiefExecutive,SolarEnergyUK;TomGlover,UKCountryChair,RWEGeneration;RichardArnold,PolicyDirector,MarineEnergyCouncilQ39–72Tuesday22November2022MatthewWilliamson,UKHeadofHydrogen,BritishPetroleum(bp);CatherineRaw,ManagingDirector,SSEThermal;OliviaPowis,HeadofUKOffice,TheCarbonCaptureandStorageAssociation;PhilMacDonald,ChiefOperatingOfficer,EmberQ73–136WillGardiner,GroupChiefExecutiveOfficer,Drax;DrDanielQuiggin,SeniorResearchFellow,ChathamHouse;DrNinaSkorupskaCBE,ChiefExecutive,REA;SandyHore-Ruthven,ChiefExecutiveOfficer,SevernWyeEnergyAgencyQ137–195Tuesday24January2023SarahHonan,PolicyManager,TheAssociationforDecentralisedEnergy;MerlinHyman,ChiefExecutive,Regen(ElectricityStorageNetwork);WillMezzullo,HeadofHydrogen,Centrica;DrJonathanRadcliffe,ReaderinEnergySystemsandPolicy,UniversityofBirminghamQ196–227DrPaulDorfman,Chair,NuclearConsultingGroup(NCG)andAssociateFellow,SciencePolicyResearchUnit(SPRU),SussexEnergyGroup,UniversityofSussex;NickLawson,ChiefExecutive,OceanWall;DameSueIon;LincolnHill,DirectorofPolicyandPublicAffairs,NuclearIndustryAssociationQ228–270Tuesday7March2023ChrisBurchell,ManagingDirector,ScottishandSouthernElectricityNetworks(SSEN)Distribution;AliceDelahunty,President,NationalGridElectricityTransmission;BasilScarsella,ChiefExecutive,UKPowerNetworks(UKPN);LawrenceSlade,ChiefExecutive,EnergyNetworksAssociation(ENA)Q271–339KayteO’Neill,DirectorofTransformation,NationalGridElectricitySystemOperator(ESO);ClaireDykta,HeadofMarkets,NationalGridElectricitySystemOperator(ESO);AkshayKaul,DirectorofInfrastructureandSecurityofSupply,Ofgem;RebeccaBarnett,InterimDirectorofNetworks,OfgemQ340–404Tuesday21March2023AdamBell,HeadofPolicy,Stonehaven;AdamBerman,DeputyDirectorofPolicy,EnergyUK;RachelFletcher,DirectorofRegulationandEconomics,OctopusEnergy;LauraSandysCBE,Chair,EnergyDigitalisationTaskforceQ405–431Decarbonisationofthepowersector114PublishedwrittenevidenceThefollowingwrittenevidencewasreceivedandcanbeviewedontheinquirypublicationspageoftheCommittee’swebsite.DPSnumbersaregeneratedbytheevidenceprocessingsystemandsomaynotbecomplete.1AbzedPoliticalandMediaRelations(DPS0076)2Ambler,Tim(SeniorFellow,AdamSmithInstitute)(DPS0096)3Ambler,Tim(SeniorFellow,AdamSmithInstitute)(DPS0093)4AssociationforDecentralisedEnergy(DPS0040)5AssociationforRenewableEnergy&CleanTechnology(REA)(DPS0055)6BPplc(DPS0089)7BREGroup(DPS0079)8Barnham,Keith(EmeritusProfessorofPhysicsandDistinguishedResearchFellow,ImperialCollegeLondon)(DPS0099)9BiomassUK(DPS0057)10Boyle,M(DPS0034)11BrightBlue(DPS0003)12CadentGas(DPS0070)13CarbonCaptureandStorageAssociation(DPS0061)14CentralAssociationofAgriculturalValuers(CAAV)(DPS0029)15CentreforResearchintoEnergyDemandSolutions(DPS0031)16CutCarbonNotForests;Biofuelwatch;SouthernEnvironmentalLawCenter;DogwoodAlliance;Stand.earth;andNaturalResourcesDefenseCouncil(DPS0022)17DepartmentforBusiness,EnergyandIndustrialStrategy(DPS0016)18Drax(DPS0028)19E.ON(DPS0082)20EDF(DPS0059)21EDL(DPS0042)22Eaton(DPS0026)23EnergyLocalLtdCIC(DPS0017)24EnergyNetworksAssociation(DPS0046)25EnergySavingTrust(DPS0074)26EnergySystemsCatapult(DPS0024)27EnergyUK(DPS0023)28Enertechnos(DPS0045)29EngineeringConstructionIndustryTrainingBoard(ECITB)(DPS0035)30Gibbins,Jon(Director,UKCCSResearchCentre)(DPS0085)31GlennmontPartners(DPS0039)32Goaman,Dr(DPS0008)115Decarbonisationofthepowersector33GreenAlliance(DPS0067)34Green,ProfessorRichard(ProfessorofSustainableEnergyBusiness,ImperialCollegeBusinessSchool)(DPS0062)35Harrington,DrAlexandra(LecturerinLaw,LancasterUniversityLawSchool)(DPS0012)36Harrison,MrChris(KnowledgeExchangeFellow(EarlyCareerResearcher),UniversityofBirmingham);andDrJonathanRadcliffe(Reader,HeadofEnergySystemsandPolicyAnalysisGroup,UniversityofBirmingham)(DPS0018)37HighviewPower(DPS0069)38HitachiEnergy(DPS0020)39Hogan,MrsHelen(FounderMember,CampaignAgainstRuralExploitation)(DPS0015)40IndependentRenewableEnergyGeneratorsGroup(DPS0054)41InternationalHydropowerAssociation(DPS0092)42Jacobs(DPS0021)43JohnsonMatthey(DPS0009)44Lightsourcebp(DPS0044)45LocalGovernmentAssociation(LGA)(DPS0019)46Lynch,David(DPS0032)47MCSCharitableFoundation(DPS0010)48MarineEnergyCouncil(DPS0056)49Moffatt,MrClive(ManagingConsultant,MoffattAssociates)(DPS0001)50NNBGenerationCompany(SZC)Limited(DPS0053)51NationalGrid(DPS0086)52NationalGridElectricitySystemOperator(DPS0051)53Newcleo(DPS0094)54NuclearConsultingGroup(DPS0095)55NuclearIndustryAssociation(DPS0098)56NuclearIndustryAssociation(DPS0097)57NuclearIndustryAssociation(DPS0064)58NuclearInstitute(DPS0033)59ORECatapult(DPS0100)60OctopusEnergy(DPS0072)61Onward(DPS0002)62Orsted(DPS0073)63Pearce,MrRay(DPS0066)64Pearson,MrsRosie(DPS0005)65Petersen,(DPS0014)66Porter,Kathryn(Consultant,Watt-Logic)(DPS0011)67RES(DPS0081)Decarbonisationofthepowersector11668RSPBUK,TheWildlifeTrusts,WWFUK,FriendsoftheEarth,Greenpeace,WildlifeandCountrysideLink,SoilAssociation,Sustain,FeedbackGlobal,Fern,Biofuelwatch,CutCarbonNotForests,NRDC,SouthernEnvironmentalLawCenter,DogwoodAlliance(DPS0091)69RWE(DPS0088)70Regen(DPS0071)71RenewbleUK(DPS0004)72Ridley,SirAdam(DPS0049)73Rolls-RoyceSMR(DPS0006)74RoyalDanishEmbassyintheUK(DPS0077)75SCI(DPS0038)76SGN(DPS0052)77SSEplc(DPS0087)78SayNotoSunnicaCommunityActionGroupLtd(DPS0036)79ScottishPower(DPS0090)80SmarterGridSolutions(DPS0043)81Stacey,John(DPS0080)82StopSizewellC;TogetherAgainstSizewellC;PeopleagainstWylfaB;BlackwateragainstNewNuclearGroup;StopHinkleyCampaign;LowLevelRadiationandHealthConference;FriendsoftheEarthNuclearNetwork;WestCumbria&NorthLakesFriendsoftheEarth;AyrshireRadiationMonitoringGroup;No2nuclearpower;andNuclearFreeLocalAuthorities(DPS0075)83ThamesWater(DPS0084)84TheIntegratedDevelopmentofLow-CarbonEnergySystems(IDLES)Programme,ImperialCollegeLondon(DPS0048)85TheRSPB(DPS0050)86TheRoyalSociety(DPS0083)87TheWoodRecyclers’Association(WRA)(DPS0065)88ThermalStorageUK(DPS0037)89TokamakEnergyLtd(DPS0060)90UK100(DPS0047)91Uffen,MrMJ(Retired,n/a)(DPS0058)92UrencoLimited(DPS0013)93WSPUK(DPS0078)94WWF(DPS0063)95WhitetailCleanEnergy(DPS0068)117DecarbonisationofthepowersectorListofReportsfromtheCommitteeduringthecurrentParliamentAllpublicationsfromtheCommitteeareavailableonthepublicationspageoftheCommittee’swebsite.Session2022–23NumberTitleReference1stPre-appointmenthearingwiththeGovernment’spreferredcandidateforChairoftheCompetitionandMarketsAuthorityHC5232ndDraftLegislativeReform(ProvisionofInformationetc.relatingtodisabilities)Order2022HC5223rdEnergypricingandthefutureoftheEnergyMarketHC2364thPost-pandemiceconomicgrowth:stateaidandpost-BrexitcompetitionpolicyHC7595thThesemiconductorindustryintheUKHC2916thThesemiconductorindustryintheUK:GovernmentresponseHC11157thRoyalMailHC10458thMemorandumofUnderstandingonscrutinyoftheInvestmentSecurityUnitHC12359thUKplcHC112010thPost-pandemiceconomicgrowth:UKlabourmarketsHC3061stSpecialDecarbonisingheatinhomes:GovernmentResponsetotheCommittee’sSeventhReportof2021–22HC2082ndSpecialEnergypricingandthefutureoftheenergymarket:ResponsestotheCommittee’sThirdReportofSession2022–23HC7613rdSpecialPostpandemiceconomicgrowth:Stateaidandpost-Brexitcompetitionpolicy:ResponsestotheCommittee’sFourthReportofSession2022–23HC1078Session2021–22NumberTitleReference1stPost-pandemiceconomicgrowth:IndustrialpolicyintheUKHC3852ndClimateAssemblyUK:wherearewenow?HC5463rdPost-pandemiceconomicgrowth:LevellingupHC5664thLibertySteelandthefutureoftheUKsteelIndustryHC8215thPre-legislativescrutiny:draftDownstreamOilResilienceBillHC8206thPre-appointmenthearingoftheGovernment’spreferredcandidateforChairoftheFinancialReportingCouncilHC1079Decarbonisationofthepowersector118NumberTitleReference7thDecarbonisingheatinhomesHC10388thPostOfficeandHorizon-Compensation:interimreportHC11299thRevised(Draft)NationalPolicyStatementforEnergyHC115110thDraftLegislativeReform(RenewalofNationalRadioMultiplexLicences)Order2022HC11991stSpecialDecarbonisingheatinhomes:GovernmentResponsetotheCommittee’sSeventhReportof2021–22HC2082ndSpecialNetZeroandUNClimateSummits:ScrutinyofPreparationsforCOP26—interimreport:GovernmentResponsetotheCommittee’sThirdReportofSession2019–21HC1203rdSpecialUyghurforcedlabourinXinjiangandUKvaluechains:GovernmentResponsetotheCommittee’sFifthReportofSession2019–21HC2414thSpecialMineworkers’PensionScheme:GovernmentResponsetotheCommittee’sSixthReportofSession2019–21HC3865thSpecialClimateAssemblyUK:wherearewenow?:GovernmentResponsetotheCommittee’sSecondReportHC6806thSpecialPost-pandemiceconomicgrowth:IndustrialpolicyintheUK:GovernmentResponsetotheCommittee’sFirstReportHC717thSpecialPost-pandemiceconomicgrowth:Levellingup:GovernmentResponsetotheCommittee’sThirdReportHC9248thSpecialLibertySteelandtheFutureoftheUKSteelIndustry:GovernmentResponsetotheCommittee’sFourthReportHC11239thSpecialPre-legislativescrutiny:draftDownstreamOilResilienceBill.GovernmentResponsetotheCommittee’sFifthReportHC117710thSpecialPostOfficeandHorizon–Compensation:interimreport.GovernmentResponsetotheCommittee’sEighthReportHC1267Session2019–21NumberTitleReference1stMyBEISinquiry:proposalsfromthepublicHC6122ndTheimpactofCoronavirusonbusinessesandworkers:interimpre-BudgetreportHC12643rdNetZeroandUNClimateSummits:ScrutinyofPreparationsforCOP26–interimreportHC12654thPre-appointmenthearingwiththeGovernment’spreferredcandidatefortheChairoftheRegulatoryPolicyCommitteHC12715thUyghurforcedlabourinXinjiangandUKvaluechainsHC12726thMineworkers’PensionSchemeHC13461stSpecialAutomationandthefutureofwork:GovernmentResponsetotheCommittee’sTwenty-thirdReportofSession2017–19HC240119DecarbonisationofthepowersectorNumberTitleReference2ndSpecialFutureofthePostOfficeNetwork:GovernmentResponsetotheCommittee’sFirstReportofSession2019HC3823rdSpecialSafetyofElectricalGoodsintheUK:follow-up:GovernmentResponsetotheCommittee’ssecondreportofSession2019HC4944thSpecialCOP26:Principlesandpriorities—aPOSTsurveyofexpertviewsHC1000

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