The steps to make Britain a clean energy superpower

Energy touches every part of society. As we emerge from an energy crisis that has impacted almost every home, business and public service in the country, there is a clear recognition that energy matters.

The energy industry welcomes the ambition shown by the Labour Government to make Britain a clean energy superpower which will underpin economic growth. This is a call to work with the private sector to jointly deliver on the energy mission.

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• Executive summary
• Priority 1: Achieving clean power by 2030
• Priority 2: Affordable energy bills and a sustainable retail energy market 
• Priority 3: Warmer homes and cleaner transport
• Priority 4: A mission-led Government set up to succeed
• Priority 5: Closer UK-EU cooperation on Energy & Climate
• Appendix

Executive summary

Energy touches every part of society. As we emerge from an energy crisis that has impacted almost every home, business and public service in the country, there is a clear recognition that energy matters.

The energy industry welcomes the ambition shown by the Labour Government to make Britain a clean energy superpower which will underpin economic growth. This is a call to work with the private sector to jointly deliver on the energy mission.

In Energy Matters: People, Power, Prosperity, we set out proposals for partnership between Government and the industry to increase investment, transform the economy and deliver the change society needs by pushing forward on the transformation of our energy system. 

We see these proposals as bringing the best of the private sector together with the best of government to benefit the country: our innovation, pace, and capital alongside stable regulation and markets, strategic vision, and targeted support.

The energy sector has huge ambitions and wants to work closely with the Government to achieve its targets in the best interests of society. There are five workstreams which departments must urgently address to deliver on the manifesto commitments. These are:

1. Achieving clean power by 2030
2. Affordable energy bills and a sustainable retail market
3. Warmer homes and cleaner transport
4. A mission-led Government set up to succeed
5. Closer UK-EU cooperation on energy and climate

A fundamental part of the ambition to make Britain a clean energy superpower hinges on the ability to deliver a decarbonised grid by 2030. To achieve this, a step change in how projects are deployed will be required. The Government needs to urgently address the barriers to the rapid expansion on clean electricity so the private sector can deliver.

Immediate decisions will need to be made, for instance, on the size of the Contracts for Difference (CfD) budget and wider reforms, alongside financing decisions for Sizewell C, hydrogen, long duration energy storage (LDES) and carbon capture, utilisation and storage (CCUS). The delay on these decisions is holding back significant investment in projects up and down the country which will be vital to moving towards a 2030 clean power target.

Alongside decisions on generation, the Government should consider the enduring impact of high energy bills on households and businesses. While wholesale prices have reduced in the first half of 2024, they are likely to increase later this year and remain high for the rest of the decade.^[1] The Government will need to work closely with the energy industry to ensure customers are supported going into this coming winter and the next.

Together, Government and industry should look seriously at rebalancing policy costs (which could include doubling the Warm Home Discount this winter) alongside other targeted measures and retail market reform. The energy industry has stepped up to support customers over the last few years, but the issue of debt is too large for the sector to solve on its own.

A cross-departmental project will be an important step in making key data available for Government and industry support packages to be targeted for the most vulnerable. This project will be key to implementing any sustainable support to address the challenge of affordability.

We welcome the acknowledgment from Government that the grid is fast becoming a significant blocker for economic growth and the way we manage the connections process needs to drastically change. There are several steps to speeding up this process as outlined in the document, but as immediate priorities the Government should commission the National Energy System Operator (NESO) to develop the Strategic Spatial Energy Plan (SSEP), develop principles for the connection process in line with the SSEP and instigate an immediate review of workstreams related to locational signals.

The Government has rightly recognised that the planning system is one of the key blockers within the economy that must be addressed. We welcome the quick decisions the Chancellor has already signalled on planning reforms, and look forward to working at pace to implement these changes.

Each section in this briefing focuses on the practical solutions that can be implemented relatively easily, or on those which are essential to rapid progressing the amount of clean energy from Great Britain in the most cost-effective way for consumers.

At the end of this briefing is a complete list of policy asks for the first year of the new Government.

To discuss this briefing contact Energy UK’s Deputy Director of External Affairs, Alexander Gray, at Alexander.Gray@energy-uk.org.uk.

[1] Cornwall Insight (2024), Wholesale price forecast

Priority 1: Achieving clean power by 2030

Max out the Contracts for Difference allocation rounds

Achieving a clean power system by 2030 will require an unprecedented buildout of low-carbon generation, especially offshore wind.

Only Allocation Round 6 (AR6) later in 2024, AR7 (in 2025) and AR8 (in 2026) are likely to contribute to the energy generation the country will have by 2030 because of the length of time it takes to deliver projects. 

The current budget of around £800 million for offshore wind in AR6 is likely to only procure about 5 gigawatts (GW) at most – but increasing the budget to £1.5 billion could deliver a total of 10GW.^[1],[2] This change must be made in the first few days of the new Government. Despite a budget increase, the Contracts for Difference (CfD) mechanism remains highly effective at protecting customers by hedging against rising gas and carbon prices. This shields customers from market volatility and provides price stability – all while being funded off the balance sheet, which means it doesn’t directly impact public finances.

The Government’s Manifesto stated ambitions to achieve 55GW of offshore wind by 2030 up from around 15GW of capacity today.^[3] This target is significant and shows that it’s even more important to ensure the allocation round budgets and prices are appropriate. Currently, even with an increased AR6 budget, there will be an 18GW shortfall by 2030 – which is more than twice the offshore capacity awarded in any previous auction. Larger budgets and market-reflective reference prices will be needed to secure this capacity.^[4]

The Contracts for Difference (CfD) mechanism is the gold standard and will remain the main way to deliver renewables, especially offshore wind. To increase its effectiveness, however, immediate action must include:

• Setting multi-year allocation schedules
• Increasing contract lengths from 15 to 20 years
• Adopting market-reflective reference prices 
• Redesigning auctions from AR8 onwards to consider hurdle rates/REMA proposals 

Reaching a 2030 clean power system at the lowest cost

Headline CfD prices are higher than they should be, giving the impression that renewables are more expensive than they actually are. This is driven by CfD reference prices that are significantly lower than independent market forecasts. 

The result is that each megawatt (MW) procured requires more budget than it needs to. This means fewer projects will be successful in an auction, and that successful projects appear disproportionately expensive for consumers. 

The Department for Energy Security and Net Zero (DESNZ) must move away from a narrow view of CfD prices. Adopting a more reflective market reference price will lower headline costs, and lead to higher capacity procured through each auction. The Government has provided over £40 billion of financial support directly to energy bills since 2022, due in most part to the high and unpredictable prices of international gas imports for power and heating. The country cannot afford to under-procure renewables, which will displace these imports, and rely on volatile fossil fuel prices again.^[5]

CfDs have long focused on procuring renewables at the lowest cost. Reaching the 2030 target will involve procuring capacity at the lowest available cost. This will be crucial for energy security and unlocking the economic opportunities of the sector, enabling access to clean energy and economic growth.

Building flexibility to support the increase in low-carbon energy

By 2030, the majority of our electricity will be sourced from low-carbon generation, even as demand rises due to the growing electrification of transport and heating systems.^[6] Flexible technologies will also be crucial in changing how we use energy, creating a more balanced system and reducing the overall system costs to benefit all customers.

As we roll out significant volumes of renewables, it will be critical to build a variety of flexible assets, such as hydrogen power and energy storage. A decarbonised power system is achievable, but small amounts of unabated gas will likely still be necessary beyond 2030 due to the costs of eliminating the final few emissions. This is in line with the UK’s carbon budgets, which includes a small amount of unabated gas in the least-cost pathway to Net Zero.^[7]

System pathways will have to include significant amounts of technologies which will remove, or produce negative emissions, such as gas with Carbon Capture and Storage (CCUS) or bioenergy with CCUS (BECCS). With this, immediate decisions will be required on CCUS track 1 before summer recess, in addition to track 2 and track 1 expansion projects.^[8] 

In addition, no pumped hydro storage has been built in the UK for 40 years, and new forms of long-duration energy storage are struggling to come to market. To enable upgrades to existing sites and the development of new sites for a whole range of large-scale energy storage projects, the Government must introduce the proposed cap and floor mechanism. 

These workstreams are ongoing, with existing consultations and processes that should be continued, not re-imagined.

Urgently secure the future for Britain’s nuclear power

Renewable energy will need to be complemented by low-carbon dispatchable generation, such as nuclear or biomass. Nuclear power, for instance, features in all the most cost-effective pathways to Net Zero and creates a significant number of jobs within the region it is built but also across the country.

The current target of 24GW is ambitious and will require a concrete nuclear strategic plan for delivery, including life extensions.^[9] The final investment decision for Sizewell C must be made urgently.

New nuclear technologies, such as small and advanced nuclear reactors may have an important role to play in the long-term. The Government should act swiftly to finalise the policy frameworks under development that can facilitate the investment needed. 

Decisions, for example, on whether technologies will be from a single supplier or multiple suppliers, what sites SMRs should be in and what financial models will be used will need to be urgently made so vendors can make decisions on whether and when to take the next steps towards deploying SMRs. 

Moving faster on transmission

The connections queue has grown significantly in recent years, reaching over 700GW.[10] This is almost four times as much power capacity as we need to decarbonise and connection timelines can be as long as 14 years. 

Work is underway to reform transmission network delivery through the Connections Action Plan and Transmission Acceleration Action Plan to move toward a ‘first ready, first connected’ regime. This process could move faster and go further to resolve the backlog. 

The new Government should formally commission National Energy System Operator (NESO) to develop a Strategic Spatial Energy Plan (SSEP), ensuring the delivery of the first SSEP in 2024. 

The new Government should also instigate an immediate review to coordinate workstreams (SSEP, Centralised Strategic Network Plan, Review of Electricity Market Arrangements, energy code reform etc.) to ensure consistency in locational investment signals.

The ‘first ready, first connected’ regime is expected to go live in January 2025 How it will evolve alongside the SSEP and the impact on investment is unclear. The new Government should work with Ofgem to develop the principles of the connection process in line with SSEP with consideration of ongoing changes to markets, network charging, and other reforms.

Tackling the remaining barriers to grid expansion

Significant barriers remain to the expansion of the electricity network at the distribution level. Tackling this barrier is crucial to allow the private sector to deliver projects faster and drive economic growth.

The new Government should direct Ofgem to obligate the Distribution Network Operators (DNOs) to create a standardised system for applying for a new connection at distribution level, facilitated by the Energy Networks Association (ENA). This would include standardisation of the administrative processes and associated fees DNOs charge connecting parties at each stage of the process. 

Ofgem should also be tasked with reviewing DNO Guaranteed Standards of Performance to incorporate existing connections and create required response times at each stage of the grid connection process. This would allow businesses to know when to expect information on the cost and process for connecting generation or demand, and to seek alternatives where upgrades are too costly/complex. Where such standards are missed, enforcement action should be considered.

DESNZ should closely follow the National Infrastructure Commission (NIC) Review of Electricity Distribution, implementing recommendations in a timely manner. This will impact new investment in the UK, including connection of data centres, manufacturing facilities, and housing developments, as well as impacting the pace and overall cost-efficiency of decarbonisation of power, heat and transport, reducing costs for consumers if delivered in a coordinated strategic approach.

The scale of network infrastructure build needed to reach 2030, and the broader Net Zero target, will be significant. Delivery will incur costs, even as the green economy is overall net-positive for the country, so the Government will need to continue to review the approach to funding public infrastructure to make sure it is good value and makes the best use of private capital.

To foster public support for network build-out, the new Government must rapidly engage with the ENA and NESO on public-facing work and align on a new public awareness campaign promoting the benefits of network infrastructure build out. The campaign must be well resourced, and coordinated, and recognise the crucial role of energy suppliers in engaging with people and learn the lessons of previous public awareness campaigns. 

Alongside the public campaign, wider clarification for industry of what a 2030 timeline would mean for grid investment and buildout would be welcome.

Removing planning barriers

Planning is one of the key barriers holding back the rapid decarbonisation of both the power sector and economy. We welcome the early statement by the Chancellor focused on reforming some planning matters, including the de-facto ban on onshore wind and regular updates to the various planning statements. We look forward to working with the Government to urgently address some the matters highlighted here.

There are several further steps the Government could make to achieve its clean energy mission and reform the planning system.

The Government should seek to update the National Policy Statements (NPS) to support grid infrastructure, accelerate the review of land rights and consenting processes for network infrastructure, and ensure it is included in the NSIP regime. There should be regular reviews of the NPS to ensure that it is updated in line with Government targets and technological development. 

Immediately reviewing the Strategy and Policy Statement for Energy Policy will help provide direction for investors, ensuring that Ofgem and/or NESO are directed on how to prioritise workstreams and deliver clear long-term outcomes. For example, resolving issues where the statutory duty on Net Zero technically conflicts with competition if certain technologies are given preferential treatment. 

A lot of decisions do come down to skills, and it is vital that the extra capacity in planning departments as outlined by the Chancellor is in place as soon as possible. 

A mission-led Government focused on energy as a top priority must ensure that energy infrastructure consenting timelines are sped up, and ensure timeframes associated with NSIPs reflect the Government’s decarbonisation targets. 

Introducing a statutory obligation for environmental regulators in England to make decisions on environmental permitting within six months will help to cut delays in developing low-carbon generation for NSIPs consenting.

Priority 2: Affordable energy bills and a sustainable retail energy market 

Reducing energy bills in an era of high wholesale prices

The Government has committed to lowering energy bills.^[11] While wholesale energy costs have fallen significantly since the peak of the gas crisis, markets remain volatile and prices are due to increase by the end of 2024. Since the crisis, prices remain 15% higher than pre-crisis (as at July 2024) and are forecast to be 30% higher next year.^[12]

Independent analysis shows that wholesale energy prices are unlikely to decrease substantially over the next few years.[13] This analysis is focused on household impact, but British industry and public services are also hit with higher energy bills. 

More immediately for households, energy bills are expected to increase in October 2024, and with household energy debt now standing at over £3 billion (likely a significant underestimate), resilience to future shocks is low.^[14] This debt is socialised among suppliers and ultimately ends up on energy bills which disproportionately affects the most vulnerable households.

The quickest way to decouple gas from electricity prices is to rapidly increase homegrown renewables in line with the 2030 clean power target. The lower cost of renewables will filter through to energy bills for public services, industry and homes, but is still unlikely to bring bills down substantially until the early 2030s. 

There is a clear need to bring down energy bills with targeted support for the most vulnerable. The most pragmatic way to do so for households is to fund some policy costs from Government spending, spread any remaining policy costs on bills, and reform and increase targeted support for vulnerable households.

Improving targeted support for the most vulnerable households

The introduction of short-term measures during the energy crisis was crucial to ensure households across the UK were supported. While short-term measures may provide some relief, they are insufficient to address the root of the problem. There is a clear need for longer-term work on targeted support to specifically protect vulnerable households from energy price volatility.

The current support mechanisms – universal support and enhanced support using pre-existing mechanisms – are inadequate, either offering poor value for money or failing to reach all those at risk from price increases. A new, targeted approach is crucial to manage fiscal risks effectively and ensure efficient aid distribution.

The new Government must urgently launch a new initiative which leverages government and industry data on household income and energy needs to develop a new targeted support mechanism. This programme should be developed and implemented by winter 2025 and will require a dedicated Director General to coordinate efforts across multiple departments (DESNZ/HMT/DWP/HMRC).

This work is essential to ensuring that Government has the means to protect the households that need it from high prices (potentially including some transitional costs of the energy transition), without creating unaffordable liabilities for HMT.

This long-term approach is essential to safeguard households from energy price volatility and maintain fiscal responsibility. Implementing a targeted support program will ensure that aid is distributed efficiently and effectively, addressing the needs of those most at risk while managing fiscal risks prudently.

A fairer way to spread policy costs

Currently, policy costs on domestic energy bills amount to approximately £5 billion per year.^[15] These costs are regressive, and disproportionately affect poorer households the most.

To reduce energy bills, the new Government must reallocate the funding for policy costs from domestic bills to Government spending. This reallocation should prioritise either funding the Renewables Obligation (RO) and Feed-in-Tariffs (FiTs) at an annual cost of £3 billion or supporting the Energy Company Obligation (ECO) and Great British Insulation Scheme (GBIS) at a cost of £1.5 billion.^[16]

If reallocation is not feasible, a rebate reflecting the full amount of these schemes should be provided. It is crucial that this transition is handled carefully to ensure that the operation of ECO and GBIS is not disrupted.

For any policy costs remaining on bills, a fairer distribution can be achieved by implementing a rebalancing levy which would see the remaining costs shifted from electricity bills to gas bills, aiming for a ratio of electricity to gas prices of around 3:1. This adjustment ensures that low-carbon technologies become more cost-effective compared to fossil fuel alternatives.

Improving short-term financial support for households

The new Government will need to address affordability and energy bills. As mentioned above, reallocating policy costs from domestic energy bills to Government spending and rebalancing remaining costs from electricity to gas will leave households with lower bills in most cases. However, for many, bills will remain unaffordable.

The most practical solution, which could be introduced this autumn, is to reform the Warm Home Discount (WHD) while the Government develops the data needed for targeted support. Currently, the WHD provides £150 per year, which is lower than what the average household pays in policy costs. To offer adequate protection, this amount should be at least double for vulnerable households, and extended to more in a tiered system. If the Government funds £1.5 billion of policy costs, this increase could be achieved without raising the average household’s bill.^[17]

Combining an expanded WHD with rebalanced policy costs can be presented as a retail offer to households, showing modest bill reductions early in the parliamentary terms. Households with electric heating could save up £400 per year, or up to £550 for those eligible for WHD. This offer should also include a commitment to work with British industry and businesses to simplify and increase transparency in the energy market.

These measures will provide immediate relief, promote low-carbon technologies, and support economic stability. Investing in electrified heating and improving home energy efficiency not only supports decarbonisation but also yields substantial social, economic, and health benefits.

Putting the smart meter programme back on track

Smart, flexible demand is essential to bringing down bills and meeting the 2030 clean power target as fast as possible at the lowest available cost. While suppliers have heavily invested in rolling out smart meters to over 60% of homes, the current policy framework is no longer effective.

By 2040, smart flexibility could save the country over £14 billion annually through reduced system balancing, network reinforcement, and generation capacity costs. Smart meters and the move towards time-of-use pricing are essential to this goal. The Government must strongly champion this vision, prioritising the right outcomes for customers.

Almost all suppliers have failed to meet Government targets in recent years, leading to unfair enforcement actions, negative press, higher bills, and poor customer experiences. These targets force suppliers to allocate resources to convincing non-adopters to accept smart meters, rather than ensuring that existing meters work properly ultimately resulting in increased bills, reducing customer trust and ultimately harming the Net Zero transition.

With the current framework coming to an end in 2025, the new Government must consult quickly on a replacement. Energy UK is engaging Frontier Economics to review the costs and benefits of the rollout and design a more customer-focused policy approach. We strongly welcome government involvement in this work.

The upcoming consultation should explore genuine alternatives to the hard target framework, focusing on meeting customer demand and providing excellent service rather than achieving arbitrary numbers. By adopting a more flexible and customer-centric approach, we can ensure the continued success of the smart meter rollout and the broader Net Zero initiative, ultimately delivering significant savings and benefits to the country.

Regulating the unregulated and protecting customers

It is an anomaly that third-party intermediaries, such as energy brokers and price comparison websites, are not formally regulated. Past attempts to regulate them via suppliers are not sufficient to tackle customer detriment. Therefore, a new Government should urgently act to give Ofgem the powers to directly regulate this sector.

Further to this, the Energy Price Cap offers protection to disengaged customers, but Government must support Ofgem in its review of how the Cap may need to change in the future to ensure it is compatible with a flexible Net Zero retail market.

To ensure no negative distributional consequences from policy changes, the new Government must carefully consider the implications if Ofgem is instructed to reform the standing charge. It is crucial that costs currently within the standing charge are recovered fairly and that any changes are thoroughly assessed to prevent negative impacts on low-income households.

Additionally, the Government must play a role in ensuring that increased network costs associated with the energy transition are funded as fairly and progressively as possible. These measures are essential to maintaining equitable energy policies and supporting the energy transition without disproportionately burdening vulnerable populations.

Priority 3: Warmer homes and cleaner transport

Greater urgency of decarbonisation

Failing to prioritise the decarbonisation of buildings and transport could risk the UK exceeding its carbon budgets.

Currently, domestic transport remains the largest emitting sector, contributing 28% of the UK’s total emissions, while buildings follow closely with 17%.^[18] Despite some progress in transport, particularly in electric vehicle (EV) adoption, challenges persist, such as regionally inconsistent charging infrastructure highlighted by the Committee on Climate Change (CCC).[19] The energy sector has also noted that efforts to decarbonise buildings have faltered due to inconsistent policymaking, resulting in significant policy gaps and a lack of investment urgency.

Investing in electrified heating and improving home energy efficiency not only supports decarbonisation but also yields substantial social, economic, and health benefits. Reducing air pollution through electrifying heat and transport could extend the lives of UK citizens by a total of 700,000 years, and improving home energy efficiency could extend UK lives by up to a cumulative 800,000 years.^[20] Further to this, addressing cold homes, which currently cost the NHS £2.5 billion annually, is crucial. Every £1 investment in improving home insulation and heating saves the NHS 42p, demonstrating a clear economic benefit alongside health improvements. [21]^,[22]

Transitioning to electric vehicles could save households approximately £700 a year in running costs and significantly reduce the UK’s reliance on costly net imports of oil and gas, which totalled £55 billion in 2022.^[23],[24]

These measures will not only drive us forward in the route to Net Zero, but also enhance public health, reduce healthcare costs, and improve households’ finances, making them vital components of a sustainable and equitable energy transition strategy.

Delivering the warm home ambitions will require several policy changes

The Government is right to recognise the importance of improving the quality of the UK’s homes and buildings. The decarbonisation of buildings will require a comprehensive strategy encompassing several key initiatives.

The Clean Heat Market Mechanism (CHMM) is crucial, and the new Government should swiftly introduce the Statutory Instrument to support the heat pump manufacturing sector and foster a competitive market for customers.

Decisions regarding hydrogen for heating must be accelerated and the new Government should expedite the 2026 decision-making process and provide clarity on the criteria guiding this decision. While hydrogen will certainly play a role in our Net Zero economy, it is becoming increasingly clear that electrified heat will be the primary technology to decarbonise heating.

Implementing the Future Homes Standard is vital to ensure that new homes are built to a high standard and are fit for the future.

For homeowners, reforming Energy Performance Certifications (EPCs) will be vital. Current EPCs are outdated and ineffective. The new Government should overhaul the approach to EPCs, establishing a new, robust framework for regular updates to maintain accuracy and relevance in assessing building energy efficiency.

By advancing these initiatives promptly and comprehensively, the Government can effectively reduce carbon emissions from buildings, create warmer homes, align with carbon budget targets, and pave the way for a sustainable, energy-efficient future.

Working with energy suppliers to deliver warmer homes

Building on past successes in energy efficiency and heating upgrades requires a strategic approach based on lessons learned.

A decade ago, energy efficiency improvements collapsed, but supplier-led approaches have proven consistently effective in recent years. These approaches, alongside some successful Local Government grant schemes, have thrived due to suppliers’ ability to recruit qualified installers and establish long-term supply chain plans. However, the boom-and-bust nature of past schemes has made supply chains risk-averse and hesitant to invest without clear, long-term signals.

Looking forward, clarity and continuity are essential. With only around a year and a half remaining for the existing Energy Company Obligation (ECO) and Great British Insulation Scheme (GBIS), the new Government should extend these schemes to allow for thorough consultation and reform. Future schemes must be designed with longevity in mind to mobilise supply chains effectively and attract and sustain private investment. Providing options for increased customer contributions can enhance the impact and return on public investment.

Future schemes should incorporate a defined role for local authorities, adequately resourced to optimise outcomes for each home. Whether improving energy efficiency, installing low-carbon heating, or both, the focus should be on delivering the most effective solutions tailored to individual household needs.

This approach will not only drive energy efficiency but also stimulate economic growth, enhance housing quality, and support the UK’s transition to a low-carbon future.

Ensure transport is decarbonised as fast as possible

The uptake of EVs has increased in recent years, but achieving our carbon budgets will rely on a significant leap in further sales.

Critical to this leap will be reinstating the ban on new petrol and diesel cars beyond 2030, coupled with the implementation of the zero-emission vehicle (ZEV) mandate. Beyond the manufacturing and sale of EVs, greater uptake will also rely on retail market innovations to incentivise Demand Side Response (DSR) and smart charging tariffs. Currently, only a third of EV users benefit from dynamic time-of-use tariffs, which enable users to respond to grid price signals and optimise charging times.^[25]

To meet the current 2030 target of 300k installations per year, a substantial increase in charging infrastructure will be needed. This translates to an average of 2,800 charge points per month, more than double the current installation of 1,300 per month.^[26]

To achieve this, the Government must expedite the delivery of Project RAPID funding and review approaches to installing charging points on critical roadways vital to the UK economy but not near motorway service areas.

Priority 4: A mission-led Government set up to succeed

The race to 2030

To achieve the 2030 clean power target, the new Government will have to put forward a robust and detailed plan that enables progress assessment. This plan should balance ambitious goals for both Government and industry with achievable milestones.

The mission-led approach of Government could be crucial to achieving 2030 and the prospect of ‘mission boards’ could help. While the importance of political seniority on these mission boards is evident, the sector believes it is vital to have significant industry representation also involved. To achieve the Government’s ambitions, close working between the ministers, civil service and industry is absolutely vital.

There are various ways of defining success concerning the 2030 clean power target. It could be a Net Zero power system, where any remaining emissions are counterbalanced by removals, a more loosely defined decarbonised power system subject to a limited amount of unabated gas for security of supply, or simply a threshold for carbon intensity of the grid. Striking a balance between ambition and feasibility is crucial.

To ensure credibility and avoid political bias, the Government should commission the relevant independent bodies, which could be the CCC or National Infrastructure Commission, to define and monitor these targets, providing a stronger mandate for implementation. The new Government will need to focus on aligning existing institutions with the 2030 target rather than implementing extensive reforms in a short timeframe. Establishing an arms-length body forum for organisations involved in achieving the target will also enhance coordination and ensure alignment with the Government’s mission.

To support offshore requirements for achieving the 2030 target, The Crown Estate’s investment powers should be enhanced. This would facilitate greater funding across supply chains, ports, and relevant infrastructure, thereby accelerating progress.

Given the complexities of decarbonisation of energy efficiency, a new institution or function should be created to give home decarbonisation advice, ensuring smarter and more efficient energy usage which can enable 2030 to be achieved at lower cost, and play a significant role in support the new Warm Home Plan. Careful consideration is needed to ensure that this body or role does not add complexity for industry or consumers.

Beyond 2030

Looking beyond 2030, the UK’s transition to a more structured energy system through the SSEP and the expanded responsibility of the NESO is pivotal. While these centralised planning efforts may play a minor role in achieving targets by 2030, their impact is likely to be more significant post-2030. The NESO should continue to identify needs and highlight technologies or geographical areas that suffer from underinvestment. This presents an opportunity for GB Energy to support such areas, in addition to its mandate for community energy projects.

Further to this, GB Energy or the National Wealth Fund could also enhance their roles by facilitating network supply chain procurement, by coordinating and underwriting any large-scale purchases from existing Transmission Operators (TOs), thereby supporting infrastructure development and the supply chains this development is dependent upon for a sustainable energy future.

Meeting our carbon budgets will also require substantial emissions reduction in various sectors, especially in power generation. However, there is a fundamental misalignment between our carbon budgeting and fiscal budgeting structures. This discrepancy often prioritises economic and social targets over climate goals, treating carbon considerations as secondary concerns.

To address this imbalance, decision-making processes must be integrated. This entails evaluating new budgets and spending reviews against their compatibility with Net Zero targets. Aligning fiscal budgets and Comprehensive Spending Review timelines with the CCC’s annual reports and carbon budgets is essential for coherence and effectiveness. Moreover, ensuring senior representation from DESNZ or the CCC on each new mission board can provide critical insights into how different policy decisions impact our journey towards achieving Net Zero.

Priority 5: Closer UK-EU cooperation on Energy & Climate 

Putting emissions trading on a firm footing

The UK Emissions Trading Scheme (ETS) is the cornerstone of the UK’s Net Zero policy. Carbon pricing has been one the most powerful tools in enabling our progress to-date in reducing emissions. 

Upon leaving the EU, the UK implemented a standalone UK ETS; a mirror image of the EU ETS. Unfortunately, however, the UK ETS has failed to deliver; it is a small market that is prone to volatile prices that have collapsed over the past year.

As a result, the Office for Budget Responsibility (OBR) now expects to raise £19 billion less over five years than it had planned on accruing.^[27] Low and volatile ETS prices make industrial decarbonisation much more difficult and send a very poor international signal about how investible low-carbon technologies are in the UK. 

The only way to stabilise prices in our ETS and give industry long-term visibility for decarbonisation is by linking with the EU ETS. Linkage would enable ETS prices to align, increasing revenues for HMT and giving confidence to industrial decarbonisation plans. 

Addressing the elephant in the room: The EU Carbon Border Adjustment Mechanism

From 2026, the EU’s Carbon Border Adjustment Mechanism (CBAM) will become fully operational, meaning British companies exporting into the EU will have to pay the difference between the UK and EU ETS price.

Exporters will also have to fill out complex paperwork detailing products’ embodied emissions, subject to independent verification. For 18 months, the UK ETS has traded at a steep discount to the EU ETS. On current trends, the EU CBAM is likely to cost British exporters at least £2.2 billion over the next parliament.^[28]

As the UK and EU have identical carbon pricing regimes, legally binding Net Zero targets, and incoming CBAM regimes, this cost represents a trade divergence that serves no purpose.

Due to design flaws, the EU CBAM will tax UK low-carbon electricity, sending the wrong kind of signal to investors. Left unaddressed, the CBAM would increase curtailment in GB by 50-100% (equivalent to 8GW of offshore wind). This will reduce energy exports to the EU by 50% in 2026, making it harder for the UK to become a net energy exporter.^[29]

The EU CBAM will also increase prices and lower choice for Northern Ireland consumers by placing significant regulatory barriers on NI-GB and NI-ROI trade.

Restoring efficient electricity trading

After the UK left the European Union, electricity trading across interconnectors between Britain and mainland Europe became much less efficient.

At current electricity prices, these inefficiencies could be worth £500m over the next Parliament, although this would rise to £1 billion if prices were to return to 2023 levels.^[30] Although the Trade and Cooperation Agreement (TCA) commits both sides to developing a new trading arrangement, and set a deadline of April 2022 for implementation, this has yet to eventuate.

This regulatory limbo is hitting consumers at the same moment the UK Government is looking to reduce bills and undermining the business case for the infrastructure needed to meet the 2030 target. Further, fulfilling the potential of the North Sea for clean energy infrastructure rests on our ability to rapidly and efficiently trade electricity.

The current trading arrangements are damaging the investability of critical Net Zero infrastructure, including traditional and multipurpose interconnectors. Moving to more efficient trade by prioritising the UK-EU electricity trading arrangements workstreams will ensure the UK can speed up the transition to clean power by 2030.

Deepening our engagement with North Seas countries

The North Seas Energy Cooperation (NSEC) is a forum for North Seas countries to unlock the region’s potential for clean energy infrastructure. The membership consists of eight EU countries, Norway, and the European Commission as co-President.

The UK has signed a Memorandum of Understanding with NSEC, allowing the UK to start reattending some meetings. At present, however, the UK has very limited access to NSEC discussions, for example being unable to attend some agenda items of meetings or receiving meeting invites at the last minute.

Further UK engagement in NSEC will allow us to maximise the potential of the North Sea, including for offshore renewables, hydrogen, and CCUS.

While the European Commission has placed restrictions on UK engagement with NSEC (as a non-EU/EEA country), a more positive and collaborative relationship with a new UK Government is likely to enable further progress in securing our position within NSEC.

While organisations like the proposed Clean Power Alliance will be important in sharing best practice on power sector decarbonisation globally, NSEC will have more direct relevance to the success of the UK’s clean energy projects in the North Sea.

Appendix

Complete list of policy asks and corresponding timeframes

[1] Energy UK (2024), Energy UK explains: how much renewable energy can we expect from Allocation Round 6?

[2] Energy UK analysis

[3] Labour Party Manifesto (2024), My plan for change

[4] Energy UK analysis

[5] Office for Budget Responsibility (2023), The cost of the Government’s energy support policies

[6] ESO (2023), Future Energy Scenarios

[7] Climate Change Committee (2020), Sixth Carbon Budget

[8] DESNZ (2023), Cluster sequencing for CCUS

[9] HM Government (2022), British Energy Security Strategy

[10] National Grid (2024), Full Year Statement

[11] Labour Party Manifesto (2024), My plan for change

[12] Energy UK analysis of Ofgem (2024), Energy price cap (default tariff) levels and EDF (accessed June 2024) Energy price cap predictions adjusted for CPI inflation.

[13] Cornwall Insight (2024), Power price projections fall amid high European gas stocks

[14] Ofgem (2024), Debt and Arrears Indicators

[15] Energy UK analysis

[16] Energy UK analysis

[17] Energy UK analysis

[18] DESNZ (2024), Final UK greenhouse gas emissions

[19] Climate Change Committee (2023), Progress in reducing emissions: 2023 report to Parliament

[20] The Lancet (2023), Impact on mortality of pathways to Net Zero

[21] The Lancet (2023), Impact on mortality of pathways to Net Zero

[22] Jennings and Fecht (2020), Mapping the co-benefits of climate change action to issues of public concern in the UK: a narrative review

[23] Energy & Climate Intelligence Unit (2023), New analysis: petrol car drivers paid a £700 ‘petrol premium’ in 2023

[24] Energy UK analysis of ONS trade data

[25] Department for Energy Security and Net Zero (2023) DESNZ Public Attitudes Tracker: Energy Bills and Tariffs Spring 2023, UK

[26] Current News (2024), UK needs to double speed of EV charger installation, Cornwall Insight analysts find

[27] Energy UK analysis of March 2023 and March 2024 OBR forecasts

[28] Energy UK analysis

[29] Afry (2024), EU ECBAM impact study focused on electricity imports from Great Britain

[30] Energy UK analysis