UNCLEAR FUTURE ENERGY PLAN RISKS ADDITIONAL CUSTOMER COSTS

Chris Goggin of Rinnai looks at a new report from the National Audit Office on the 2035 target for decarbonisation

A new report from the National Audit Office, an independent parliamentary body responsible for auditing governmental expenditure, has warned that lack of a clear future plan to decarbonise gas usage could result in a lack of investment in future clean energy projects and therefore impose an increase on energy costs for all UK customers.

The report was quoted in national media as saying that: “the absence of a clear plan and the perception that there could be changes in government policies could deter external investors from providing funds for new infrastructure or lead them to increase the rates of return they require, ultimately increasing costs for energy consumers”.

A key component of the UK’s decarbonisation strategy is to generate all electricity by carbon reducing sources by 2035. However, 40% of all electricity is still produced via gas. 2035 is projected to experience a 60% increase in electrical demand as fossil fuels are planned to be replaced with widespread electrification and other clean gas alternatives.

Further reported in the national media was Gareth Davies, head of the NAO, who said:

“It is understandable that [the government] has focused on dealing with the immediate energy crisis over the past 12 months. But one consequence of this is that it lacks a delivery plan for decarbonising power by 2035, which is the backbone of its broader net zero ambition.”

He added that the longer it took for a plan to be drawn up, “the higher the risk that it does not achieve its ambitions, or it does so at a greater than necessary cost to taxpayers and consumers.”

It has been estimated that between £280 and £400 billion of investment is required to decarbonise the power sector, not including the research of new technologies and the construction of new networks.

A clear and centralized plan that is understood and endorsed by energy distributers and customers alike can accelerate progress, attract investment and safeguard future customer costs. Presently, the UK is not as an attractive investment opportunity as America.

To enhance the international investment profile of UK clean energy projects, an equivalent to the US Inflation Reduction Act should be designed and introduced soon. The Inflation Reduction Act means that clean energy projects will be rewarded with tax credits that can amount to 30% – 70% of the total capital costs of a project. The NAO has expressed concern regarding the lack of work in attracting future investors in UK future clean electricity production. Without widespread domestic and international investment UK aims of producing 100% clean electricity by 2035 are lessened.

Meg Hillier MP, chair of the public accounts committee, was quoted in The Guardian as saying:

“The Department for Energy Security and Net Zero [DESNZ] does not have a delivery plan for decarbonising electricity. While DESNZ has understandably been focusing on its immediate response to the energy crisis, I’m disappointed by its slow progress and lack of focus on the long-term. Without a delivery plan, it is unclear whether DESNZ’s targets are achievable.”

A DESNZ spokesperson was quoted in the same article as saying:

“Since the energy crisis caused by the war in the Ukraine our focus has been on delivering essential cost of living support, including paying half a typical household’s energy bills this winter, because this is the primary focus for families across the country.

“At the same time, the UK is decarbonising faster than any other G7 country … Our targets are ambitious; however we haven’t taken our foot off the pedal and our commitment to decarbonise the UK’s electricity system by 2035 remains resolute.”