How Close Can Labour Get to a Zero Carbon UK Power Grid

(Bloomberg) -- Britain’s new government wants a zero-carbon electricity system by the end of this decade. Now it has to figure out what that really means and whether it’s doable.

The question is whether success is 100% clean all the time or whether the country can still use fossil fuels as an emergency backup. 

Either way, to reach the goal requires Prime Minister Keir Starmer’s government to stimulate billions of pounds of additional investment in renewables, an area that’s seen its share of delays and cost increases.

It will also have to overhaul planning rules and overcome local opposition to green projects, like the outcry from some residents near three major solar farms that were approved in the first few days of the administration.

Despite the challenges, for the government, the green grid is a defining goal that ties together some of its key ambitions: cutting costs for consumers, boosting investment and jobs, growing Britain’s stagnant economy and re-establishing the country as a global leader in the fight against the climate crisis. 

“Time is short,” said Ed Birkett​​​​, new projects director at renewable power developer Low Carbon Investment Management Ltd. “These assets take quite a long time to build and there are long lead times on ordering new equipment at the moment.”

Labour has vowed to rapidly expand renewable power plants to cut reliance on imported and expensive natural gas. The government wants to quadruple offshore wind farm capacity to 55 gigawatts, triple solar power and more than double onshore wind farms. 

There’s acknowledgment that all of this will take time. The prime minister’s spokesman said this week that it’s not a case of flicking a switch and delivering these projects all at once.

GB Energy

To get moving, the government introduced a flurry of new measures, including launching state-run GB Energy and legislation to overhaul the planning regime that’s long been seen as holding back development.

Such efforts will mean more electricity generated by clean power, but the question is whether they will go far enough to hit the 2030 target. The government may get close – with fossil fuels only used as backup – but politically the question will be if Labour can sell that as a win.

“A year-round decarbonized electricity system isn’t realistic to achieve in the next five years,” said Tom Smout, senior associate at Aurora Energy Research. “But depending on how you interpret the target, there will be periods when the system will be zero carbon.”

Already by next year, the UK’s grid operator expects there will be times when the country’s power system is entirely zero carbon. Any acceleration that Labour achieves will increase those periods.

Within the renewable energy sector, there’s some confidence that the government is committed. That’s a new experience after the previous administration backtracked on some environmental policies.

“Industry has read that target as a very clear intention by government to rapidly increase the provision of clean energy and rapidly increase grid infrastructure to support it,” said Adam Berman, deputy director of industry group Energy UK.

Britain’s power system has already seen a massive increase in wind power, and coal use has dropped close to zero. But gas still accounts for about a third of electricity generation.

Labour has touted the potential for low-carbon technologies that could complement wind, such as power plants with carbon capture technology or ones that burn clean-burning hydrogen.

But during winter, when demand is highest, a windless period will mean the power system needs something to fill the gap. Labour’s own plans refer to maintaining some backup gas power stations.

“You can call the system zero carbon because they’re not firing unless it’s a really bad day,” said Arhnue Tan, an analyst at BloombergNEF. “It’s mostly zero carbon, but were playing it safe because we don’t know how to change unabated gas just yet.”

Wind Auction Test

A big test is looming later this summer, when the government hopes to get wind farm operators to bid for government power contracts under a system intended to incentivise investment. 

The last government increased the budget for the contracts for difference auctions after an embarrassing failure in 2023, but it still looks too small to back all the projects currently ready to build.

Ed Miliband, secretary of state for energy security and net zero, has hinted the funding could be increased further.

“The single biggest indicator if the government is serious about pursuing this aggressively is the CfD budget,” Berman said. “If you want to reach 2030 it will be very hard to say no to any project that can bid into the CfD process.”

Still, expanding the budget could undermine the goal of using renewables to bring prices down. More money will allow more projects to be built faster, but if all bidders are able to win a contract at a certain price, that reduces competition. There’s no incentive to offer to supply power at a lower price.

Building new wind farms and solar parks is only one aspect of the challenge to scale up green power on such a tight timeline. Just as important is planning and building an electric grid that can support all these new sources of power.

There are a number of hurdles, including reforming the planning regime that developers need to navigate before they can start building. The other is the lengthy queue for new renewable power assets to connect to the power grid.

One selling point the government is leaning on is the lure of lower energy prices after a spike in natural gas prices in 2022 that sent household bills soaring.

“The reason we’re moving at this pace is for one overriding reason, because of the urgency of the challenges,” Miliband said in Parliament last week. “If we don’t build, for example, the grid, if we don’t roll out solar, we are going to be poorer as a country. We are absolutely exposing ourselves to future cost of living crises.”

©2024 Bloomberg L.P.