Britain’s £240 Billion Green Superpower Plan Faces Crucial Test

(Bloomberg) -- It’s an ambitious project by any measure: 70 million solar panels, 6,000  wind turbines, and 4,500 kilometers of underwater electricity cables.

All told, British Prime Minister Keir Starmer’s plan to deliver a carbon-free power grid by the end of this decade will require about £240 billion ($325 billion) of investment, thousands more skilled specialists, and a complete overhaul of the planning system. The policy is a crucial part of the Labour government’s push to revive economic growth, and has made the UK a flagbearer for green ambitions (and a lightning rod for President Donald Trump’s ire) at a time when many authorities and corporates around the world are loudly pulling back.

But pressure cracks are beginning to show.

The 2030 clean power goal faces political backlash, as opponents like Reform UK, the party leading the polls, insist the policy will cripple businesses and households through sky-high bills. The government can’t afford to ignore the net zero battle but it’s also dealing with a wide shake-up after the resignation of the deputy leader Angela Rayner.British electricity prices have already soared in recent years because of the cost of natural gas, and Starmer and Energy Secretary Ed Miliband have promised they can cut both emissions and consumers’ energy costs. Yet the math today just isn’t adding up to do both.

The government is now facing a critical test after opening up applications for its annual offshore-wind subsidy auction — one of the last opportunities to line up large renewable generation in time to meet the 2030 goal. 

One massive offshore wind project was canceled earlier this year after Danish developer Orsted A/S said the terms weren’t attractive enough, making the gap even bigger to fill for this auction.With long-term borrowing costs jumping in the UK, and the Bank of England proceeding cautiously with interest rate cuts due to the risk of inflation, wind farm developers making their bids are facing higher costs to build major projects. This will feed through to consumer bills for years to come.  

“It doesn't look like it’s a cheap time to proceed,” said Kate Mulvany, principal consultant at Cornwall Insight. “Whether or not it ultimately turns out to be good value is only something that can be determined in the long term.”

Energy policy will play a pivotal role in Labour’s future, as the prime minister struggles to right the ship in an already unpopular administration. But the outcome will also have a global impact. Failure would mean the UK risks becoming a cautionary tale of how not to decarbonize at a time when the trajectory of the global energy transition hangs in the balance.

“The UK, in its ambition to be a real leader, is stretching way beyond anyone else in the world,” said Andy Brown, deputy board chair at Orsted and a former executive at Shell Plc. “At the moment it looks like we’re one of the most expensive places in the world for energy.”

Crucial Moment

The UK’s renewables auctions have been the driving force behind the creation of the largest fleet of offshore wind farms in Europe. For years, prices dropped steadily, reaching a low of £37.35 in 2019. But soaring costs after the pandemic upended that trajectory, leading to a failed auction in 2023. Last year, the government sought to get the process back on track, lifting a cap on maximum bids and offering a record-setting budget of £1.5 billion.

Winning bids came in 58% higher than the last successful auction. But even that didn’t prove to be enough. One of the winners, Orsted, canceled its 2,400 megawatt project Hornsea 4 less than a year later, saying it wasn’t economically viable and that it planned to rebid it later. That gives a strong indication that developers this year will need even higher prices to sign off on billions of pounds of investment. And if the government remains committed to its 2030 deadline, it will have little choice but to comply.

The drive behind the UK’s goal is a recognition that climate change is a major, urgent threat and this plan is what serious action looks like. But the state of the country’s finances make it an inopportune time to fund major investments, potentially undermining its long-term competitiveness.

Consensus Gone

The dash for a carbon-free economy used to be among the least controversial things in Britain’s increasingly polarized politics. In 2019, a time when the country was split down the middle on how to exit the EU, parliament approved a law committing the UK to net zero without a vote.

Today, that consensus is long gone.

The Conservative opposition and Nigel Farage’s insurgent Reform UK insist that Labour’s policy risks ending in disaster. Even former Labour Prime Minister Tony Blair warned that voters in countries like Britain feel they’re making financial sacrifices for the climate with little impact on global emissions.

The government says that the stable prices from renewable electricity will help boost the confidence that businesses need to invest. A massive buildout would not only create jobs in construction and operation of new wind farms and grids, but also drive manufacturing of key components in Britain that would later be exported to other markets.

The UK has made a lot of progress already. By rapidly expanding offshore wind and shutting down coal plants in favor of ones that use cleaner-burning gas, it’s cut more fossil fuels from its grid than any other G7 country.

But that was the easy part. It’s fairly seamless to bolt on wind and solar farms to a grid that still largely runs on fossil fuels. However, a power system that mostly uses renewables also needs to have backup supplies for the times when the wind doesn’t blow and the sun doesn’t shine.

 spokesperson for the Department of Energy Security and Net Zero. 

Miliband declined to be interviewed for this story despite several requests.

Energy Prices

The biggest political risk will be cost. Polling commissioned earlier this year by Octopus Energy, the UK’s biggest home electricity supplier, found that twice as many people in the country support net zero as those who oppose it. But a majority of supporters said it depends on energy prices not rising. A similar proportion of opponents said they would reconsider their position if decarbonization led to cheaper bills.

Household power bills are set to rise slightly this winter compared to last year, even though wholesale prices have fallen. The increase comes from the added cost of the government subsidizing some bills plus higher levies to maintain a network that's getting more reliant on intermittent wind power.

So far, there is little sign that a greater reliance on renewable energy sources will lower energy bills in the near term. The construction of wind farms, a nuclear power plant and thousands of miles of power lines will likely add costs to bills for years. If gas prices surge again, all that spending will look cheap. But if they fall, then Britain will be stuck in a much greener, but more costly system.

Wholesale power prices in 2029 are likely to be only slightly lower than they are now, while actual bills could be higher as costs like renewable energy subsidies and network fees keep rising. By 2031 households will be paying £44 a month to cover a grid-upgrade program, up from £23 currently.

“There’s currently no plan to lower bills,” said Greg Jackson, Octopus’ chief executive officer. “Unless there is a radical proposal from government quickly, support for net zero is going to collapse.”

New generation also comes at a cost. The UK spent a record £1.9 billion on subsidies for offshore wind farms last year. While much of that goes to pay for the earliest, most expensive projects, even the newest offshore wind farms will sell electricity at around this year’s average wholesale price. That’s nearly double the average in 2019, before the European energy crisis.

“With the cost of grid upgrades, the cost of generators that are going to connect to the network, I just can’t see prices coming down,” said Pete Aston, specialist connections engineer at power grid consultancy Roadnight Taylor. “The government must know that there’s a real risk bills could go up rather than down.”

Sheer Scale

In August, wind was the UK’s largest source of generation providing more than a quarter of electricity. Zero carbon sources including nuclear, made up 89% of supply on Aug. 30 at 3pm, according to the grid operator.

The investment program needed to scale this up will stretch the limits of the UK’s ability to build infrastructure, buy equipment and find specialist workers, all at a rapidly accelerating pace.

To meet the 2030 goals, the country will need to add nearly 1,000 kilometers of onshore and over 4,500 kilometers of offshore network, according to the grid operator — more than doubling over the next five years what it has achieved in the last ten.

Offshore wind generation capacity will need to more than double, to at least 43 gigawatts. That implies a pace of some 5 gigawatts of capacity every year through the deadline, about double what analysts at BloombergNEF expect will be built by 2030.

“If I look at my career over the last 30 years, typically I would have one or two big national strategic transmission projects running simultaneously. We’ll have 17,” said John Pettigrew, chief executive officer of National Grid Plc. “It’s a massive step up. I mean it’s transformational in terms of scale and pace.”

There’s a huge question mark over whether the country can source all the equipment it will need in time, as other European countries are also ramping up offshore wind installations, creating competition in the order queues. By 2030, demand for turbines is set to be 50% greater than what the region’s factories are able to churn out, according to BNEF data.

And there simply aren’t enough people in the country with the specialized skills to lay power lines and build other electrical equipment. National Grid has been partnering with contractors and suppliers to get ahead of the crunch, but while its efforts could mean that thousands more workers are trained for new jobs in the UK electricity industry, it’s unlikely to be enough.

“We find ourselves competing with our customers, with our peers, with other countries, very much for the same skills,” said Laura Fleming, country managing director in the UK and Ireland for Hitachi Energy, one of the companies that signed contracts worth a combined £59 billion to supply high voltage equipment to National Grid. “There is still a huge gap.”

Biggest Gripes

For developers, one of the biggest gripes is the time it takes to get a project through planning and the wait to get a grid connection. 

Earlier this year the UK halted applications to the country’s bloated waiting list to connect to the electric grid and unveiled a new system where it will select projects based on whether they fit with the 2030 goal and whether their backers are actually able to deliver to that timeline. In March, it introduced a bill to overhaul the country’s planning system that was blamed for years-long delays.

The planning overhaul will also make it easier for developers to bypass local community objections to the thousands of massive electricity pylons that will need to spring up across the country. 

In the Essex village of Ardleigh, a local group has raised thousands of pounds to hire lawyers and other experts to help make the case against the plans for a power line that will connect to two offshore wind farms and eventually help transmit enough electricity for 18 million homes through the area’s fields of barley, wheat and sugar beets. 

“We’re being asked to host infrastructure we have no interest in,” said Martin Whiteley, a member of the local parish council, who also happens to be an industry professional, structuring electricity deals for British oil major Shell Plc. “It’s quite fundamental in terms of changing the value proposition of living here.”

In the past, these campaigns would have been able to delay and possibly even block a project. But the government’s new rules mean that’s no longer the case. Starmer and Miliband have made a point of saying that they won’t be deterred by local opposition, and that voters will need to accept pylons if they want lower energy bills.

The government has promised to offer discounts on energy bills to people living near new electricity pylons to try to ease opposition to essential upgrades.

“Will we hit clean power 2030? I don’t know, but at least we have a government and we have a number of the agencies lining up to make the changes to give it a hell of a good go,” said Keith Anderson, chief executive officer of Scottish Power, one of the country’s biggest investors in offshore wind farms and electric grids. “We’ve never had a plan before. And that’s the simple truth.”

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