UK at risk of missing international commitments on cutting greenhouse gas emissions

• NDC commitment of 68% reduction in greenhouse gas emissions by 2030 at risk of being missed along with fully decarbonising the electricity grid by 2035
• Recommended interventions in CfDs, long duration electricity storage and low carbon thermal means lost ground can be made up
• £430bn capital investment needed in the power sector up to 2050

14 November 2023 – The UK is at risk of missing key international commitments on cutting its greenhouse gas emissions (GHG) as it falls behind in decarbonising the GB electricity grid. GB Power Market Outlook 2023, a new report released today by LCP Delta, indicates that the UK is falling behind its Nationally Determined Contribution (NDC) to cut GHG by 68% by 2030, based on 1990 levels. However, with strong interventions in key areas of energy policy in the coming months, LCP Delta believes that the recently lost ground in procuring renewable energy can be made up.

The report also finds that the UK is set to fall behind on its own domestic policy target of fully decarbonising the electricity grid by 2035. The report’s conclusions come from an assessment of a range of low carbon technologies carried out by LCP Delta and their current progress towards meeting policy targets.

A key drag on the GB power system’s ability to meet its targets is with the procurement of offshore wind. The Government has set the target to reach 50GW by 2030 and 100GW by 2050. However, with only a small amount of offshore wind projects built in 2022/23 and no offshore wind procured in the latest Contracts for Difference (CfD) auction this summer, limited progress has been made. Between 2021 and 2022, offshore wind increased by 2.6GW (24%), however, given long planning times for offshore wind, it is likely that at most there are only two, or possibly three, CfD auctions left in order to reach 50GW by 2030. The GB energy system currently has 14GW of offshore wind, with an additional 13GW having a CfD agreement in place.

While a gap of 23GW in offshore wind projects remains to reach the 50GW ambition, according to LCP Delta’s analysis of the TEC register of offshore wind, there is the potential of 26GW of additional projects with a connection agreement in place. However, only 7GW of this has planning permission, a pre-requisite before any scheme can bid for CfD. Based on analysis of planning data over the past five years, between 4-10GW of the remaining 19GW would not receive planning permission in time to bid for CfD and be up and running by 2030.

In assessing other technologies, LCP Delta also found the procurement of solar capacity below the required rate to reach 70GW by 2035, with planning being another major cause of this. On nuclear energy and the ambition to deploy 24GW by 2050, it remains too early to tell whether this target could be reached, although the report indicates that undoubtedly more projects need to be brought forward.

Assessing other forms of technology which are not formally part of government targets to decarbonise the grid, but are seen as essential requirements to fully decarbonise, LCP Delta also assessed onshore wind, low-carbon thermal, short and long duration electricity storage. Of these, progress on developing 30GW by 2035 of low-carbon thermal (hydrogen and/or Carbon Capture & Storage) to ensure security of supply would need to be sped up quickly to meet the levels needed.

With a lack of clear policy for long duration electricity storage, investor confidence and clarity on the required levels of investment needed in these technologies remains low and so progress is being restricted.

One area of the current government strategy that is on target to meet its 18GW target are interconnectors, with a healthy pipeline and changes to cross-border trade enabling better trading across interconnectors. Short duration storage (i.e. batteries) is another technology where a healthy pipeline to 2035 is seen as keeping targets on track, although competitive trading means that the technology will become tougher for investors, with more sophisticated strategies needed.

To get the UK back on track with its NDC and deliver on its 2035 ambitions, LCP Delta has identified three key areas that need vital action over the coming months to help unlock the significant private investment now needed to get the UK back on track:

• Contracts for difference auctions – with AR5 failing to procure any offshore wind capacity, changes are needed for the next auction with a higher Administrative Strike Price (ASP), as well as considerations around incorporating different cost inflation measures into the methodology for setting the ASP. Reinstating the separate pot for offshore wind and extending the length of CfDs should also be considered.
• Long duration electricity storage – By 2030, available renewable and nuclear generation will outstrip demand in more than half of hours. The rollout of 10GW of LDES could cut cumulative emissions by 3MT between 2023 and 2050, while also decrease system costs by up to £10bn. As such, LCP Delta encourages the Government to release details of a support mechanism as soon as possible to support investment decisions.
• Low carbon thermal – In 2030, 40% of periods across the year will see renewable generation lower than demand, which will mean a need for low carbon thermal to provide security of supply. Higher levels of deployment and increased availability of CO2 transport and storage infrastructure are needed if targets are to be achieved.

Commenting on the findings of the report, Chris Matson, Partner at LCP Delta, said: “With the failure to clear any offshore wind in AR5 and delays in policy clarity, the UK’s ambition to deliver on its emissions targets and decarbonise the power sector by 2035 have been blown off track and the window of opportunity is narrowing. For offshore wind, it could be essential that adjustments are made so that the next two CfD auctions can deliver the capacity needed.

“To deliver on the government’s current ambitions we see the need for £430bn of capital investment to be deployed from now to 2050. From our engagements with industry and investors, the appetite to invest exists, but there are crucial hurdles that need to be overcome including government policy clarity and commitments to key technologies to give confidence to investors. Uncertainty means the cost of decarbonisation goes up, with an increase in weighted average cost of capital of one percentage point increasing consumer costs by £35bn.

“Achieving the UK’s targets for 2030, 2035 and beyond already looks challenging, and a loss of investor confidence at a time when other countries are stepping up their investment in green energy could leave the UK lagging behind.”

Martin Pibworth, Chief Commercial Officer at SSE who sponsored the report: “The UK has long been a front-runner of renewable energy generation, however, we need to accelerate even further if we are to reach 2030 targets. LCP Delta’s GB Power Market Outlook highlights the importance of not just the renewables but the enabling infrastructure to support it, for which we need the right policy and regulatory measures. It also rightly calls out the vital but often overlooked role that flexible generation will play in a renewables-led system – whether in the form of carbon capture and storage, hydrogen or long-duration storage like pumped hydro. We hope to see progress on all these critical areas in the coming months and stand ready to play our part by investing up to £40bn this decade in electricity infrastructure.”