BLOG | Hannah Corbett and Karen Turner | December 2024
In December 2024, the UK Government reiterated its mission to make Britain a clean energy superpower in its Plan for Change and Clean Power Action Plan. The ‘milestone’ is for a secure energy supply with at least 95% of power through low carbon electricity generation by 2030. The government claims the planned action will not only boost energy security but lead to lower bills and support job creation. There’s no doubt that making affordable, secure and sustainable energy a reality for all is vital, not just in terms of achieving net zero but for the nation’s wellbeing and prosperity. But can the government’s plans realise the change they are hoping for and that is urgently needed, in 2025 and beyond?
Over the last decade since its establishment in 2014, the Centre for Energy Policy (CEP) has been exploring how decarbonisation actions can deliver more sustainable and equitable prosperity in the UK. As part of these efforts the Centre identified several key principles to guide net zero decision-making for a cleaner and fairer future. Looking through the lens of those principles and drawing on our peer-reviewed research, we pinpoint some critical lessons for the government’s mission to decarbonise power and where the opportunities and challenges may arise in realising those ambitions.
Who ultimately pays, how and when for net zero actions matters
There’s a drip feed of stories in the news about how government’s plans to achieve clean power (which the National Energy System Operator (NESO) states will require an average of over £40 billion of investment in the next five years) will cause energy bills to rise with net outcomes for UK households and businesses depending on the economic growth processes such major investment could ultimately support. Our research over the last decade is clear that who ultimately pays, how and when, set against who benefits, matters a great deal both for positive wider economic and societal outcomes, and to avoid driving up the costs of net zero to individual projects and the whole economy unnecessarily.
For example, new CEP research looking at the planned £10.6 billion of spending on electricity network expansion between 2026 and 2031 (as part of Ofgem’s third price control process) by transmission network owner SP Energy Networks finds that the investment could ultimately support net GDP and employment uplifts of up to £2 billion per annum and 11,500 jobs. Moreover, we find that planned investment delivers better wider economy outcomes and benefits to UK households in all timeframes than investment that reacts to changing electricity demand. A crucial driver is that delivering supply capacity ahead of electricity demand enables sufficient energy price reductions to offset the bill impacts of cost recovery, while the wider economy expansion supported by network investment in increased electricity capacity delivers a range of real income gains.
However, our analysis also highlights that the wider economic gains from investment could be greater if worker and skills shortages in the labour market are overcome. This finding consistently emerges across our work in the net zero space. Without urgent action to develop the skilled workforce required and consideration of how additional demands on already busy sectors such as construction could be managed through the timing and sequencing of projects, wage cost pressures at project level and pressures on the wider cost of living and doing business pressures could be triggered. This is what will drive up the cost of net zero, not taking action in and of itself.
Net zero and delivering more equitable prosperity and near-term economic returns
The question of ‘who pays’ for net zero policies and how the costs and benefits are distributed also has important consequences for equity and fairness. Both the SP Energy Networks research highlighted above and earlier work looking at electricity network upgrades to support the electric vehicle rollout suggest that this action, paid for through consumer bills, has the potential to trigger higher energy bills and cost-of-living and consumer price index pressures with regressive impacts. If this is the case, such pressures will affect low-income households disproportionately as they spend a greater percentage of their income on essential goods and services such as energy and food, with many already struggling (an estimated 6 million households are living in fuel poverty and debt to suppliers has soared to around £3.7 billion).
Other equity issues that could emerge relate to the fact the clean power mission focuses solely on electricity. Gas will continue to be used to heat homes for some time, albeit with decreasing levels of demand (which in itself is challenging if not associated with energy efficiency improvements and rather over-conservation/under-heating in low income and/or vulnerable households). For those households less able to pay for new low carbon electrified solutions (where most policy focus is on heat pumps, which will not suit all homes/properties), government support will be vital to avoid them being stranded on gas heating that becomes increasingly more expensive. This includes action such as the Warm Homes Plan but could also include social tariffs and tiered standing charges. Bringing the cost of electricity down through processes such as Review of Electricity Market Arrangements (REMA) and through renewable projects enabled by Great British Energy will also be essential.
Alongside fairer outcomes, delivering near-term economic returns (and associated government revenue gains) through actions such as the clean power mission could help maintain and strengthen public support and consensus around the drive towards net zero. Our research as part of EDRC shows that action to tackle fuel poverty through direct bill support or a programme of delivering energy efficiency measures could help deliver near term wider economic returns, as the figure below demonstrates. Action on energy efficiency, by lowering energy bills and freeing up the disposable income of households living in fuel poverty for spending for other things, could deliver more sustained economic gains, but at a higher price tag per household and rolling out more slowly than direct bill support.
This research also has important lessons for decisions about financing net zero projects, which NESO says will come overwhelmingly from the private sector. Specifically, putting in place the right long-term policy signals to industry to expand and develop supply chains by targeting public spending to improve energy efficiency in the homes of those living in fuel poverty, could also create the enabling conditions required to roll out a wider programme of retrofitting for all homes across the UK. This is not just in terms of developing supply chain capacity and developing appropriate skills and worker availability, but also in relation to securing private sector funding for this activity.
Achieving clean power and net zero are primarily economic and political challenges
Ultimately, this is a public policy challenge, not just a technical one, as highlighted in our principles. Clean power and other net zero goals need to be achieved in ways that are more equitable and demonstrate realistic potential for net economic gains in the near- as well as long-term; that people can feel in their pockets and in their health and wellbeing. Ensuring this will be critical to building and sustaining the widespread consensus and support crucial to realising the government’s Plan for Change and wider net zero goals.
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