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Clear actions that could drastically cut the cost of net zero electricity

26 Jul 2021

The UK power sector has delivered significant emissions reductions in the last decade, reducing its emissions by 68% since 2010.

At SSE we are extremely proud to have played our part in that, drastically reducing our own emissions while delivering major investment in the country’s low-carbon infrastructure.

In the run-up to COP26, the UK can showcase its leadership on power sector decarbonisation, demonstrating how renewable energy can be deployed at scale and at pace.

Whilst the UK’s large-scale deployment of renewable energy and switching away from coal, driven by effective long-term policy mechanisms and robust carbon pricing, has proved extremely successful in driving rapid emissions reduction in the GB electricity system, the last 10-30% of emissions will be more difficult to tackle.

We will need to bring forward a range of new technologies, products and services to ensure we have reliable low-carbon energy when the sun is not shining and the wind is not blowing.

Electricity is an essential service and we’ve seen in the past that keeping a grip on its affordability is critical if a public mandate for decarbonisation is to be maintained.

As the ‘low-hanging fruit’ disappears and decarbonization becomes more challenging, it is therefore vital that we find the most cost-effective pathway to net zero to minimise the cost to consumers.

Today we revealed analysis from LCP in order to do exactly that.

We hope it will help inform the next stage of the UK’s journey to net zero emissions, by identifying clear actions that could drastically cut the cost of net zero electricity – which will be invaluable in helping to decarbonise the wider economy.

As this analysis outlines, net zero power needn’t break the bank, and with the five steps outlined the GB power system could save almost £50bn by 2050, and over £75bn looking out to 2060.

It shows that there is a clear path for the UK to take: offshore wind will be at the centre of the GB energy system, supported by progressively decarbonised gas-fired generation in the form of carbon capture and storage (CCS) and hydrogen. Onshore wind and solar, too, have important roles to play, as does consumer flexibility alongside batteries, hydro pumped storage and hydrogen storage to ensure we can maximise the use of the UK’s significant renewable energy potential. The role of large-scale new nuclear in an affordable net zero transition, however, is less clear.

To deliver on this vision we need to ensure that the right policy and regulatory frameworks are in place and provide effective signals to support early, strategic deployment of enabling energy infrastructure. Critically, a net zero power system requires a net zero electricity market design, and this report shows this is where the greatest savings are to be had, with a £20bn cost reduction by 2050 compared with maintaining current arrangements.

The Contract for Difference (CfD) has been very effective in driving down the costs of offshore wind. But whilst, under the current policy framework, new projects will receive revenue stabilisation support, existing generation does not, and without reform the market will favour more expensive new assets over a cost effective mix of life extensions, refurbishments and repowering alongside new projects. However there is plenty of time for government to act and make the necessary changes to transition to a net zero electricity market design based around renewables. Realistically everyone expects them to evolve current market design in good time, with this being an issue for the end of the decade, but work on putting this in place needs to begin to ensure it doesn’t increase costs for consumers. That’s why it was encouraging to see government consulting on the future of the CfD earlier this year. Our study highlights how effective such a move would be in terms of delivering net zero more cost-effectively.

Over the 2020s, the electricity sector can lead a green recovery that generates socio-economic benefits spread across the UK and provides the means by which to decarbonise the wider economy.

As this report clearly shows, if we plot the right pathway to net zero it will not only deliver benefits today in the form of green jobs, clean industries and revitalised communities, but safeguard the interests of future consumers who will have to pay for the decisions we make today and will ultimately be faced with the greatest impacts of climate change if we fail to achieve net zero quickly enough.

I sincerely hope that this analysis proves useful to policymakers and other stakeholders as we collectively seek to address the climate crisis.