The chancellor described his budget as taking bold decisions to “act now so we don’t pay later.” Osborne announced £730 million of funding for “less established” renewables and endorsed storage, demand response and interconnection. Half an hour before the Budget, the prime minister had said the UK would cut power sector emissions by 85 per cent by 2030, which is consistent with the Committee on Climate Change’s fifth carbon budget.
It’s the sort of leadership that is entirely consistent with our analysis, published on Monday, which shows how the UK can cut carbon while moving beyond subsidy for renewables.
Or rather, the headlines are consistent. The detail reveals a much more tentative approach to “act now so we don’t pay later” from the Treasury, which might better be summarised as “do as little as possible, as late as we can get away with”.
What is actually needed
Our report sets out how committing £2.7 billion to support low carbon power by 2025 would virtually eliminate net subsidy after 2025. This would be enough to keep the UK on track to meet the prime minister’s 85 per cent pledge.
The report’s recommended strategy, summarised in the graph below, requires around 2GW of offshore wind per year, alongside 0.5GW of onshore wind or solar, a couple of tidal lagoons, and a big commitment to energy efficiency, but it would be cheaper than a strategy which constrains deployment.
So how does the Treasury’s £730 million compare? The best interpretation is that it’s the minimum needed to keep the renewable with the longest lead times – offshore wind – in play while the government delays decisions on the rest of its decarbonisation strategy. This figure should buy between 3.5 and 4GW of offshore wind as long as the technology keeps falling in price. The catch is that, to keep costs coming down, the UK will need to deploy at least 1.5GW of offshore wind per year: this enables economies of scale and investment in larger (and cheaper) turbines.
How Treasury plans measure up
Can what the Treasury has put on the table do this? The graph below shows two alternative scenarios for how the £730 million might be spent. The black line shows how much offshore wind the UK has already contracted. The solid green line shows the amount of offshore wind we calculate is needed to keep the UK on the least cost path to meeting its carbon budgets.
The red dashed line is a scenario in which £730 million is the total available for offshore wind out to 2025-26: this just isn’t enough. Not only would it mean the UK would be seriously off track for the fifth carbon budget, it’s likely that offshore wind would stay stuck at around £100 per MWh, meaning that consumers would pay more. In contrast, the green dashed shows what the £730m could do if it were used as a bridge to a further round of renewables funding, contingent on offshore wind continuing to come down in cost.
Overall, we calculate that the UK will need to spend around £1.68 billion on less established renewables between 2020 and 2025 to enable offshore wind to become subsidy free. £730 million is less than half this amount.
In addition, we will need subsidy free onshore wind, solar and efficiency if we want to decarbonise at least cost. These technologies will have to wait until the autumn to find out if they have a place in the UK’s low carbon future. They deserve a place: they are cheap and low carbon, and we need a range of low carbon options if we are to decarbonise cost effectively.
The harsh truth is that supply chains for onshore wind, solar, and efficiency can just about wait another six months: government climb downs on solar subsidies and a delay to closing the Renewables Obligation provide just enough breathing space. But offshore wind needs a bare minimum of four to five years to be built, so decisions on future funding are needed now.
So the budget has done what is becoming a hallmark of this government’s approach to decarbonisation: just enough, as late as possible.