Why this week’s budget shouldn’t ignore the UK’s yawning low carbon power gap
This year the spring budget comes at an odd time for all things low carbon in the UK. In February, the government published its industrial strategy, setting out its clean growth aims as part of Theresa May’s flagship domestic economic policy. By the beginning of the summer, the government will produce a ‘clean growth’ plan, outlining how the UK will meet its fourth and fifth carbon budgets (covering 2023-32).
The mood music is good: the government is committed to meeting these budgets, and is signalling that it sees economic opportunities for the UK in an increasingly low carbon, resource efficient world. This is welcome, but the wider context for the country’s low carbon strategy is less rosy.
UK decarbonisation is seriously off track
In mid-2015, David Cameron’s government reversed 16 major policies contributing to decarbonisation, including support for onshore wind and the zero carbon homes policy. A few months later, it abruptly ended the longstanding carbon capture and storage (CCS) programme, weeks before a decision on the UK’s first CCS plant was due to be made. These actions opened up a major gap in UK decarbonisation policy.
So, despite the subsequent, laudable decisions to phase out the UK’s old and dirty coal fleet, sign the Paris climate agreement and commit to supporting 10GW of offshore wind, the UK’s low carbon strategy ended last year in tumult. In its summary of progress, the Committee on Climate Change warned that “current decarbonisation policies, at best, will deliver about half the required reduction in emissions.” That assessment was made before figures for UK’s infrastructure pipeline were released, showing that renewables investment is set to fall by 95 per cent between 2017 and 2020. This investment cliff edge is largely down to the government: its levy control framework (LCF), which is used to fund low carbon power, ends in 2020, and its renewal is overdue.
Green Alliance’s analysis of the power sector shows that current commitments beyond 2020, mainly focused on offshore wind and nuclear power, fall far short of what’s needed to meet carbon budgets by 2025. Deploying technologies that are cheaper than gas, like solar, onshore wind and demand reduction (negawatts), could help but, even then, there would still be a gap due to deployment constraints.
Why there should be action in this budget
As Philip Hammond makes his final adjustments to the budget, the question is: what should he do now? On the face of it, this budget has come at the wrong time. The industrial strategy is still out for consultation, and the clean growth plan has yet to be published. Some will argue that he should wait for Brexit negotiations to start. But it could be a mistake to delay a decision on funding for low carbon power.
First, unlike other sectors, the technologies available aren’t in question. Some renewables are cheap already and the rest are getting cheaper fast. The government is committed to nuclear. CCS for power can’t have a big role before 2025. Waiting until the autumn won’t change any of this.
Second, the period after 2020 is well within the planning horizon for most energy developers. Orders for equipment are usually booked several years in advance, and decisions on many future projects have already been on hold for nearly two years. Further delay will simply harm UK clean energy manufacturers who are keen to cut costs and expand factories.
Third, as the graph below shows, the UK is planning a major low carbon spree from 2025, with little activity before then. The government expects 9GW of new nuclear between 2025 and 2030, or nearly 2GW per year, which is unprecedented for the UK. This will mostly replace older nuclear plants which are due to shut. The tidal industry is planning a similarly late and rapid deployment. This makes procrastinating on renewables like solar and wind in the early 2020s risky: any delays to nuclear and tidal projects after 2025 could mean missing carbon budgets.
We calculate that an additional £2 billion for renewables deployment is needed to keep UK decarbonisation on track (on top of the £730 million already promised to offshore wind) between 2020 and 2025. This still represents diminishing government support over time as the industry matures and costs fall: it is two thirds less than the last round of support. The alternative, to build new gas plants, looks likely to require only slightly less support than this, which makes clean power, as the longer term option, very good value.