Rishi Sunak’s plan to encourage investment in a string of new gas plants to power the country into the next decade has raised questions over Britain’s future climate ambitions – and the government’s energy policy record.
The government’s biggest set of electricity market reforms in over a decade has angered green campaigners who claim that successive policy failures have forced the government to pin Britain’s energy security on fossil fuels.
Does the UK really need more gas plants?
Great Britain’s gas-fired power plants generated almost 40% of the country’s electricity last year, and they are expected to continue to play some role in the energy system well into the 2030s. But by the end of the decade almost half of the UK’s gas plants are due to close, leaving a gap in the country’s energy supplies.
Currently, the UK has 28 gigawatts (GW) of gas power capacity powering the grid but by 2030 this is likely to fall to about 14GW, according to Aurora Energy Research. This energy gap risks widening after Britain’s nuclear power output slumped to 42-year lows last year, and its new generation of nuclear reactors is making slow progress.
The government plans to extend the life of many existing gas plants but it estimates that it will need to have at least 5GW of new gas power capacity in reserve to provide a limited amount of “back-up” power when renewable energy is in short supply.
“The alternative is to risk blackouts – that is not a risk any household or business would want us to take,” the government said.
To date investors have been wary about financing new fossil fuel projects through the government’s capacity market, a kind of reverse auction that offers 15-year contracts to build new energy projects. Investors typically invest in gas plants over a 30-year time frame, which has made the capacity market a risky prospect.
“What we have is a falling installed capacity base set against rising demand for electricity,” said Tom Smout, a senior associate at Aurora. “The reality is that the government’s capacity market has brought in only one new gas plant because investors are wary about putting money into a plant that doesn’t do very much for very long and then becomes a stranded asset.”
What about investing in more low-carbon electricity?
The government has set out ambitious plans for generating more low-carbon electricity – but many fear that it has not done enough to deliver on them before ageing power plants shut down.
The latest plan includes an aim to increase Britain’s renewable energy capacity by almost threefold by 2035 to between 140 GW and 174 GW, while tripling the capacity of its nuclear fleet by 2050. The government is also encouraging investment in hydrogen and carbon capture and storage projects.
But slow progress on the UK’s new nuclear ambitions combined with policy setbacks and delays connecting new renewable energy projects to the grid have raised concerns that there could be a higher risk of blackouts towards the end of this decade.
“The only route to a low-cost, secure and clean energy system is through attracting massive private investment to develop renewables and upgrade our ageing grid,” said Dr Doug Parr, a policy director at Greenpeace UK. “But this government has failed on both fronts. They’ve blocked cheap onshore wind, botched the latest offshore wind auction and left new solar and wind projects waiting for over a decade to connect to the grid.”
Lincoln Hill, a policy director at the Nuclear Industry Association, added that the government’s latest dash for gas was “the inevitable consequence of not investing in nuclear quickly and early enough”. The Hinkley Point C nuclear plant in Somerset was given the green light by the government in 2016, but multiple delays mean it is now unlikely to start operations before 2032.
What does this mean for Britain’s climate targets?
The government’s independent climate advisers, the Committee on Climate Change, have said that a small amount of gas-fired power generation was still “compatible with a decarbonised power system” as long as it makes up no more than 2% of the UK’s power supplies.
If the new gas plants are used infrequently as a last resort when wind and solar power are not available then gas generation could continue to fall in line with Britain’s climate targets, according to Kate Mulvany, a principal consultant at Cornwall Insights.
However, there is a risk that these new gas plants could be used for longer running periods than planned, which would risk blowing the UK’s carbon budgets.
What else can the government do to harness low-carbon electricity?
A significant part of the government’s new energy proposals hinge on a plan to make the electricity system more efficient by setting up seven different “pricing zones” across the country.
Under the plans each zone would set a different price for electricity based the balance of electricity supply relative to its local demand – meaning prices would be higher in areas in the south-east while areas of Scotland could have some of the lowest prices in Europe.
This would encourage renewable energy developers to build their projects closer to populated areas with higher energy demands, and reduce the investment needed to upgrade Britain’s transmission lines and power grids to carry electricity over long distances. It would also help to cut the payments made to turn off windfarms when they generate more electricity than the grid can carry.
These payments have more than doubled in recent years, from around £700m in 2018/19 to £1.8bn in 2022/2023. A three-year delay in the UK’s networks could increase these costs to about £8bn in the late 2020s – or the equivalent of about £80 on the average annual household electricity bill.
Will these plans increase my energy bills?
Apparently not. In theory the savings made from reducing unnecessary spending on upgrading the grid and paying windfarm owners to turn off their turbines would be passed on to consumer bills.
Communities that host renewable energy projects would see the biggest fall in their bills but even cities in the south-east would probably see their bills remain flat. On average the government estimates the reforms could save households an average of £45 on their annual energy bill.
