Green power goals jeopardised by lack of overarching Government plan, says PAC

- The PAC calls on Government to pull together numerous decarbonisation plans into coherent strategy

- Committee sceptical that expansion plans for nuclear, solar and wind are credible, and unconvinced private sector has enough clarity to provide investment

The UK Government has a challenging ambition to decarbonise the power sector by 2035 – but no overarching delivery plan exists to do so. A Public Accounts Committee (PAC) report published today finds that while the Government has many separate ongoing power decarbonisation plans, its ambitions are jeopardised by the lack of an integrated and coherent delivery plan. This should be pulled together by autumn 2023 at the latest.

The Government’s delivery plan must also set out when and how the costs of decarbonising the power sector will be likely to have an impact on energy bill payers and taxpayers. The costs to build, maintain and operate the power system are typically passed onto consumer bills, but the Government has not yet assessed what the costs of the clean energy transition ultimately mean for the general public. The Government’s plans to improve energy efficiency and change consumer behaviour, both key to meeting net zero, are not clear.

The PAC is sceptical that the Government’s plans for expanding nuclear, solar and wind power are credible and calls for annual progress updates to Parliament. The UK’s current operating capacity is a quarter of the goals set for nuclear, solar and offshore wind power, with expansion plans relying in part on technology still at an early stage.

The inquiry heard that the Government’s focus on providing energy bill support to manage high gas prices (including due to Russia’s invasion of Ukraine) distracted it from longer-term activities on decarbonisation.

The Government estimates that up to £400 billion of public and private investment in new generating capacity will be needed by 2037, but the PAC is unconvinced that the private sector has been given enough clarity to confidently invest. Stop-start approaches have been highlighted before by the PAC, in reports on environmental tax measures, low emission cars and the Green Homes Grant Voucher Scheme. Investor confidence can be eroded by changes in direction on policy, and the PAC calls for the Government’s delivery plan to set out how it will provide greater clarity to the private sector to encourage the required investment.

Dame Meg Hillier MP, Chair of the Committee, said: “What is the plan? It has now long been understood and accepted that greening our economy is an existential priority, with the Government setting itself the target of securing an entirely low-carbon power supply by 2035. But without a coherent delivery plan to get there, the Government will find it harder to know what decisions it must take, and when, to ensure that it can realistically reach its ambitions.

“There are just twelve years left for the Government to meet its low carbon energy target, and much still to do if this is to be achieved – and at a cost the taxpayers and bill payers can bear while ensuring the lights stay on. There is an information vacuum in key areas – energy efficiency, investment, the cost of the transition to the public – that must be addressed. We need an overarching plan charting the way, to provide much-needed confidence to the businesses and consumers who are needed to deliver it. When it comes to tackling the climate crisis, we can see around us, we are already living on borrowed time.”

PAC report conclusions and recommendations 

The lack of an overarching delivery plan jeopardises government’s achievement of its challenging ambition to decarbonise the power sector by 2035. Government is seeking to decarbonise the power sector at the same time it is expecting electricity demand to increase substantially. In practice, this means that government expects all electricity will come from low-carbon sources by 2035, subject to security of supply. Although the Department’s modelling suggests its ambition is achievable, this will require sustained effort over the long term, and it acknowledges that its focus on providing energy bill support to manage high gas prices (including due to Russia’s invasion of Ukraine) distracted it from longer-term activities. The Department considers that machinery of government changes in March 2023 that resulted in its creation, with responsibilities for energy security and net zero, will provide government with the necessary focus on these objectives. The Department currently has a large number of important projects and programmes ongoing to decarbonise the power sector, with lots of separate plans, but no overarching, integrated and coherent delivery plan. It intends to publish a delivery plan covering its portfolio of activities by autumn 2023, and report annually thereafter, as part of its response to the Climate Change Committee’s regular progress reports. Creating this delivery plan will help map out, for example, what decisions it must take and when, to ensure that its ambition is realistic.

Recommendation 1: The Department should pull together its numerous decarbonising power plans in an integrated, coherent delivery plan as soon as possible, and by autumn 2023 at the latest, to demonstrate a clear path to achieving power sector decarbonisation.

We are sceptical that plans for expanding nuclear, solar and wind power are credible. Government has set itself highly challenging electricity generating capacity ambitions for nuclear (24GW by 2050), solar (70GW by 2035) and offshore wind power (50GW by 2030).By comparison, the UK’s current operating capacity is less than a quarter of each of these ambitions. For example, its nuclear ambitions include a mix of large stations as well as so-called SMRs, a type of smaller reactor untested in the UK and not operating at scale anywhere in the world. The Department considers it worth pursuing this (and other nascent technologies) to ensure the UK has a range of options from which to select its ultimate power generating mix, and is not over-reliant on any single technology. The Department is creating Great British Nuclear to build capacity, expertise and a regulatory regime to expand its nuclear pipeline; however, in the last two decades, government has only agreed one project which has entered construction, at Hinkley Point C. The Department also says it is tracking offshore wind projects at various stages of development that could produce 80GW of electricity when operating. Should these projects generate this much electricity, the Department would exceed its ambition for offshore wind power; however, it acknowledges that not all these projects will succeed.

Recommendation 2: The Department should provide annual updates to Parliament that demonstrate progress against milestones towards its objectives and identify how significant risks are being mitigated.

We are not convinced that government is providing enough clarity to the private sector to attract the investment that is necessary to build infrastructure, spur innovation and drive competition to lower costs. Government estimates that hundreds of billions of pounds in public and private investment will be needed to decarbonise the power sector, and private investment will be a major component of that. The Department considers that the UK has the market mechanisms, business models and regulation to provide investor confidence. Recently, in what the Department considers a signal to the sector, the Chancellor announced in the Spring Budget £20 billion for carbon capture, usage and storage. However, this technology is untested at scale in the UK, and this Committee has seen how previous government attempts to get it off the ground have failed repeatedly. The Department also points to competitions for contracts for difference as key to driving innovation in offshore wind, reducing expectations of its cost in 2025 from £125 per megawatt hour in 2012 to £50 today. It considers that the regularity of contract for difference auctions provides certainty to investors. However, government changes and policy inconsistency erode investor confidence and increase the cost of capital.

Recommendation 3: The Department should set out in the delivery plan due later this year how it will provide greater clarity to the private sector to encourage the investment it needs to decarbonise the power sector.

It is not clear the Department has the support it needs from other departments to achieve government’s power sector decarbonisation ambition. While it holds responsibility for, and takes the lead for achieving energy security and net zero, the Department nevertheless must rely on wider government to achieve its objectives. The Department has offshore wind, hydrogen, electricity network and nuclear champions whose role includes identifying potential barriers, such as local planning issues and availability of the necessary skills in the workforce. Other departments are responsible for such wider issues, including the Department for Levelling Up, Housing and Communities for planning arrangements and the Department for Education for skills in the workforce. It is essential that, as the lead department for its objectives, it builds partnerships across government to successfully influence these and other relevant departments. However, this can be tricky when power sector decarbonisation activities may be in tension with other departments’ other priorities.

Recommendation 4: The Department should set out in its Treasury Minute response how it will influence other departments to ensure they collaborate and prioritise activities in pursuit of power sector decarbonisation.

The Department has not yet set out how it expects decarbonising the power sector will impact energy bill payers and taxpayers. While government recognises that initially it will rely heavily on private investment to fund the clean energy transition, the costs to build, maintain and operate the power system are typically passed onto consumer bills. The Climate Change Committee has estimated that future capital expenditure costs will increase running up to 2035 and then decrease along with operating costs, and government has estimated that £280 to £400 billion of public and private investment in new generating capacity will be needed by 2037. However, the Department has not yet assessed what this ultimately means for energy bill and taxpayers. Energy affordability, driven by unprecedented wholesale gas prices, has been a significant contributor to the current cost-of-living crisis. In the future, how energy is bought and sold will depend on the outcome of the government’s ongoing Review of Electricity Market Arrangements. The Department expects reform of the retail market to result in more scope for suppliers to offer new tariffs that accommodate consumer demand flexibility, so bill payers can opt to reduce their bills by increasing their energy use when demand is lower.

Recommendation 5: The Department should publish in the delivery plan due later this year information on when and how the costs of decarbonising the power sector are likely to have an impact on energy bill payers and taxpayers, and update this regularly when new information becomes available that changes the cost profile.

We are not yet clear what the Department’s plans are in respect of energy efficiency and consumer behaviour. The Department acknowledges that improving energy efficiency and changing consumer behaviour are key to meeting net zero. However, recent energy bills support schemes have prioritised reducing costs to consumers over encouraging reduced demand for energy. In the 2022 Autumn Statement, the Chancellor announced new funding of £6 billion from 2025 to 2028 to improve energy efficiency for households, businesses and the public sector. The Chancellor announced that an Energy Efficiency Taskforce would be charged with improving energy efficiency in the UK by reducing energy consumption from buildings and industry by 15% by 2030 compared to 2021 levels. In March 2023, government announced a further £1.4 billion to support energy efficiency, including for low-income households. However, government’s track record in implementing energy efficiency schemes is patchy at best. In December 2021 we reported that such schemes were often fragmented, and that stop-start policy was an obstacle to long-term progress towards government’s energy efficiency ambitions. It is not clear what energy efficiency and consumer behaviour assumptions the Department used when modelling pathways to a decarbonised power sector. In February 2022 we reported that government often over-estimates consumer buy-in to its policies, including those aimed at reducing emissions.

Recommendation 6: Alongside its Treasury Minute response to this report, the Department should write to the Committee setting out the demand assumptions it has used in its modelling and how this reflects policies and plans to promote energy efficiency and influence consumer behaviour.