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Watts the story? – Ben Shafran

Comment by Ben Shafran, Head of Markets, Policy and Regulation, at Energy Systems Catapult.

It’s been a busy week in the energy sector (when is it not?). The headline, of course, was the Great British Energy Bill (previously mooted as an ‘energy independence bill’), which was announced in the King’s Speech as part of a packed parliamentary agenda for the year.

Switching on Great British Energy

The bill sets the legal ground for establishing Great British Energy – a key pledge in Labour’s election manifesto. We don’t know yet exactly what GB Energy will do, beyond the high level aims of co-investing in leading technologies, supporting capital-intensive emerging technologies, and deploying local energy production.

GB Energy would be capitalised at £8.3 billion over the next parliament, which is not much in the grand scheme of the Net Zero transition. The latest Future Energy Scenarios from the Electricity System Operator suggest that to completely decarbonise the grid by 2030 we need to treble wind and solar generation capacity, quadruple electricity storage capacity, and build more than 30 TWh of clean hydrogen. So, government needs to be smart about how best to spend the money that’s been allocated to GB Energy. We think you get the best bang-for-buck by focusing on place-based transformation.

GB Energy could fund and support every area to develop a Local Area Energy Plan (LAEP) – providing each local authority area with a costed understanding of what changes need to occur to deliver a Net Zero energy system and give national government a clearer picture to aid with equitable allocation of support funding. GB Energy should then use such LAEPs to identify priority Net Zero projects to support.

There’s also a role for GB Energy in helping with the riskier early deployment of more nascent technologies. Our Innovating to Net Zero 2024 modelling found that there are no credible pathways to Net Zero without negative emissions technologies – GB Energy could be a vehicle for turning technologies such as carbon capture, use and storage (CCUS) and direct air capture (DAC) into a reality.

Funding the transition

The other key manifesto pledge announced in the King’s Speech is the National Wealth Fund Bill, which would formalise the creation of the fund of that name. The fund will bring under its remit the UK Infrastructure Bank (UKIB) and the British Business Bank. The former provides low-cost finance to local authorities to support decarbonisation and economic growth; the latter works with financial organisations to make it easier for smaller companies to access finance.

The National Wealth Fund will be able to funnel an extra £7.3 billion on top of UKIB’s existing budget. This has been allocated as follows: £2.5 billion to clean steel, £1.8 billion to ports, £1.5 billion for gigafactories (including for electric vehicles), £1 billion for carbon capture, and £500 million to green hydrogen.

What about homes?

Keen readers will spot a glaring gap in both GB Energy and the National Wealth Fund’s priority investment areas: homes. Buildings account for around 17% of the UK’s carbon emissions and policy has not made a meaningful dent in it for nearly a decade. The main solutions still face challenges: mass deployment of heat pumps requires overcoming the upfront and running costs disadvantages compared to gas boilers (as well as the lack of skilled workforce and trusted advisors), while energy efficiency improvements rarely pay back fast enough (beyond some of the simpler interventions). So, there is clearly a need for some government intervention here.

Making the most of public money is key, and that’s where the latest insights from our Warm Home Prescription® trial look promising. Following the success of earlier trials that saw WHP participants given credit on their energy accounts, in summer 2023 our WHP team went further by offering previous participants energy efficiency retrofit measures that would make a lasting difference to their homes and health.

We upgraded the homes of 92 WHP participants in Aberdeen and Teesside. The trial was successful, with 81% of households feeling as though they could achieve a healthy temperature by winter’s end; over half maintained temperatures above 18°C, and almost all above 16°C. We’re now looking to scale that idea further – working with Scottish Power, we’ll be using the WHP concept to guide the home energy improvements that Scottish Power provides under the Energy Company Obligation (ECO).

Tracking progress to Net Zero

Lastly, the Climate Change Committee published its annual report to parliament on how the UK is progressing against its Carbon Budgets and the Net Zero target. It largely makes for grim reading – deployments are off-target in the majority of key areas:

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Figure one: Climate Change Committee’s assessment of uptake of low-carbon technologies against government ambition and Net Zero ‘Balanced Pathway’

But there’s an opportunity here too. As the announcements these last few weeks have shown, the new government is willing to act quickly on matters that can have a meaningful impact for the transition – lifting the ban on onshore wind, approving large-scale solar farm projects, and pumping public money into this area through GB Energy and the National Wealth Fund.

Increasingly, though, government will be faced with more difficult decisions about where to spend its money and its political capital. So, it’s essential that it develops a complete and accurate picture of how effective different policies are at facilitating decarbonisation. The current carbon accounting landscape can be charitably described as “messy”, with significant gaps and inconsistencies that are acting as a barrier to innovation and growth. We have proposed the creation of a Carbon Regulator that would take an economy-wide view and establish the rigour necessary on carbon accounting.

While grand announcements of public spending are exciting and galvanising, it is just as important that we get the foundations of the system right.

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