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

It’s been another month of significant changes in the British energy sector. In this short blog I’ve hand-picked a few of the biggest energy policy stories from recent weeks and highlighted how they impact the world of Net Zero energy innovation.

Going coal-free

You couldn’t escape the news that on 30 September we switched off the country’s last coal power plant. An incredible achievement, not least because only a decade ago coal accounted for around a quarter of our electricity generation. How did we do it? And what can we learn from it as we now try to push unabated gas out of the system?

Two main policy themes play a role in eliminating coal from our electricity system:

• Making coal generation commercially unattractive. This was done by introducing a price on carbon emissions from electricity generation. The UK was part of the European Union’s Emissions Trading Scheme (EU ETS), which came into effect in 2009, and we then replicated the scheme domestically after Brexit. In the early years, the price of carbon in the EU ETS was very low – regularly below €10/tCO₂, so in 2013 the UK government introduced a mechanism that fixed the carbon price at no less than £16/tCO₂ (the Carbon Price Floor). This carbon price was incurred by coal (and other carbon-emitting) generators, making it less competitive with other generation technologies.
• Supporting alternatives to coal. It’s well known that the decline of coal coincided with the growth in renewable generation: in the last decade the capacity of solar and of onshore wind doubled, while that of offshore wind trebled. Less well known is the rapid growth in interconnectors between Britian and European neighbours. Most interconnectors operate under a ‘cap and floor’ model, which means that when they have a bumper year they have to pay back some revenues, reducing consumer bills. But when they have a down year, consumers top them up to a ‘minimum’ level of revenue set by Ofgem. Since the cap and floor model was introduced, we’ve added nearly 5GW of interconnector capacity. Those interconnectors enable us to keep the lights on even when wind and solar generation is low; and since most of the countries we’re connected to have lower carbon intensity, they also help reduce our carbon footprint.

These approaches will remain relevant as we continue to decarbonise our power system – with the government aiming for unabated gas to have a minimal role by 2030. Gas generation pays the UK ETS, while renewable generation continues to benefit from support schemes such as Contracts for Difference. And we’ll be building more interconnectors: Ofgem has approved or provisionally approved another 5GW.

But increasingly we’re going to need other technologies to make the system work without gas. Government has been developing schemes to support new nuclear, hydrogen generation, gas with carbon capture and storage, and long-duration storage such as pumped hydro. That’s fine for the larger projects, but we shouldn’t forget the awesome potential of smaller-scale demand flexibility, which requires no such subsidies – only the right market signals. Our Innovating to Net Zero 2024 modelling suggested this could add up to more than 100GW by 2050, approximately one-and-a-half times the total electricity generation capacity today.

Strategic Innovation Fund

Ofgem announced the latest award of funding under its Strategic Innovation Fund (SIF) competition. This scheme involves electricity and gas network companies developing innovative project ideas under a set of themes determined by Ofgem and UK Research & Innovation. The themes are:

• Supporting a just energy transition
• Preparing for a Net Zero power system
• Improving energy system resilience and robustness
• Accelerating decarbonisation of major energy demands

Projects are required to consist of consortia that are led by a network company but also include other companies such as technology innovators, energy retailers or universities (Energy Systems Catapult has been a part of several successful SIF projects, including RetroMeter, Project SANND and Project Inform).

The latest funding decision relates to more advanced innovation projects (known as ‘Beta’ phase), which would typically span multiple years. Ofgem granted £84 million across 12 innovation projects, with two of the largest relating to digital twin technologies: ‘Powering Wales Renewably’ will involve modelling the energy systems throughout Wales to enable better planning; while the snappily named CReDO+ will model the impact of extreme climate events on the energy system.

Heat networks

Heat networks are expected to play a growing role as we decarbonise buildings – going from serving around 3% of heat demand currently to potentially as much as 20% by 2050. Making that a reality requires policy interventions to address the investment challenge, and regulation to ensure that consumers get the best outcome. The past month saw both good news and setbacks:

The Department for Energy Security and Net Zero published maps that identify the areas modelled as most suitable for heat networks (when compared to installing an air source heat pump). Below is what the modelling produced for central Birmingham, with the Catapult’s office marked as a pink dot.

Less positive has been the revelation that heat network regulation is likely to be postponed by government. Currently there is only a voluntary code of conduct that heat network operators could sign up to, meaning that there’s a wide variety of costs and experiences from consumers across Britain’s 14,000 or so heat networks. The Energy Act 2023 gave powers to Ofgem to regulate heat networks, but government still needs to set out exactly how that would work. It now seems that Ofgem won’t be taking on the role until at least 2026 – a year later than previously envisaged.

Public sector decarbonisation

A new report from the Department for Energy Security and Net Zero reviewed how public sector organisations in England measure and report on their carbon emissions. It makes for a sobering reading, with a wide range of approaches used, and different ways of measuring and calculating emissions being deployed. These findings mirror what we have found when looking at the carbon accounting landscape for industry.

The inconsistencies in carbon accounting make it difficult to know if what we’re doing is having the desired effect on reducing emissions across the economy. The DESNZ report states:

“In the absence of a standardised approach to emissions measurement, there is limited comparability in the emission data generated, either across organisations or within an organisation across time.

“The lack of comparability has an implication on the effectiveness of emissions measurement in advancing decarbonisation efforts. Primarily, it reduces the ability to track progress and contextualise emission data through benchmarking, thereby making emission data less meaningful for organisations to commit to undertake decarbonisation efforts.”

That’s why we called for government to set up an economy-wide Carbon Regulator function to introduce rigour and consistency to carbon accounting. We’ve also developed comprehensive Public Sector Decarbonisation Guidance, to help public bodies as they make decisions about how to decarbonise the public estate.