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

With so much happening in UK energy policy, I’ve hand-picked three big stories from recent weeks and highlighted how they impact the world of Net Zero energy innovation.

Warm Homes Plan

A series of announcements over the past few weeks have started to fill in the picture of what the government’s Warm Homes Plan. A reminder: the Labour Party’s election manifesto promised a £6.6 billion pound increase in government spending on decarbonising homes and alleviating fuel poverty.

Probably most consequential is the proposal to reform Energy Performance Certificates (EPCs) – the traffic light and letter grade rating that every home needs to have if it is being sold or rented out. EPCs are widely used to set policy targets, despite long-established problems with their ratings and the methodology behind them. Now the government has set out proposals to improve the accuracy of EPCs, and to replace the current headline metric (essentially a standardised measure of energy cost) with four metrics presented on a like basis. We’d have liked to see the proposals go further – particularly around making better use of EPC data to improve local energy planning – and will be responding to the government’s consultation accordingly.

Two announcements focused on making heat pumps more affordable: a grant of £7,500 will continue to be available under the confusingly named Boiler Upgrade Scheme for households towards the purchase of a heat pump. To complement that, boiler manufacturers will be encouraged to sell (more) heat pumps under the equally confusingly named Clean Heat Market Mechanism (CHMM). Both policies are heading in the right direction, but we’re concerned that the CHMM favours certain technologies at the expense of others that may suit certain households better and that it focuses on existing manufacturers rather than supporting new entrants into the market – think about Apple transforming the smart phone market or Tesla doing the same for electric vehicles.

Less attention-grabbing but just as important are the changes that will make it easier to install heat pumps: removing the need for planning permission in most cases, and removing the requirement that heat pumps be installed at least one meter away from the property boundary. A change to the ‘Ecodesign’ labelling will also highlight that heat pumps are much more energy efficient than gas boilers – as we demonstrated on our Electrification of Heat project.

There is a lot more that needs to be done – particularly to address the price imbalance between electricity and gas charges to households, and to better target support schemes for fuel poverty. But the progress so far is encouraging.

Clean Power 2030 Action Plan

There has been a lot of attention on electricity prices as we head into deep winter – from Ofgem raising the cap on retail energy prices, to data that shows the UK has some of the highest electricity prices amongst developed countries (see chart below).

The government’s approach to addressing this is to accelerate the move from gas generation to renewables – the Clean Power 2030 mission. The first steps towards achieving this mission were set out in an Action Plan published earlier this month. In the main, this is going to involve government – via the National Energy System Operator – directing which generation assets should get built and where. There is also greater emphasis on building more grid capacity faster – the companies that operate the electricity transmission networks have proposed to invest over £65 billion between 2026 and 2031.

But building more infrastructure does not by itself reduce the costs for consumers (although renewables would displace gas generation). To maximise savings of both costs and carbon emissions we need to bring onto the electricity system flexibility that complements renewables and makes the most of the grid capacity. And key to that is to reform electricity markets so that the value of flexibility is revealed at a granular way. Look back to the chart above: the countries with the cheapest electricity usually have electricity markets with prices that vary more by location and time:

• Most of the USA and Canada, as well as New Zealand, use “nodal” pricing; sadly this option has been rejected by government
• The Nordic countries, as well as Australia and Italy, use a coarser market design known as “zonal” pricing. This option is still on the table under the government’s Review of Electricity Market Arrangements (REMA)
• Prices in most of the countries shown on the chart are settled every 15 minutes; with North American markets typically using five-minute pricing and New Zealand using real-time pricing

The REMA programme is an opportunity to return Britain’s electricity market to the leading edge, and facilitate the aims of the Clean Power 2030 mission. We’re looking forward to a decision in 2025.

Carbon Capture and Storage

When we modelled how the UK could reach Net Zero by 2050, we didn’t find credible paths that did not involve some amount of CCS – potentially as much as 40GW of the electricity generation capacity by 2050. CCS also features prominently in the National Energy System Operator’s modelling of a clean power system by 2030.

Progress to date has been slow, not least because key decisions on supporting the technology had been postponed. But the last few weeks saw rapid progress: first was the announcement that the government will fund two CCS industrial clusters to the tune of up to £22 billion, split between the industrial cluster users, energy consumers, and taxpayers. On the back of that, one of the clusters – the East Coast Cluster in Teesside – has signed its contract with government and made its Final Investment Decision. Construction is expected to start next year, with the cluster planned to consist of a gas CCS plant, and CO2 transport and storage infrastructure.