Innovating to Net Zero explores how the UK can achieve a cost-effective Net Zero energy system. Using a range of plausible Net Zero scenarios it identifies innovation priorities for the design, delivery and operation of an affordable, desirable and resilient future energy system underpinned by low carbon products and services as part of a vibrant and competitive economy.

This report aims to give people, businesses and UK government confidence to make investment and innovation decisions, and to take action that moves us closer to meeting our Net Zero targets whilst prospering from green growth opportunities.

Key findings

• The transition to a Net Zero economy, both in the UK and internationally, is an unparalleled economic opportunity. To capture it, we are going to need extraordinary levels of innovation. Meeting our ambitions requires the rapid development and deployment of both mature and more novel low carbon technologies in the coming decades. UK companies across a range of sectors are well-placed to thrive in this future Net Zero global economy.

• Our new analysis shows the UK can achieve an affordable transition with costs within 1% of GDP by 2050. In doing so, we will create economic opportunities in global markets. However, our room to manoeuvre is limited; 2050 is just 308 months away.

• The Catapult’s updated modelling shows the key more mature technologies for a Net Zero energy system in the UK: offshore wind and solar; large-scale nuclear; electrification of heating in our homes and buildings; as well as electrification of passenger and heavy goods vehicles; and district heating networks in our towns and cities. Deployment of these no-regret technologies needs to occur at rapid pace, indeed much faster than progress over the past 10 years. Alongside this, it is essential we accelerate the innovation of more novel technologies to commercially scalable and replicable solutions in key areas if we are to get to Net Zero by 2050. Opportunities that will have significant system benefits include: small modular reactors for nuclear; long duration energy storage in both electricity and molecular storage; heavy duty vehicles; aviation and maritime propulsion. Companies that are able to mature and commercialise technologies in these sectors could capture large and important markets.

• Future scenarios depend heavily on bioenergy production, negative emissions and carbon capture and storage technology options, including direct air capture and bioenergy with carbon capture and storage. Without large-scale deployment of these technologies we do not currently see a credible pathway to Net Zero. More urgent and clearer incentives and standards are required to stimulate innovation and market creation for these technology options over the next 15 years.

• Technology is not enough. Achieving Net Zero will require consumer engagement and changes in behaviours to actively manage and reduce energy demand, unlock flexibility in when and how energy is used and acceptance of new energy infrastructure at a local and national scale. Companies that can develop compelling customer products, propositions and business models for integrated home energy solutions including heating, retrofit and mobility will thrive. This includes innovation that will support low income and vulnerable customers across the UK to make the transition, many with very different needs.

• Electrification of heating in most buildings remains the most cost-effective pathway to Net Zero. It is unlikely that hydrogen will play any significant role in heating buildings in the future. If it is used at all, it will likely be limited to local areas close to industrial clusters supplying energy centres connected to large heat networks, alongside its very significant role in industry, power and transport.

• How we meet the need for electricity at times of low renewables and peak demand determines the cost of our future energy system. This ‘peak heat’ challenge is the biggest system innovation challenge for Net Zero. Fabric efficiency, a significant increase in thermal storage and other energy demand managing technologies, such as smart controls, will be needed. We also need to develop an energy system which is as flexible as possible, allowing us to use different sources and vectors of energy at different times to keep the overall system cost down. However, these can only go so far. Our modelling finds system value in the use of hybrid heating systems combining electric heat pumps with the supply of gaseous energy (natural gas) through the existing gas network, as we transition the system. Alternatives to meeting the ‘peak heat’ challenge, such as increased use of combined heat and power, more rapid reinforcement of the electricity grid combined with increased generation and long duration storage (both gaseous and electrical) all need to be explored and tested. This is an area of significant uncertainty, and the answer will be shaped not just by technology and many of the exciting companies offering flexibility and novel demand-reduction technologies but by how we overcome consumer, commercial and regulatory challenges.

• Natural gas will be needed in a transition role providing back-up power generation and heat in homes and buildings over the coming decades. It will also likely be a significant source of energy for hydrogen production technologies and DACCS. However, this will lead to a significant overall reduction in gas use compared to today, which will have implications for gas network use. A transition away from natural gas must be actively planned and managed over the coming decades.

• Low carbon hydrogen has a key role to play in the decarbonisation of UK industry, transport and power. Industrial decarbonisation must be accelerated – while we are seeing the emergence of many new promising technologies, more needs to be done to incentivise industrial clusters and the co-location of energy and carbon capture assets to optimise the use of waste heat, local energy storage and minimise infrastructure costs associated with CO2 and hydrogen transmission, distribution and storage. Strategic coordination of national and local hydrogen infrastructure as part of a renewed focus on wider energy system planning, alongside with demonstration and acceleration of key hydrogen production, storage and application technologies across sectors is essential for the development of a vibrant hydrogen economy in the UK over the next decade.

• As big as any of the technological or consumer innovation challenges, is the need to create an integrated energy system that works. This will require a whole systems approach. This means:

• • Aligning the rapid scale-up of key technologies and delivery of aligned critical energy network infrastructure. Integrated planning and implementation is essential – at local, regional and national scale. This is a UK-wide, energy system challenge, therefore no vector, sector or locality can be progressed or viewed in isolation; and key institutional and regulatory stakeholders must make coherent and coordinated decisions. The new National Energy System Operator (NESO) will be central to realising this. More needs to be done to integrate decisions across statutory bodies with responsibility for air, land, water, agriculture, transport, digital and telecoms.
• • Developing markets and incentives that reflect the physics of the future energy system and provide long-term clarity to investors and companies. These should be focused on outcomes rather than specific, favoured technologies beyond early innovation support.
• • Switching to a more agile and outcome-based energy policy and regulatory framework that can assess and make rapid changes to outdated regulations that are stifling new innovative technologies.
• • Investment in UK supply chains and skills is vital to ensure the successful delivery of Net Zero. It must ensure that deployment rates are not constrained further for key technologies; that manufacturing of key components (from batteries and semi-conductors to hydrogen storage and conversion technologies) is anchored in the UK; that   domestic biomass feedstocks are available; and that a massive scale up of home decarbonisation can be achieved.