Winners and losers from PM’s green plan

Utility Week’s policy correspondent David Blackman discusses the implications on the utilities sector of Boris Johnson’s plan for a “green industrial revolution”. He assesses the winners and losers from the speech, as well as the areas where question marks remain.

Anyone looking at No 10 Downing Street’s website earlier this week might have been forgiven for thinking the Green Party had surreptitiously swept to power.

Until Thursday’s spending boost for the armed forces, a string of environmental announcements that culminated in the green recovery 10-point plan were plastered all over the prime minister’s shopwindow to the world.

The outbreak of eco-enthusiasm would probably have been more muted if Boris Johnson’s former communications chief Lee Cain, who was known to be bearish about how environmental issues go down with voters in the Tories’ former “red wall” constituencies, had still been in post. And the flourishing of green credentials is likely to have been tailored for the attention of incoming US president Joe Biden, who has signalled a strong commitment to tackling climate change.

Of course, as is often the case with such announcements, drilling down into the detail shows that the extra investment announced this week is less impressive than it looks at face value.

Once recycled announcements have been stripped out, the total figure looks more like £4 billion rather than the £12 billion touted in the mid-week headlines. And while the measures outlined in the plan could reduce UK emissions by five per cent for 2023 to 2032 compared with existing policies, they will not be enough to stop the UK exceeding its fourth and fifth carbon budgets, according to an analysis carried out by consultancy Aurora Energy.

Nevertheless, the 10-point plan looks like a big moment for energy and environment policy, which Johnson has placed more firmly at the heart of his government’s programme than any UK prime minister has done before.

So, who or what are the energy winners and losers from this week’s announcement?

WINNERS

HYDROGEN

The UK’s fledgeling hydrogen industry for the first time received significant support from the government.

Up to £500 million has been earmarked for investment in hydrogen, £240 million of which will next year go into supporting the roll out of 5GW of new production facilities by 2030.  En route, the government hopes to see 1GW of hydrogen production capacity by 2023.

To stimulate private sector investment in these production facilities, the 10-point plan policy paper talks about the government bringing forward details next year of a “revenue mechanism”.

The prime minister’s plan also sets a target to create the first town, covering tens of thousands of homes heated entirely by hydrogen by 2030. This will follow the first Hydrogen Neighbourhood in 2023 and village by 2025.

However the £500 million investment pales compares to the billions being pumped into hydrogen in the likes of France and Germany, while the 5GW of production capacity is at the “bottom end” of what the UK can achieve by 2030, says Clare Jackson, senior consultant at Ecuity.

HEAT PUMPS

The biggest surprise in the heavily trailed 10-point plan this week was the target to install 600,000 heat pumps per annum by 2028. In context, current installation rates are around 20,000 each year, meaning a 30-fold increase within the next eight years.

“600,000 heat pumps by 2028 is no mean feat,” says Jackson.

Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit, acknowledges that the target is “very ambitious”.

He says the sheer size of the heat pump target shows that the devices have edged ahead of hydrogen in the race to become the main UK’s main source of domestic heat.

Patrick Hall, researcher at thinktank Bright Blue, agrees: “This is definitely the path the government will go. It’s a lot easier to install a heat pump than hydrogen for heating,” he says, noting lingering consumer resistance to hydrogen for domestic heating due to misconceptions about safety stemming from lingering images of the Hindenburg airship disaster in the 1930s.

Marshall believes the 600,000 heat pump target is feasible with a third likely to be delivered in new-build properties, which by then will have to comply with new building regulations that prevent the installation of gas boilers.

In addition, new regulations will be brought forward to support heat pump deployment, especially in areas off the gas grid, which will be first in line for conversion from fossil fuel heating, according to the 10-point plan paper.

Josh Buckland, former energy advisor to ex-business secretary Greg Clark, says the target can be achieved using these mechanisms.

However, to persuade occupants of existing homes to switch to heat pumps will require the kind of market incentive that the government is exploring, according to the policy paper. “If doing retro fit, you will need to find a mechanism to make it cost effective,” he says.

CCUS

After spending the middle part of this decade in the policy wilderness, following then-chancellor of the exchequer George Osborne’s decision to cancel government support for the technology in 2105, carbon capture use and storage(CCUS) had another fillip this week.

Johnson announced an extra £200 million of investment in CCUS. Together with the £800 million already earmarked for supporting the technology, this cash will be used to create two carbon capture clusters by the mid-2020s and another two by 2030

The clusters, or so called SuperPlaces, are designed to help to deliver the government’s goal to remove 10MT of carbon dioxide by 2030, equivalent to the entire emissions of the industrial Humber.

ENERGY EFFICIENCY

Confusion surrounded the energy efficiency element of the 10-point plan.

The paper says the government will seek to implement the Future Home Standard to improve the energy efficiency of new dwellings, which is currently due to come into force by 2025, in the “shortest possible timeline”, and will consult “shortly” on raised standards for non-domestic buildings. But, the document originally posted stated that the standard would be introduced by 2023, before being rapidly edited with the new wording.

The plan also contains a £1 billion boost to extend the Green Homes Grant voucher energy efficiency and low-carbon heat scheme by one year from its original cut off point next March, which shows that the government has heeded industry concerns that the original timetable was too short to successfully deliver the programme.

ELECTRIC VEHICLES

The government’s announcement that it will bring forward the ban on sales of new internal combustion cars and vans by 2030 was heavily trailled before this week. Nevertheless, it is a landmark moment, says Marshall, describing it as the most significant step in UK energy policy since time was called on the coal industry in the 1990s.

LOSERS

ONSHORE WIND & SOLAR

The 10-point plan confirmed Johnson’s party conference pledge to roll out 40GW of offshore wind power by 2030, quadrupling current levels of generation capacity from this source. However, other forms of renewable power, notably onshore wind and solar, emerged empty handed from this week’s announcement.

Despite the government’s decision earlier this year to readmit both technologies to the Contracts for Difference (CfD) process, they received no new support this week, notes ECIU’s Marshall.

The Solar Trade Association accused the government of having developed a “blind spot” about solar, which it says has the potential to supply 40GW of renewable electricity by 2040 if the right support is available. Wave and tidal technologies too went unremarked in this week’s announcement.

TOO SOON TO TELL

NUCLEAR

Of the fresh funding earmarked for nuclear in the 10-point plan, the bulk will go towards small and advanced modular reactors.

Out of the £385 million Advanced Nuclear Fund, up to £215 million will be invested into small modular reactors. In addition, there will be up to £170 million for a research and development programme on Advanced Modular Reactors with the aim of building a demonstrator by the early 2030s.

But the plan was silent on replacements for the UK fleet of aging large reactors, such as Hinkley Point B, which EDF announced this week was to close early.

This lack of fresh support for large projects shows how nuclear has dropped down the government’s energy pecking order, says ECIU’s Marshall.

“The levels at the moment won’t be replaced and the future is going to be renewables based.

“The nuclear side is hanging on for dear life with all its projects being cancelled and developers backing out. They were probably expecting more,” he says.

The nuclear lobby’s eyes will now be peeled on chancellor of the exchequer Rishi Sunak’s spending review next week and the energy white paper, which is due to be published in early December, when the government is expected to reveal the outcome of its consultation into whether to extend the regulated asset base (RAB) infrastructure finance model to nuclear power projects.

NETWORKS

Key to the success of both the government’s electric vehicle and heat pump ambitions will be an improved and more resilient electricity grid.

Around £600 million of fresh money has been made available for EV charging infrastructure, nearly doubling the £700 million allocated by chancellor Sunak in his Budget earlier this year.

Aside from that though, the 10-point plan contained little about networks, save for a progress report on the review being carried out of the offshore transmission network. According to the plan, an update on this exercise will be published by the end of the year.

Broader network issues are though likely to have their moment in the sun next month when the energy white paper is finally due to appear. Smart systems and flexibility will both be key elements of the white paper, Utility Week has been told.