Decarbonisation
Technology is being utilised across a wide range of sectors to help mitigate and understand the impact of climate change by, amongst other things:
• reducing greenhouse gas emissions (or removing them from the atmosphere) through the use of renewable energy, energy storage, the electrification of transport or carbon capture;
• improving the sustainability and efficiency of the products and services we use in our everyday lives;
• improving the energy efficiency of buildings through the use of technologies such as heat pumps;
• measuring and tracking greenhouse gas emissions; and
• improving the climate impact of our agricultural practices.
The generation of electricity and transport, in particular, have been significant contributors to greenhouse gas emissions.
In the UK, the amount of emissions has halved since 1990. The majority of this reduction has come about due to the decarbonisation of energy generation and more recently through the electrification of transport (in particular through incentives to increase the adoption of electric vehicles).
Ultimately, if the UK is to meet its climate targets of a net zero electricity grid by 2030 and net zero by 2050, a fundamental aspect is the decarbonisation of power. The technology that is used to reduce greenhouse gas emissions such as electric vehicles and heat pumps is powered by electricity, not to mention other technologies which are energy intensive such as data centres. If our electricity is produced by fossil fuels, other sectors will not be able to significantly reduce their emissions.
What’s next for electricity generation?
Grid reform: Prior to 2025, the grid, and more accurately, the ability to connect to the electricity grid, had long been identified as a major roadblock to the UK reaching its decarbonisation targets. By the end of 2024, developers of energy projects were being given potential connection dates of well into the 2030s. This clearly represented an unsustainable trajectory for the decarbonisation of the grid with viable developments of generation assets being held up in the connection queue behind so called ‘zombie projects’ due to the first come, first served basis of the connection queue. The extent of the problem has been recognised by the National Energy Systems Operator and significant steps are currently being implemented to overhaul the grid connection system through the Target Model Option 4 package of connection reforms which are on the basis of first ready and needed, first served. It is hoped that these reforms will significantly overhaul and streamline the connections process for viable generation projects.
Planning reform: One of the first actions taken by the current Labour government when it came to power was to lift the de facto ban on the development of onshore wind in England and Wales by amending planning rules that had made onshore wind development in England and Wales all but impossible. More generally the process for obtaining planning approvals for battery energy storage and onshore renewable projects is often protracted, time-consuming and expensive. The UK government is seeking to address these challenges with the Planning and Infrastructure Bill. It remains to be seen whether the Bill will obtain Royal Assent and if it does so, whether it will actually achieve the aim of reducing the blockers to infrastructure development and streamlining the process.
CFD auction: The contracts for difference (CFD) scheme that has been in place since the mid-2010s and which is designed to support the development of energy projects is currently the subject of reform by the UK government. The intention of the proposed reforms is to be able to better allocate the budget available in each CFD auction round so as to increase the amount of capacity that benefits from the CFD in each auction round. The government is keen to avoid a repeat of the 2023 CFD auction round in which there were no offshore wind bids owing to the strike price being too low.
Zonal pricing and market reform: The National Energy System Operator is currently undergoing a lengthy and involved analysis as to whether to move electricity pricing away from the current national pricing to zonal pricing. A change to zonal pricing, which would not take effect immediately could have a significant impact on investment on energy generation assets in the UK and materially impact the financial models of those already in operation. Zonal pricing is a contentious issue within the energy sector.
Energy storage: With the ever-increasing reliance on intermittent electricity generation provided by renewable generation assets, there will be further requirement for both shorter term energy storage to balance the grid and for longer term energy storage to address periods of low wind and solar irradiation. The battery energy storage sector saw a period of intense activity in 2021 through to 2022, but has subsequently encountered headwinds which have dampened valuations and enthusiasm in the sector. That said, it remains a sector which is attracting significant investment and is increasingly, as an asset class, contributing to the energy mix. As for long duration energy storage, it is an area that has been largely neglected to date but is now seeing renewed attention particularly with the introduction of a new cap and floor investment support scheme introduced by Ofgem. It is hoped that such a scheme will help to enable such projects to reach development.
With all of the above changes in the electricity generation sector, there is sure to be continued opportunity for innovation in the use and development of renewable and storage technologies over the coming years.
If you have any queries in relation to renewables and the decarbonisation of electricity in the UK, please contact Sam Tye.
