The Climate Change Committee Report 2022: Energy Supply - A Rough Diamond

In this third instalment of our series examining the Climate Change Committee's (“CCC”) 2022 Progress Report to Parliament, we examine the findings relating to electricity supply.

The Government's overarching target is to achieve complete decarbonisation of electricity supply by 2035. However, the Government doubled down on its ambition in the Energy Security Strategy (“ESS”) by: (i) increasing its target for delivery of offshore wind projects from 40GW by 2030 to 50GW by 2030; (ii) setting a target of 70GW of solar capacity by 2035; and (iii) setting a target of 24GW of new civil nuclear capacity by 2050.

Progress and key messages

A significant portion of the electricity supply section of the report re-states and contextualises the Government's policy ambitions set out in the Energy White Paper, Net-Zero Strategy and ESS (The British Energy Security Strategy: geopolitics, net zero, and missed opportunities and Overview of the Energy White Paper 2021: “Powering our Net Zero Future” for the Clean Energy Team's fuller analysis). The following are the CCC's key takeaways in respect of progress:

Renewable generation - The CCC are broadly satisfied with the Government's progress and that there are “credible plans” in place to deliver at least half of the abatement associated with electricity supply by 2035. However, in the medium-to-long term, there are concerns, as there is a lack of an overarching delivery plan or strategy (as compared to heat and buildings or transport). Additionally, there are further concerns over the lack of focus on overcoming the barriers presented by planning, network capacity, and supply chains, which could result in significant delays to the implementation of projects. This is not necessarily for the lack of trying from Boris Johnson, who ultimately suffered a mini-party rebellion in the lead-up to the release of the ESS around on-shore wind.

Nuclear generation - The CCC welcomed the proposed introduction of the Regulated Asset Base funding model for new nuclear projects and the proposed £505m funding commitment in the form of the Advanced Nuclear Fund and Future Nuclear Enabling Fund which should help to reduce the cost of capital for investors. Additionally, on 1 September, Boris Johnson announced £700m of additional Government funding for the Sizewell C reactor in Suffolk. However, the CCC are concerned that the Government's reliance on nuclear generation to achieve its overarching aim is now make-or-break, with the timely delivery of capacity the key determinant of success. The CCC have recommended that the Government build some flexibility into their plans with fallback options should key nuclear projects falter.

Flexibility and market design - At the time of the report, BEIS's Review of Electricity Market Arrangements consultation (“REMA”) had not been published and as such, the CCC were unable to properly comment on the Government's progress towards developing an electricity market for the net zero world. In terms of flexible generation and storage, the CCC were not particularly impressed by the Government's progress. Most significantly, the CCC identified that the Government had not adequately established a clear objective for the role of hydrogen in electricity supply and that the Government's policy in respect of CCUS plants had not been finalised. On the demand side, the CCC was more satisfied with the Government's performance, praising the publication of the Smart Systems and Flexibility Plan and the Energy Digitalisation Strategy, which included a commitment to move to half-hourly electricity market settlement by 2025 and new smart meter installation targets for energy suppliers to enable a more intuitive demand side response from consumers.

Conclusion

The electricity supply section of the report is undoubtedly the highlight of an overall underwhelming performance review, scoring relatively highly across the board. To be clear though, performance in this sector has not been perfect, simply better than the decarbonisation of other sectors, and there is a great deal more that has to be achieved to fully decarbonise the electricity network by 2035. Since the publication of the report, the Government have issued a number of key publications, including:

• Energy Bill - The contents of the Energy Bill aim to build on the Government's commitments set out in the Ten Point Plan, ESS and Net Zero Strategy, setting out a number of measures to leverage private investment in low-carbon generation technologies and to ensure the resilience of the energy system.
• REMA - This is a Government consultation on reforming the current electricity market arrangements in order to ensure that they are fit for the purpose of building a platform on which the Government can decarbonise the energy sector and the energy system as a whole by 2035. We expect that coverage of REMA will be at the forefront of the CCC's “Energy Supply Report” which is scheduled for release in November 2022.
• Energy Networks Strategic Framework - This sets out the actions that Ofgem and the Government are taking to ensure that the electricity network is sufficiently upgraded to deal with network constraints - enabling cost effective and timely connections for new generating assets - and that the electricity network is resilient, smart, and flexible to meet the needs of future customers.

Together, these publications go some way towards plugging the gaps identified by the CCC in the report. However, from our perspective, the Government has yet to sufficiently address their overreliance on safely and quickly deploying nuclear power stations as the silver bullet to assist full decarbonisation of electricity supply by 2035. Without the introduction of flexible fallback options, the deadlines for completion of the proposed nuclear projects will be life-and-death for the Government's ambitions. The well-reported delays and cost overruns in the development of the Sizewell C and Hinckley Point C power stations show the mammoth task in changing nuclear regulations and delivery of new nuclear projects that awaits the Government.