Enabling sustainable electrification of the economy – Report Summary

Summary

The UK Government has committed to transitioning the economy to a fully decarbonised electricity system by 2035, supported by targets on the deployment of solar, wind, hydrogen and smart meters among others. In this inquiry, we have taken a broad look into the further electrification of Great Britain, examining energy generation, storage and flexibility; supply chains and skill constraints; planning and community engagement and system governance, energy security and resilience. For the UK to deliver on its sustainable electrification target for the GB grid, energy generation, flexibility and storage must increase alongside network infrastructure. As the UK drives towards net zero, electricity demand is expected to dramatically increase, and the transmission and distribution network must develop and expand alongside the growth in supply and demand.

The pipeline of planned renewable energy generation projects is sufficient to deliver the UK’s highly aspirational targets but is currently being held back by slow grid connections, limited grid capacity, inappropriate planning regulations and market uncertainty. We recommend that the Government, with Ofgem and the National Energy System Operator, develop a detailed pathway and delivery plan that sets out what necessary investment and rollout of electricity infrastructure is required to deliver the UK’s low carbon electricity generation targets. This should be completed by the end of 2024 at the latest.

Grid-scale energy storage can store energy and then supply it back to the grid at a more advantageous time. The level of energy storage required in the UK’s future energy system is currently unclear with a range of figures and conclusions depending on the models and data used. The UK will require a significant level of low carbon energy storage in order to achieve its net zero energy goals while maintaining energy security and avoiding energy shortfalls. The form that this energy storage should take has not been made clear by the Government and therefore the sector lacks strategic direction, inhibiting private investment and the possible future rollout of energy storage. We recommend that, by the end of 2025, the Government should issue analysis that indicates to the market what level and type of both short-term and long-term energy storage will be required in a net zero energy system.

The Government has said that a more efficient and locally responsive system of energy flexibility could potentially bring down costs by up to £10 billion a year by 2050. To encourage their flexible use of heat pumps and electric vehicles, consumers need energy tariffs which provide varying rates across the course of the day. Half-hourly settlements, in which energy consumption can be recorded every half hour using smart meters, can provide benefits to both the grid and the consumer but is not yet standard in Great Britain. The Government had confirmed that in April 2024 it would implement a Clean Heat Market Mechanism, a measure to increase competition and drive down prices for heat pumps. This measure was intended to provide clarity and direction to the industry alongside incentives for companies to invest in manufacturing and supply chains. In March 2024, Government delayed the introduction of the scheme by a year. We recommend that the Government support an accelerated rollout of flexible energy technology to homes and businesses through the enhanced policy support envisaged under the Clean Heat Market Mechanism by the end of 2025. This rollout should be accompanied by clear and effective communication about the financial benefits that these technologies can provide to electricity consumers. We additionally recommend that Ofgem expedite its delayed programme for delivery of market-wide half-hourly settlement.

The inability to connect to the electricity grid is hampering energy projects, with a queue that has more than twice the amount of energy generation in the queue than is needed for the 2035 decarbonised energy system target. Recent reforms have been undertaken by Ofgem and the Electricity System Operator, but the impact of these reforms has been questioned and is unlikely to be felt until late 2024 when the first projects will approach their first milestone. We recommend that the Government and the regulator should further prioritise connection reform and the delivery of transmission capacity associated with new connections. Current queue reforms should be further strengthened through the front-loading of milestones, so as to bring projects ready to connect to the grid to the front of the queue. In addition, Ofgem should monitor and publicly report on the status of the queue and progress in managing it on a monthly basis.

In order to deliver the necessary energy infrastructure, appropriate supply chains and a sufficiently skilled workforce both need to be in place. Currently, the UK suffers from strained and vulnerable supply chains and a significant shortage of skills needed for the transition. A high number of essential minerals and materials for low carbon technology are concentrated in a handful of countries, leading to high reliance on nations such as China. We recommend that the Government work with industry to provide incentives such as financial support to ensure that essential elements of the electricity infrastructure supply chain are based in the UK, so as to counter competitive incentives from other countries racing to develop their domestic electricity grids Government policy in this area should prioritise the maintenance and development of the clean UK steel industry as well as driving the UK technology sector.

The UK workforce overall lacks the skills that are fundamental to delivering a net zero energy system, but the Government is yet to publish its long-promised green skills plan and is yet to state how it will measure progress towards its green skills target. We reinforce the recommendation from our 2021 report on Green Jobs that the Government set out how it will measure progress towards its green jobs target, including a definition of ‘a green job’, and how it will measure the number, type and location of these over the 2020s, for the purpose of monitoring and evaluating the impact of its policies.

Planning is a significant barrier in the move to net zero energy, with limited capacity in local authorities due to resource constraints and a lack of internal expertise has led to and slow planning application approval times preventing the necessary level of development. We urge the Government to ensure that relevant planning authorities have adequate resources to obtain and develop the skills and capacity necessary to prevent the planning system being a bottleneck to the rollout of energy infrastructure. An increase in planning fees is a justifiable measure to provide more adequate resources to planning authorities: but additional funding should be provided, and finances should be ring-fenced for local authorities. The Government should also develop a plan to ensure sufficient staffing of planning authorities, and should expedite the delivery of a training programme designed to provide the necessary skills which will support well-considered and timely consideration of planning applications for electricity infrastructure.

This transition cannot be done without bringing communities on the journey, with community and stakeholder engagement being a fundamental aspect of the deployment of energy infrastructure. Communities who are engaged and invested, and who can have input into the way in which infrastructure local to them is developed, are more likely to accept a greater level of infrastructure and support the energy transition more broadly. The Government must require meaningful developer-led community engagement at the outset of major electricity projects. We recommend that Ministers also develop guidance for operators and local authorities on best practice in community engagement.

The governance of the energy system is currently in a state of flux. A new public body—the National Energy System Operator (NESO)—is taking on a number of roles, including system planning. The relationship between the Government, Ofgem and the NESO is complex: the NESO is consolidating a number of existing functions as well as adopting new functions, including giving advice to Government and working with local authorities through the new regional energy system planning process. The role and performance of the NESO should be kept under close review, particularly in its first years. Good corporate governance, including a functioning independent board, is needed from the outset and Ofgem and the Department for Energy Security and Net Zero should ensure that the NESO is subject to thorough annual reviews to ensure good value for money and high performance.

The Government has recognised the vital importance of energy security. The Secretary of State for Energy Security and Net Zero is ultimately responsible for ensuring energy security in the UK, but how this works on a day-to-day practical basis in a distributed energy system reliant on energy storage in both short-term and long-term forms is unclear. Despite the importance of energy security to the national interest, overall responsibility for progress on security, resilience and decarbonisation is to be distributed among several bodies. The Government and Ofgem should maintain clear indicators of progress on decarbonisation and energy security to allow the public to monitor progress in the proportion of renewable electricity on the system compared to expected needs, the security of supply and the progress on connections.