The UK’s decarbonisation success could provide the world with a replicable blueprint, a new report from SSE and KPMG has argued, although there is still more work to do at home.
Building from the lessons learned in the UK, the report identifies five key principles that could help other countries to accelerate global decarbonisation.
First among these is the implementation of binding, long-term targets backed by robust institutional structures, which would give investor confidence. The report used the UK's Climate Change Act and related five-year Carbon Budgets as an example, claiming they having provided an effective governance framework while ensuring public accountability.
The report also suggested the power sector should be fully decarbonised first to unlock the electrification of other sectors of the economy such as transport, heat and industry. Even with this, however, consumer engagement, incentives and regulatory interventions will be required to build demand for low carbon solutions.
Other principles identified included incentivising the lowest cost investment in low carbon solutions, balancing the energy trilemma of decarbonisation, affordability and reliability and driving strategic investment that anticipates future system needs.
These investments should be into critical enabling infrastructure networks and grid flexibility in particular, as well as removing structural barriers to renewables growth.
These principles are based on factors that have led to the UK’s success, with the report citing the Contracts for Difference auctions – the latest of which is to commence at the tail end of this year – which helped to drive down costs, while commitments to carbon pricing and security of supply achieved through the Capacity Market have also played important roles in decarbonisation.
Additionally, the creation of clear allowed returns for networks with the correct efficiency incentives has also supported the UK's decarbonisation, with this having seen investment increase in network infrastructure since 2013 and networks reduce their carbon footprints by 850,000tCO2e between 2015 and 2017.
But there are still areas in need of improving within the UK, with electricity market design needing more work to deal with lower electricity prices delivered by low or no-marginal cost renewables, as well as work being required on anticipatory investment in networks and transmission charging in order to facilitate technologies in their ideal locations.
The report pointed to how as renewables penetration grows, wholesale price cannibilisation is also occurring, with increasingly low and volatile wholesale prices, although this is present in many countries.
Alongside this, while revenue stabilisation mechanisms such as the CfD have brought investment forward, they currently only focus on new plants, making contract-backed investments in new renewables more attractive than potentially more cost-effective investments to extend the life of existing plants.
Unlocking the full value of demand side flexibility will also be vital, although technologies such as electric vehicles and batteries currently face challenges such as high upfront costs, long lead times and uncertain revenues and will therefore need clearer market signals and support frameworks.
“With the majority of the world’s economy now signed up to net zero targets the focus needs to shift to how those goals can be met at a local, national and global level," said Simon Virley, KPMG vice chair and head of energy and natural resources, adding that there is a need for practical solutions combined with robust frameworks and governance to build a "credible path".
The UK has positioned itself as a global leader in decarbonisation, and is set to host the COP26 climate conference in Glasgow in November. Speaking to mark six months to the event, COP26 president-designate Alok Sharma praised the UK as a "beacon of green growth” and called for an end to international coal finance.
The UK's commitment to ending coal generation was praised in the report, with commitments to carbon pricing and an Emissions Performance Standard effectively blocking new (unabated) coal-fired generation and aiding the switch from coal to gas.
The UK currently has a target to phase out coal completely by 2024, with only only coal-fired power station expected to be left operating post-2022 following numerous closures in recent years and the announcement of EDF's West Burton A's closure date of September 2022.