The UK’s decarbonisation targets are said to lead the world on climate action. In 2019, the government introduced a mandate to deliver net zero emissions by 2050. Coming up fast, the power sector also aims to deliver net zero generation by 2035.
To achieve either, investment must mirror this ambition, incentivised by the right policy and regulation. However, a UK Sustainable Investment and Finance Association survey found more than six in 10 of the energy sector’s business leaders, representing £700 billion in turnover, have either moved or plan to move investments out of the UK to a more sustainability-friendly market.
With lengthy grid connection queues, slow planning processes and slow and uncertain policy changes, many in the industry are calling for urgent change. We need to ensure valuable infrastructure capital does not relocate to more attractive markets, as we have seen with the emergence of the Inflation Reduction Act in the US.
Remove barriers to development faster
The government and the regulator have led positive reforms to speed up grid connections. Companies without land rights for planned projects should see their developments removed from the connections queue, speeding up the process for developers with the means and intent to complete construction and begin operation.
We could build on this by really pushing developers to deliver their projects to faster timescales than proposed to free up the queue. In Spain, where Field also operates, high grid bond liabilities really limit the number of speculative developers in the grid connection queue. Due to the high capital at risk in Spain, projects that accept grid connection offers must therefore be built.
Whether wind turbines, solar panels or battery storage sites, renewable energy infrastructure lasts for decades, meaning policymaking, regulation and market design must endure across decades to achieve a net zero grid by 2035. Fast-tracking renewable infrastructure would be another positive step forward to increase certainty in the planning process and encourage more applications – particularly if the publication of the Strategic Spatial Energy Plan helps structure the transformation of the energy system and outlines where different technologies will be built across the nation.
Delivering a cleaner, more flexible grid is not easy. It requires the transformation of everything from the technologies powering it to the digital infrastructure operated by control rooms. Healthy resourcing of the National Energy System Operator would unlock funding to invest in the IT infrastructure needed to deliver more agile electricity markets – the kind which rapidly responds to changes in supply, demand or frequency.
Deliver regulatory change with speed and tackle macroeconomic pressures
Developers and investors counting on returns from capital-intensive projects need a high degree of regulatory certainty. In practice, this means vastly accelerating the delivery of certain outcomes from the Review of Electricity Market Arrangements. The government’s latest proposals include transforming the Capacity Market to incorporate less carbon-intensive technologies, such as energy storage. Batteries are versatile and reduce volatility, so reforming auctions further to make the most of them and other storage technologies available would be a clear, long-term signal to investors. Regulatory risk must otherwise be priced into their financing costs.
Measures like this take consistency to implement across parliamentary cycles while rolling back targets for the phase-out of older, more carbon-intensive technologies weaken investor confidence. The automotive sector experienced this when the ban on new combustion engines was delayed, despite a target for zero-emission vehicle production remaining in place.
Introduce marketplaces and services to increase revenue certainty for businesses
Certainty must extend to revenues or support mechanisms. When the United States introduced the Inflation Reduction Act, the legislation was a powerful signal to investors across the world.
The EU has worked to respond in kind. For example, Italy is launching a long-term contracted revenue stream for storage. The Mercato a termine degli stoccaggi (MACSE) will go some way to covering capital and operational costs, offering investors the certainty needed to help support Terna’s system needs and operability challenges. This could see plans for around 9GW secured in the country’s next procurement round.
The UK’s own incentives for investors have helped create a world-leading offshore wind market. Despite more recent auction rounds highlighting the need for an updated design, the Contracts for Difference scheme still fosters confidence in the renewable energy market. When it expanded the technological scope to include co-located battery storage, this helped procure up to 900MW set to begin operation in 2025 – no small feat when operational battery storage capacity in the UK stands at around 3.5GW.
To achieve a net zero power sector by 2035, the industry and its stakeholders must work together to remove barriers to deployment, deliver consistent policymaking at a much faster rate, and increase revenue certainty.
