Ed Hezlet is Head of Energy at Onward.
The UK’s expensive electricity is weighing on the nation.
Rising bills are repressing the discretionary income of British households and high industrial electricity prices are discouraging investment and economic growth. We have the highest industrial and second highest consumer electricity prices in the developed world. It is squeezing people’s incomes and a major part of the cost-of-living crisis that has dominated the 2020s.
What is even more frustrating is our current policy is not even good for the environment. Expensive electricity is making it harder for the UK to make real progress on decarbonisation.
Firstly, only a tenth of the UK’s emissions come from the electricity grid. 90 per cent of our emissions now come from the rest of the economy, in particular from transport and heating. So any attempt to really reduce our emissions has to come from these sectors – and electrification is the most promising way to do so.
Secondly, we are driving production offshore, harming our economy but also increasing global emissions, as production moves to places which are much worse in terms of having coal and other fossil fuels on the grid.
This all relates to the decision in 2019 to move to Net Zero with no plan or costings. It trapped us in a doom loop of bad policy. We are driving up the cost of electricity to get to a nearly 100 per cent emissions free grid. This in turn makes it less attractive to use electricity to drive our cars or heat our homes.
It’s a lose-lose.
Fortunately, because we have got things so wrong, we now have a win-win option.
If we want to boost people’s incomes and get our economy growing, our priority has to be a pathway to making electricity more affordable. Likewise, if we want to keep emissions falling, without telling people they are going to have to use expensive electricity to heat their homes and power their cars, then our priority has to be a pathway to making electricity much cheaper.
And that is exactly what our report today sets out.
Onward commissioned an independent study to quantify the full system costs of continuing with the current policy direction, versus taking a new approach of a power system that prioritises firm generation capacity. Our alternative plan includes a diversified mix of nuclear, renewables and gas generation, which builds a much cheaper power system that can be used to electrify and decarbonise more of the economy.
Compared to the current pathway, the savings are substantial. Our policy pathway saves £320 billion between 2030 and 2050 versus the current plan, which we term “business as usual”. Savings are made across four major areas.
This means that rather than continue their relentless march upward, overall electricity bills could fall by 21 per cent by 2035 and by 31 per cent by 2050. Politically, it will be much easier to upgrade the capacity of existing transmission lines, and reduce the need for new pylons and grid infrastructure across the countryside – which even Labour and Green MPs are opposing.
What is even more remarkable is that our power in 2050 would still be nearly 80 per cent clean, and cleaner than it is now.
Because this electricity would be cheaper, it would help drive forward electrification of our homes and cars, substantially reducing the UK’s carbon emissions. It would send a signal of intent on reducing costs, so that households and businesses can invest in electric products now, confident they won’t be hit by higher bills later on.
In addition to making electricity cheaper, it also puts the electricity system on a firmer footing, so that people can feel comfortable and confident in moving to electric cars and electric heating for their home.
Finally, by making electricity cheaper in the UK, it would both boost our economy and halt the continued shift of production offshore to worse emitting economies. So we’d be raising incomes in the UK and lowering global emissions overall.
Kemi Badenoch, who spoke at the launch event of the report, recognised in 2019 that Net Zero was a mistake and was one of the only MPs to criticise its adoption. Now that the Conservative party has moved on from Net Zero, and are pursuing a policy of realistic carbon reduction, we can have a policy of electricity generation that is right for the economy and the environment.
It is time to put our electricity – and wider energy policy – back on firm foundations.
Read the Onward report: Firm Foundations