The U.K. government’s long-awaited energy white paper is out with confirmation of recent negotiations with EDF over a new nuclear power station and a drive to push up the price of carbon.
The policy document is a forerunner to far-reaching new legislation covering all aspects of energy, from efficiency to managing the EV rollout to controls on consumer bills.
The paper includes many proposals already announced by the government, such as its 40-gigawatt offshore wind target, carbon capture funding and the target to deploy 5 GW of green hydrogen capacity by 2030.
Those ideas now begin their journey into law, offering the energy sector some welcome certainty at the same time.
According to the government, the plans will create 250,000 jobs. The £12 billion ($16.1 billion) of government investment will trigger another £36 billion in private money by 2030, it claims.
With a goal of net-zero carbon by 2050 and a 2030 emissions reduction target of 68 percent, the U.K. is reinforcing its effort to establish itself as a climate leader. It will host the next round of the U.N. climate change negotiations in 2021.
Prime Minister Boris Johnson held a climate ambition summit on Saturday, repeating his desire to make the U.K. the Saudi Arabia of wind power.
Detailing the U.K.'s climate plans, he added: "We do all these things because they’re right for the world [and] they’re right for our country, but also because we know that this green industrial revolution will generate...hundreds of thousands of high-skilled, high-paying, good-quality jobs for generations to come."
U.K. carbon trading to begin next year
The white paper estimates that demand for low-carbon power will double, leaving the country with “overwhelmingly decarbonized power in the 2030s." The government opened several other consultations on Monday as well. One looks at whether to extend its ban on unabated coal generation from 2025 to 2024. Another will look at how the successful contracts-for-difference auction program can back energy storage and other flexibility options in the future. As it stands, the program only backs standalone single-technology projects. Another examines the prospects for a domestic heat pump manufacturing industry.
Other proposals in the white paper include legislation to extend an existing energy efficiency policy to 2026, extending a residential “green homes” grant program for a further year and greater support for those struggling with their energy bills during winter.
The U.K. will largely duplicate the EU's Emissions Trading Scheme (ETS) when it officially leaves the European Union on January 1, 2021. That will provide all with a smooth transition. It will cover power generation, aviation and energy-intensive industries. One major difference: The U.K. plans to slash the volume of allowances being traded by 5 percent to drive demand.
It will then begin the process of rewriting the U.K. ETS so that it is aligned to the country’s net-zero objectives. Expect those allowances to continue dwindling.
Last week, the EU backed an increase in its emissions reduction target for 2030, from 40 percent to 55 percent. The ETS later matched its highest ever price of €31 ($37.70) per ton of CO2 equivalent.
The government also said it could open the scheme to be linked with other international trading platforms.
Nuclear talks with EDF to resume
The government has also confirmed that it will enter negotiations with EDF around the Sizewell C nuclear power plant.
While a number of competing projects have fallen by the wayside, EDF’s site, an exact copy of Hinkley Point C currently under construction, has remained the most likely option. The only challenge is the lack of willing investors. EDF negotiated a contract for Hinkley Point C that means the government will guarantee £89.50 per megawatt-hour for 40 years, almost double the government’s latest forecasts for wholesale power prices.
Now the U.K. government has said it will begin talks with EDF on a regulated asset base (RAB) model. That would allow EDF to draw revenue from an agreed source, most likely from customer’s bills, and potentially do so during the construction phase as well. Critics say that would leave ratepayers on the hook for the construction risk. The government has said it could be willing to provide construction finance as well.
“Sizewell C will build on the great progress being made at Hinkley Point C and, as a copy, will benefit from lower construction and financing costs,” Humphrey Cadoux-Hudson, managing director of EDF U.K., said in a statement. “We are confident that we can arrive at a funding solution which will provide value for money and help to lower energy bills for consumers.”
A public consultation period on proposed RAB models closed in October 2019. The results of that consultation were published today as well. The path for RAB funding is not clear. Respondents have raised questions about how funds should be recovered (taxes versus bills), when revenue should be paid (predevelopment, construction or later), and whether other technologies should also be offered access to RAB (small modular reactors, large-scale energy storage and even renewable generation).
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