As part of its annual progress report to Parliament, the tone was more optimistic than in recent years, with the CCC commending the Government’s “bold policy decisions” following its recent election, which includes the swift removal of the de-facto ban on onshore wind. The biggest gap identified by the CCC, however, is also something that featured heavily in the Government’s industrial strategy – the cost of energy.

Published last week, the Government’s 10-year plan to boost investment, create jobs and accelerate British business emphasised that clean energy is central to the UK’s economic growth. As one of eight sectors of strength, the Government published its complementary Clean Energy Industries Sector Plan, which it hopes will help tackle two of the biggest barriers facing UK industry right now – high electricity prices and long grid connection times. Below we unpack some of the key takeaways.

Electricity costs

You may be aware that the UK currently operates under a marginal pricing system, which means the most expensive source of power needed to meet demand – i.e. gas – dictates the price for all our electricity.

But, as well as the price of the energy itself, the Government requires energy providers to collect levies or “policy costs” to help fund Government initiatives. Because of how the Government has chosen to apply them, the majority of the levies associated with the transition to clean energy are currently added to electricity bills. This means that people are paying disproportionately higher amounts for electricity compared to gas, despite UK households consuming around three times as much gas each year.

Central to the recent industrial strategy was how it can reduce energy costs for big electricity users, with the Government stating that it plans to introduce a “British industrial competitiveness scheme” from 2027. The idea is that this will reduce electricity costs through exemptions from paying green levies such as the Renewables Obligation, which requires electricity suppliers to source a specific proportion of their electricity from renewable energy sources, and the Feed-In-Tariff.

Unfortunately, these interim measures do not support the long-term switch from fossil fuels to homegrown, clean energy. As the CCC has pointed out, what we need to see is the Government restructuring these levies all together, removing the legacy costs that have been placed on electricity bills and placing them on gas or into general taxation. It estimates that doing so would reduce the ratio of domestic electricity to gas prices from around 4:1 currently to between 2:1 and 3:1 – a ratio comparable to Ireland and France.

The energy transition requires us to migrate our heat and transport energy consumption from fossil fuels to electricity. If the levies were collected from fossil fuel consumption, electricity would be cheaper and the transition would accelerate.

Grid connections

The grid is currently a major barrier to progress, with limited connection capacity and inefficient queue management slowing down delivery timelines, meaning projects could be waiting years before they are connected and generating clean power for UK homes and businesses.

In April, Ofgem approved major reform to the grid connection process, with an aim to accelerate progress toward clean power by 2030 by pushing ready to build projects to the front of the queue. Additionally, there are proposals to ensure smaller projects such as micro solar and community energy do not face delays due to large transmission upgrades.

The industrial strategy recognises that the grid remains a major challenge, with the Government announcing that it is exploring new ways to ensure strategically important projects are connected to the grid quickly. This includes the creation of a new “connections accelerator service” which it says will prioritise projects that guarantee high quality jobs and bring the greatest economic value. While we welcome this in principle, we will need to see how this works in practice and want to ensure that small to medium sized projects, that are equally as important to communities, are not deprioritised.

Onshore wind

The Government will be establishing a new joint Government-industry forum to implement its forthcoming onshore wind strategy. The sector plan has given us a hint of what is to come, including the potential for onshore wind to be included in its Clean Industry Bonus. This will give onshore wind developers access to more revenue for investments in clean, sustainable supply chains as part of its Contracts for Difference (CfD) scheme – which we think will help boost investor confidence.

Other suggestions include:

• Working with industry body, RenewableUK, to conduct a supply chain capability analysis for onshore wind this year.
• Implementing ambitious new reforms to decrease the rate of attrition in the planning system and ensure streamlined consenting.

We have been actively involved in the finance working group for the Government’s onshore wind taskforce and will continue engaging with policymakers on the key opportunities and challenges facing the clean energy sector, with the ultimate objective of accelerating the transition to a cleaner energy system.

Skills

The Government has committed to “upskill the nation” with an extra £1.2 billion a year for skills programmes by 2028-29.  It will shortly set out its first ever Clean Energy Workforce Strategy, ensuring it’s “taking full advantage of the skills of our existing energy workforce and giving a new lease of life to industrial and coastal communities”. As part of this it will invest over £100 million in building engineering skills in England, as well as supporting an additional 65,000 16–19- year-olds in England by 2028-29, including providing key pathways into priority occupations in the sectors identified as strengths for Britain.

Following years of uncertainty, it was a breath of fresh air to see clean energy at the heart of the Government’s industrial strategy and a clear, consistent plan for the industry to work with. Aligned with the CCC’s findings, we do think the Government has missed a trick by not re-distributing the levies onto gas bills – which would incentivise switching to cleaner, more sustainable sources of energy.