In his speech on Labour’s national missions in February, Keir Starmer reaffirmed Labour’s commitment to decarbonise the power sector by 2030 – 5 years earlier than the current Government’s target, which the Climate Change Committee has already warned the UK is not on track to meet.
Whether or not this is achievable in such a short timeframe, it signals a clear intent to rapidly accelerate the deployment of clean energy technologies in the electricity system, and to put climate change at the centre of Labour’s campaign. What is less clear, however, is exactly how Labour would deliver it. So, what would it take for Labour to realise its mission?
1. Work out the right balance of public and private investment
The single biggest challenge will be mobilising the huge investment needed. There will need to be significant investment in renewables and nuclear (which Labour supports), as well as in storage and networks. Labour has talked about its Green Prosperity Plan, in which it committed – in 2021 – to £28 billion a year public investment, funded by borrowing.
Since then, the fiscal outlook has deteriorated. There are respectable arguments in support of borrowing for investment that will save future generations money. But even if Labour is prepared to fight an election defending additional borrowing, it is not clear that a commitment of this kind would now meet Labour’s fiscal rules, or a commitment to reduce national debt as a share of the economy.
In any case, any public investment would still be dwarfed by the scale of private investment needed. While a commitment to decarbonise the power system by 2030 provides policy clarity, it will need to be backed up by stable and enduring market mechanisms to secure private investment. Labour should also be clear that the role of public investment – including through the proposed GB Energy and National Wealth Fund – should be to support emerging technologies, which are critical to net zero, but which commercial investors aren’t yet prepared to fund, not established technologies.
2. Overhaul the planning system
This investment will mean more sites, where energy infrastructure will be developed, need planning permission. However, the planning system is already creaking under the strain – indeed, it can take 4 or 5 years to get approval for an offshore wind farm.
Labour has said that it would make incremental changes to the planning system to facilitate the deployment of clean energy. This includes bringing the planning requirements for onshore wind in line with other infrastructure and imposing new targets to shorten the time to get planning decisions for renewable projects.
But more fundamental reform will be needed. The key choice for Labour is whether to move away from the current system in which each individual planning application is considered on its own merits and towards a system in which land is proactively designated as suitable for forms of net zero development, removing the need for individual planning applications. Whether Labour – which will represent many more rural or semi-rural areas if it wins the election – is prepared to use political capital to facilitate development, even where it is unpopular with communities, will be the first big test of its climate mission.
3. Faster grid connections – and greater strategic oversight of the system
A similar challenge comes from grid connections, which Labour increasingly recognises as a critical enabler. Projects seeking grid connections today are, in some cases, being given grid connection dates as late as 2036. This presents a problem for decarbonising the grid by 2030.
In February, the Electricity System Operator announced some changes to its grid connection policy to move away from the current first-come-first-served system. Again, though, more radical reform will be needed. In particular, it will be necessary for the Future System Operator to take a more strategic role in the development of the grid and for Ofgem to give network operators a more flexible framework. This could enable them to invest in the grid capacity that will be needed to hit the 2030 target, rather than allowing them only to invest in capacity based on connection requests received. Labour may also need to consider action to discourage speculative buyers, who are adding to congestion.
Greater strategic planning of the system as a whole will also be needed to ensure that the infrastructure to hit the 2030 target is built in the right places, at the right time, and at the lowest cost to consumers. A powerful Future System Operator, which Labour has long supported, should provide this – but Labour will need to think carefully about how to maintain democratic legitimacy for such a profound transformation to the UK economy, and how to reconcile greater central planning with its desire for greater devolution, especially given some regions have distinct net zero ambitions.
4. Reform the wholesale and retail markets
This will need to be matched by reform of the wholesale and retail energy markets. Helpfully for Labour, work on the former – under the current Government’s Review of Electricity Markets Arrangements (REMA) – is already underway. Labour accepts that even in a decarbonised electricity sector, it will need to maintain a strategic reserve of backup gas power. In a scenario in which the deployment of renewable power accelerates, the importance of decoupling electricity and gas prices will become more pressing.
The bigger political challenge for Labour will be reform of the retail energy market. As the primary interface between the energy system and consumers, energy suppliers are critical players in the net zero transition. But today’s energy market is not set up to deliver this. At a time of high energy prices, Labour may struggle to accept that suppliers (which, collectively, have been loss-making since 2019) need to make sustainable returns. Without this, we will not secure the innovation and investment needed to create the products and services that will allow customers to shift their consumption to times when the sun is shining, the wind is blowing, and energy is cheaper.
5. Be honest about the costs – and focus support on customers most in need
Labour frequently claims that decarbonising the power sector would cut household energy bills by £93 billion between now and 2030. But the saving to consumers is a hypothetical one, against a scenario of sustained high gas prices. Long-term predictions of future gas prices are notoriously inaccurate. Prices have fallen from their peak, but remain significantly above pre-pandemic levels.
Nonetheless, Labour’s 2030 target would not mean lower bills compared to the typical prices consumers have actually paid for their energy for most of the last 30 years. Indeed, as the Independent Review of Net Zero by Chris Skidmore set out, while the economic imperative of urgent action to deliver net zero – and the costs of delay – are clear, it is not until the 2040s when consumers will likely begin to see actual savings.
Until then, the investment needed to deliver net zero will increase costs for consumers, many of whom are already struggling with affordability. The level – and universality – of support Government has provided to consumers with energy costs is not sustainable in the medium term. Where support is provided, it will need to be focused on low-income households, and those less able to avail themselves of the opportunities the transition to net zero will bring. While shifting the costs of meeting Labour’s 2030 target from energy bills to general taxation will almost certainly prove impossible, the progressive case for delivering support to energy consumers using the tax and benefits system, rather than funding and delivering support within the energy system itself, will become stronger.
James is a Director based in London and advises clients on regulatory and policy issues in a range of sectors. Previously he worked for the Labour Party, including as a political adviser to the Shadow Cabinet on energy and climate change policy. James was also a Deputy Director at the energy regulator Ofgem.
Flint has substantial experience of working at all levels within the Labour Party and advising clients on all aspects of the energy market and net zero transition. To find out more about how Flint can help, get in touch.
