Doubts grow over pace of Britain’s clean power push

Hello and welcome back to the State of Britain newsletter. I’m Rachel Millard, the FT’s clean energy correspondent, and this week I’ve been hearing further questions over the government’s race to overhaul Britain’s electricity system — will it happen on target, will it bring bills down and what comes next. 

Labour came to power with a key pledge to decarbonise Britain’s electricity supplies by 2030 — five years faster than the previous Conservative government promised — alongside setting up a national energy developer, Great British Energy. 

Nearly a year later, it seems increasingly doubtful that target will be hit, given the slow planning and grid connection processes and supply chain strains getting in the way of the vast numbers of wind turbines, solar panels and new electricity cables that need to be built.

The government has defined the goal to allow gas to still supply 5 per cent of Britain’s electricity in 2030, compared with almost 30 per cent last year. Still, officials estimate getting there will require up to 35 gigawatts of new offshore wind turbines, 1,000km of new electricity cables on land and 4,500km offshore. 

Mounting challenges

Last month, Ørsted, the world’s largest offshore wind developer, halted development of a huge project in the North Sea, citing rising costs even since it was awarded a government subsidy contract last year. 

It means the government has only secured 1.4GW of new offshore wind capacity since 2022 in its auction rounds for subsidy contracts. “The pipeline is there, but we are not on track,” Thibaut Chéret, wind and renewables manager for trade group Offshore Energies UK told an event it hosted for industry this week. 

That meant, he added, that 8GW of offshore wind needed to be secured through the next auction round due to open this summer. But getting that amount (at a reasonable cost) looks difficult given pressures on the industry.

“Setbacks like Ørsted’s recent decision to cancel delivery of the Hornsea 4 offshore wind project has removed any doubt around the difficulties to deliver Clean Power 2030,” Sam Hollister, head of energy economics, policy and investment at the consultancy LCP Delta, said this week.  

Peers including the former head of England’s Covid-19 track-and-trace programme, Baroness Dido Harding, struck a further Eeyorish tone, warning that “time is running out” for projects to get through Britain’s sluggish bureaucracy in time for 2030, despite reforms by the sector and government to speed things up.

The government is sticking to its goals, telling the FT’s energy editor Malcolm Moore last month that it “categorically rejects” analysis by research firm BNEF showing it will fall short of offshore wind power targets. It added this week it was “overhauling the energy system, building the grid we need and connecting new power projects to reach our 2030 target”.

Does it matter if it misses the target? The FT’s Camilla Palladino persuasively argues in this column that the scale of the government’s ambition will spur huge growth in renewables either way. But another question is whether racing to get there by 2030 will make it more expensive given the strain on global supply chains.

Rising bills

Labour also made another election promise: that annual household energy bills would be £300 a year lower by 2030 due to its clean power push, meaning they are simultaneously trying to boost investment while keeping bills down. It has repeated the pledge since it took power.

Britain’s relatively high electricity costs, due to a combination of the power sector’s reliance on gas and because levies to pay for environmental and other policies are added on to electricity bills, are a massive political problem for the government.

Electricity prices have remained stubbornly high since Labour took power: the price cap for households is about £300 higher than in July 2024, while manufacturers are queueing up to demand more support with their energy costs ahead of the government’s impending planned industrial strategy.  

Rain Newton-Smith, chief executive of CBI, the employers’ organisation, is expected to tell the group’s annual business dinner this evening that energy costs are an “anchor on our ambition”.

Such arguments were given oxygen last month when the Office for National Statistics said that energy-intensive industries such as paper and petrochemicals were producing at their lowest level since the 1990s. 

Britain’s National Energy System Operator (formerly part of National Grid until it was bought by the government last year) says its analysis suggests that the “overall cost to consumers would not increase from the shift to a clean power system”. 

But at what point retail electricity prices — that is, the combination of wholesale prices and taxes and levies paid by households and companies which don’t have special exemptions — might fall is another question. 

Expected declines in wholesale prices are likely to be offset by increases in levies to help fund investment. Analysis by Aurora Energy Research, produced in February, found that a “clean power” electricity system would only start saving bill payers from 2044. 

“Costs in both scenarios [a clean power system and Aurora’s “central” scenario] have [since] come down as a result of easing gas prices over the past few months,” Pranav Menon, an expert in power markets at Aurora, said this week. “But the data remains valid in terms of trend.”

Meanwhile, as the government focuses on decarbonising emissions from the power sector, which has already been responsible for the bulk of energy sector emissions cuts, it also risks losing focus on what comes next: cutting emissions from cars and heating as well.

To meet the UK’s target of cutting overall emissions by 81 per cent by 2035 and to net zero by 2050, petrol-fired cars, gas-fired boilers and coal-fired industrial furnaces need replacing. Under current plans, this means electric cars, heat pumps and electric arc furnaces instead, powered by the new supplies of clean electricity.

But getting gas boilers out of people’s homes is proving particularly challenging: households installed about 60,000 heat pumps last year, well behind the former Conservative government’s annual target of 600,000 by 2028.

“While clean power 2030 is important to address the remaining emissions from the power sector, from an economy-wide perspective, the more important [consideration] is not those last few emissions but how can clean power act as a gateway to the electrification of the whole economy,” says Adam Berman, policy director at trade group Energy UK. 

Simon Virley, head of energy and natural resources at KPMG in the UK, echoes the point. “The UK is half way to net zero, mainly as a result of decarbonisation in the power sector, including phasing out coal and ramping up renewables generation,” he says. “But that is the easier part of the journey.”

As deputy political editor Jim Pickard and I reported today, the government is trying to find new ways to encourage the uptake of heat pumps, such as helping to pay some of the levies on their users’ electricity bills. But with industry raising concerns over fairness and effectiveness, there are few easy answers.

Britain in numbers

As if the energy-intensive industries didn’t have enough trouble with high energy costs, the steel industry has also had to endure the rollercoaster of US tariff policies.

The UK exported about £370mn worth of steel to the US in 2024, according to data from trade group UK Steel. The US accounts for 7 per cent of the UK’s steel exports by volume and 9 per cent by value.

That pales in comparison to the £9bn worth of cars the UK sent to the US in 2024, and the £137bn worth of services — more than a quarter of all its services exports.

But steel is a totemic industry in Britain and has a lot of political clout. So Whitehall was relieved this week when President Donald Trump exempted the UK steel sector from a new 50 per cent tariff rate.

It instead faces a 25 per cent rate while the two countries finalise a new “US-UK Economic Prosperity Deal” under which that will be set to zero so long as UK steelmakers exclude China from supply chains.

Yet the good news is tempered by concern in the UK steel industry that the UK market could be flooded by steel from other parts of the world that can no longer get into the US.

“It is time for the UK Government to take decisive action domestically on trade defence,” said Gareth Stace, director-general at UK Steel in a statement this week.

“Imports are flooding into the UK market, depressing steel prices and taking away market share. We must not lose sight of our domestic market while battling to stabilise exports to the US.”

The State of Britain is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.