Low-cost, low-carbon solutions: opportunities for the UK energy sector presented by the recent draft National Infrastructure Assessment

United Kingdom

On Friday 13 October, the National Infrastructure Commission (“NIC”) published its draft National Infrastructure Assessment (“NIA”) for 2018 for public consultation. The report is wide-ranging, addressing systemic deficiencies in areas including housing, transport, telecommunications and flood provisions. We consider here the report’s recommendations for the energy sector, centring on the need for low-cost, low-carbon energy.

NIC’s cross-sector role

NIC is an Executive Agency of HM Treasury, established in October 2015 to provide the government with independent advice on infrastructure challenges in the UK. One of NIC’s main functions is to publish an NIA within each parliament which assesses the UK’s long-term infrastructure needs and makes strategic recommendations to government accordingly.

NIC is the first such body to have a role overseeing infrastructure across such a broad range of sectors, including transport, energy, water, communications and waste. The benefit of an advisory organisation with such a broad remit is that it can cut across the government’s “silo thinking” to produce a coordinated strategy. This will be vital as the various sectors increasingly overlap due to such innovations and investments as smart energy systems, connected and automated vehicles and the electrification of rail.

The draft NIA

The draft NIA’s central question in respect of energy infrastructure is how a low-cost, low-carbon energy future can be achieved. With this goal in mind, NIC is considering how to advise the Government further on three big “interlocking” issues: heat, nuclear power and carbon capture & storage. The NIA also considers potential infrastructure funding models for a post-Brexit future and the challenges associated with the UK’s transition to electric vehicles.

The draft NIA was finalised too early to comment on the government’s Clean Growth Strategy (published on Thursday 12 October), but the two reports inevitably overlap in subject matter. For example, both reports identify a critical need to decarbonise heating. The government has been unable to make any specific proposals at this stage to supplement its existing Renewable Heat Incentive beyond proposing funding for research into low-carbon heating technologies (such as heat pumps and the substitution of hydrogen for natural gas) and better insulation materials. A government report on the results of these research projects is due for summer 2018, around the same time as the final NIA. Respondents to the NIA consultation therefore have an opportunity to exercise a decisive influence on the government’s evolving policies on energy and emissions reduction.

Key energy issues

The key energy issues on which NIC has sought consultation responses are as follows:

1. Cost-efficiency of low carbon generation

Decarbonisation is the ostensible centrepiece of the recommendations proposed in the NIA on energy infrastructure, but the other two horns of energy policy-makers’ “trilemma” (security of supply and, in particular, cost reduction) are also prevalent in the analysis. This may be because NIC’s survey results have confirmed that consumers still care more about their energy bills than carbon emissions. The NIA presents a broad range of ideas for decreasing the cost of renewable generation, including:

(i) Increasing certainty for generators by providing a medium-term pipeline for CfD auctions;

(ii) Ensuring that renewable incentives are the same irrespective of project size and technology; and

(iii) Exposing generators to a greater proportion of their transmission and distribution costs to ensure that the most economically efficient solutions are chosen.

Respondents are invited to suggest specific methods and priorities in this regard. 

2. Moving away from domestic natural gas heating

NIC recognises that, while CO2 emissions from heating represent nearly a third of the UK’s total, the country has been much slower to target energy efficiency than to improve in other areas (e.g. decarbonisation of electricity generation). The draft NIA therefore invites responses on:

(i) The extent of the ambitions the UK should have to increase building energy efficiency and the funding, incentives and regulatory changes required to realise those ambitions;

(ii) The future of the gas grid; and

(iii) The role of new nuclear plants and carbon capture & storage in any low-carbon electrification of building heating.

3. Supporting transition to electric vehicles

Transport represents a quarter of UK greenhouse gas emissions and four fifths of NO2 emissions. NIC sets out many of the impediments to reduction of UK road pollution, including electric vehicle range and charging infrastructure, failure to minimise the use of the combustion components in hybrid vehicles, the challenges of using alternative fuels for heavy goods vehicles and the impact of plug-in vehicle charging behaviours on peak electricity demand. The NIA sets out consultation questions on the following:

(i) The further government policies required to support take-up of electric vehicles;

(ii) The role of government in ensuring rapid rollout of charging infrastructure; and

(iii) The most cost-effective way of ensuring that electricity distribution networks can cope with the transition. 

4. Reducing waste and increasing waste efficiency

NIC observes that various mainland European states produce less waste per capita, and are more efficient at leveraging the waste they do produce heat and power, than the UK. The waste-related measures which NIA has proposed include:

(i) Better sorting of waste, including preliminary removal of plastics from the waste burned in energy-from-waste plants; and

(ii) Improving the incentives for the reduction of packaging used for consumer goods.

NIC has asked respondents to consider specific methods and priorities for reducing the carbon impact of waste.

Please do not hesitate to contact any of us if you would like to discuss the implications of this consultation for your business.