Headline issue

The power sector is one of the largest sources of greenhouse gas (GHG) emissions in the UK and must be largely decarbonised by 2030 if the Government is to meet its carbon budgets. This briefing note summarises research by the Grantham Research Institute on key elements of power sector decarbonisation, including the policy regime, low-carbon technologies, grid up grade requirements and the potential for innovation and growth.

Key points

  • Strong policy to correct market failures is necessary to facilitate decarbonisation of the UK economy.
  • A high and uniform carbon price across the UK economy is key, particularly in the absence of a strong signal from the European Union Emissions Trading System (EU ETS).
  • The current policy framework is complex and should be simplified. A way of achieving this could be to merge the Climate Change Levy and CRC Energy Efficiency Scheme into a single levy related to carbon content (this is further discussed in our policy paper ‘Climate Change Policies and the UK Business Sector:  Overview, Impacts and Suggestions for Reform’)
  • Significant investment in a low-carbon power sector is crucial. A clear and robust policy framework is needed to provide certainty to investors. . One way to achieve this certainty is to include a carbon intensity target for the electricity sector in the new Electricity Market Reform (EMR). This should likely to be in the ‘flexible’ range of 50-100g CO2/kWh
  • The market should invest in a portfolio of energy technologies, including wind power, combined cycle gas turbines (CCGT) plants, carbon capture and storage (CCS), and nuclear, which will all play an important role in decarbonisation. CCGT plants in particular can address the intermittency challenge of renewable energy while also replacing coal plants.
  • However, too much reliance on gas, as envisaged in the UK Gas Generation Strategy, will not enable the UK to reach its emissions reductions targets. Further research need to understand whether gas-fired power stations fitted with CCS can become economically viable.
  • The future energy system will need to become smarter and more flexible to facilitate decarbonisation, with an emphasis on storage, interconnection, and demand management.
  • Strong policy and low-carbon investment is likely to promote learning and innovation that benefits economic productivity and the labour market more generally. Recent figures show that growth in the low-carbon and renewable energy sectors has been much higher than average growth of the UK’s economy as a whole.
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