Can the UK achieve the Labour government’s vaunted target of affordable ‘clean power’ by 2030? Whitehall asked the newly-formed state-run National Energy System Operator, and the answer was a cautious ‘yes – but only if the stars align’.

NESO’s Clean Power 2030 advice to government describes two conceptually distinct pathways for achieving the target.

One is an offshore wind/batteries/demand response-heavy approach, called Further Flex and Renewables. The other, dubbed New Dispatch, is more reliant on dispatchable low-carbon thermal generation fuelled by hydrogen or gas with carbon capture.

In terms of the generation mix, the biggest difference between the two pathways is installed capacity of offshore wind (43-50 GW), batteries (22.6-27.4 GW), hydrogen/gas with CCS (0.3-2.7 GW), and long duration energy storage (4.6-7.9 GW).

Both pathways would achieve, by the end of this decade, a power system with no more than 5% generation from unabated gas-fired power “in a typical weather year”. This is how NESO chose to define Clean Power, although the government will have to choose its own definition “in due course”.

NESO’s definition is looser than an absolute 100% zero-emissions grid and eminently more achievable, because it requires a lower carbon price. The marginal cost of abatement in energy systems models tends to rise exponentially to push the final few megawatt-hours of gas generation out of the merit order.

Lots of cheap offshore wind

The capacities envisaged in both pathways are, by NESO’s own admission, stretch targets.

“Offshore wind contracting and deployment must happen at unprecedented pace, far exceeding previous records,” the report states.

The two pathways require around 4-10 GW from each of the Contract for Difference (CfD) allocation rounds 7 (in 2025) and 8 (in 2026).

The most ever awarded was 7 GW in AR4 2022, which cleared at a strike price of £37/MWh in 2012 money (equivalent to £52/MWh today, adjusting for inflation). AR6 contracted 3.3 GW at £59/MWh (£81/MWh in today’s money).

A clear risk of pushing the envelope on procurement volumes is that strike prices would rise significantly to ensure that enough capacity clears each auction.

The result could be excessive remuneration for cheaper projects. That’s because CfD auctions operate under ‘pay-as-clear’, where every project receives the clearing price – not the price they bid in at.

To address this, NESO modelled the impact of different procurement strategies on strike prices:

Business-as-usual (BAU): Assumes 5 GW procured by round under the existing format
Individual bid prices: An overall strike price is calculated as the capacity-weighted average of all bids (cheapest option)
Buy all-in-one at max bid: A single pay-as-clear auction to procure all offshore wind capacity, where all projects were paid the highest bid price to meet the required capacity
Buy all-in-one at max bid +25%: Same as above but with a 25% uplift on capex to account for potential supply chain pressures resulting from rapid deployment (most expensive)

The paper does not state which of these procurement strategies informs the baseline assumption for offshore wind costs. However, it says maintaining an element of competitive tension is “vital” to keep costs in check.

Supply chain burnout

Procuring the capacity is the easy part. Once contracted, annual deployment of offshore wind will have to be at a scale “multiple times higher than ever achieved before,” NESO acknowledges.

This is where things get really tricky.

Under Further Flex and Renewables, deployment would need to be 5x the historical baseline, with 5.1 GW installed every year starting in 2024. Under New Dispatch, the multiple would be 4x historical, with 4.1 GW installed per year.

NESO had explored delivery of 55 GW by 2030 but drew the line at 50 GW in response to stakeholder feedback that this “pushes the bounds of deliverability due to capacity and timeline constraints”.

Even so, the assumption that supply chains can scale to deliver 4-5 GW of new offshore wind capacity every year is, to say the least, brave.

The same could be said for investment levels, which would need to quadruple from £11 billion per year (2020-24 average) to £40-50 billion per annum out to 2030.

“This is an increase in investment of over 1% of GDP for the entire economy. Wider electrification efforts will further drive national investment,” NESO said.

Expensive gas forever?

The main fuel assumption affecting NESO’s analysis is the price of natural gas, and here the system operator is verging on the high side.

The paper assumes a continuation of the current October 2024 price of around 100 pence per therm, which is roughly equivalent to $13 per MMBtu, or €39/MWh.

The likelihood of wholesale gas prices remaining at these levels for the rest of this decade is low.

The forward price of gas futures traded on the National Balancing Point (NBP) is currently at around 100p/th until February 2026, after which it drops below 80p/th in summer 2026 and as low as 68p/th in summer 2027.

UK gas futures remain below 80p/th until December 2029, the furthest NBP calendar month contract currently trading on commodities exchange CME.

Trump’s LNG glut

UK and global gas prices are widely expected to remain depressed into the early 2030s because a very large wave of new liquefied natural gas (LNG) is poised to enter the market over the next few years.

The IEA estimates global liquefaction capacity will increase from 580 billion cubic metres (Bcm) per year today to 850 Bcm per year in 2030. And even more could be coming.

The result of this week’s US presidential election will have a material bearing on the duration of the LNG glut.

President-elect Donald Trump has vowed to scrap a temporary pause on federal export approvals for new US LNG projects, which was introduced by the outgoing Biden administration.

The removal of this pause will open the door to at least 10 new American gas liquefaction export projects with combined nameplate capacity of around 90 million metric tonnes per annum (mtpa).

This is equivalent to 115 Bcm/year of extra LNG capacity, which would enter service in the late 2020s and early 2030s – extending the coming period of low gas prices into the next decade.

Vanishing cost savings

NESO’s central analysis focusses more on exposure to high and volatile global gas prices, and less on the potential for cheaper gas.

The paper makes repeated references to the protection against gas price shocks afforded by the two clean power pathways.

If gas burn remains at 2023 levels and gas prices soar back up to 300p/th, the peak in the 2022 crisis, then annual electricity system costs in Great Britain would rise by £12 billion. The impact would be just £5 billion if the UK achieves Clean Power 2030.

But what would happen if gas prices shift lower for longer? The short answer is that Clean Power 2030 becomes comparatively more expensive, regardless of how you get there.

Under the assumed 100p/th gas price, generation from gas-fired power plants costs £123/MWh – well above even the highest offshore wind strike price. Cheaper wholesale gas lowers the cost of gas generation and thus recasts the comparative attractiveness of embarking on the clean pathways.

If gas prices fall to 75p/th, as the futures markets are predicting from 2027, then the system cost as a whole would fall compared to a world with higher gas prices.

However, the relative cost of the clean power system would be around £5-10/MWh higher than the Counterfactual, NESO said.

The Counterfactual is a business-as-usual scenario in which the UK only partially decarbonises and misses its binding carbon targets.

Unaffordable carbon

NESO’s carbon price assumptions also seem to be on the high side.

The system operator assumes, in its central case, that the UK carbon price will be £147/tCO2 in 2030. This price is an average of independent forecasts, with an extra £25/tCO2 added on top.

The top-up was needed “to limit gas generation running for export in a clean power system”.

It adds: “This is a modelling assumption, not a policy recommendation.”

Will the UK economy absorb a tripling in the carbon price in a space of just five years? This is an open question, and one that is not addressed in the report.

What is clear, however, is that unabated gas generation (i.e. without CCS) becomes much cheaper if the cost of CO2 allowances falls below the £147/tCO2 central assumption.

This is significant because, even under NESO’s extremely high gas and CO2 price assumptions, both clean power pathways would still cost slightly more than the counterfactual.

NESO said: “If gas prices remain similar to those of mid-October 2024 (around 100 pence/therm) and carbon prices rise in line with our projection, costs would be slightly lower in the Counterfactual. However, this would be mostly offset by the merit order effect … implying that there is no material cost advantage for the Counterfactual unless gas and/or carbon prices are at materially lower levels.”

In other words, Clean Power 2030 is marginally more expensive than the counterfactual even when the economic scales are tilted in favour of decarbonisation by unrealistically expensive gas and carbon prices.

If gas and CO2 are both cheaper than expected – which seems eminently possible – then the relative cost of Clean Power 2030 would become that much greater for consumers compared to incremental decarbonisation in the Counterfactual scenario.

‘Cascading failures’

From the outset, NESO is frank in its assessment of the delivery risks facing Clean Power 2030.

“Several elements must deliver at the limit of what is feasible,” it says. “A key challenge will be making sure all deliver simultaneously, in full and at maximum pace, in a way that does not overheat supply chains, is sustainable and sets Great Britain on the right path beyond 2030.

“Perhaps the hardest challenge will be delivering across all areas together,” it adds. “Many elements of the supply chain are shared and there are overlaps in the required workforce and skills. Failures in any one area can cascade to failures elsewhere.”

The planning system is a clear source of potential failure. Local opposition to new wind projects, utility-scale solar farms and grid infrastructures will test the government’s appetite to push through its energy agenda in rural constituencies where Labour support is at best muted.

None of this stopped energy secretary Ed Miliband from penning “a rebuke to those who said clean power by 2030 was unachievable”.

Writing in the Guardian, he proclaimed: “Expert analysis backs our policy and its benefits for the country. Defeatist critics should take note… they were wrong, we were right.”

He added: “We know there are trade-offs when we build new infrastructure, and we will work with communities so local people feel the benefit. But we don’t shy away from making these pro-energy security, pro-growth, pro-climate decisions.”

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