Why the energy shift needs immediate scale and speed

According to National Infrastructure Chair, Sir John Armitt, the UK can have a low carbon and resilient economy with infrastructure that supports economic growth and protects the natural environment. If this is true, why hasn’t this happened? 

Clare Davidson, from Sustainability First, speaks to the National Infrastructure Commission’s chief executive James Heath, about how he sees the climate change challenge and underlines the enormous scale of action required.

Firstly, we need to wean ourselves off fossil fuels as a nation, explains James Heath. “UK households need to stop using gas and oil and at the same time the UK needs to ensure energy security”. Not only will households switch to electric vehicles, but they will need to swap their gas boilers for cleaner, more efficient heat pumps. But the way this shift happens must be done carefully, he warns. “While these technologies should roughly halve energy costs for households in the coming decades, the transition must be carefully managed to ensure the public are supported with the upfront costs and the government protects the living standards of those least able to pay.”

Time and again, short term social needs are pitted against long term environmental concerns and obligations. The implication, in light of the cost-of-living and inflation crisis, is that we must adapt to a lower carbon economy and Net Zero future, but not quite yet. We need to adapt to a world in which climate is more unpredictable and our energy system needs a radical overhaul. What is striking about talking to Heath is that, in his view, this is entirely possible. It is a big task and infrastructure is part of that. “It is achievable”, he says confidently.

But there is more to be done to address significant deficiencies in the UK’s economic infrastructure and ensure it can meet the challenges ahead, he warns. We need to expand and re-shape the country’s electricity networks over the next 10 years - which he likens to major changes to infrastructure that the UK has achieved before, including the expansion of the motorways of the 1960s and 1970s, or the creation of the electricity ‘supergrid’ in the 1950s. This can work provided we “do the right things”. The NIC’s five-yearly Second National Infrastructure Assessment published last autumn, spelled out how to transform the nation’s energy, and transport sectors, among others, over 30 years.

Faster and cheaper

The scale of investment is estimated at £2 trillion between 2025-55 to modernise the transport sector and decarbonise water and energy, as well as build resilience. Two thirds of that funding needs to come from the private sector, the NIC believes. We need “speed, urgency and huge deployment to bring that process alive,” argues Heath. This includes, for example, reducing greenhouse gases from buildings and transport by half by 2035 to meet the government’s sixth carbon budget.  

In order to deliver at that pace, he argues we need three things: Firstly, being good at long term policy-making that stands the test of time, in terms of the supply chain, skills, investment. Secondly, we need better policy and regulation to align investment ahead of demand. We need business models for new networks and technologies that replicates the success of the Contracts For Difference (CfD) model in incentivising investment in offshore wind (in the government’s words, this model is its main mechanism for supporting low carbon electricity generation). Thirdly, we need a planning regime that enables us to build faster, and cheaper. “If the UK did those things …it would be much better for investment,” he argues. While there is recognition of the scale of money needed, the challenge is how you make it attractive for private investors, who after all which will be fronting the bulk of the money.

Part of attracting investment is about being clear on the overall aim around which industry and investors can mobilise. We need to acknowledge the scale of the capital needed. “We can’t have feast and famine,” he warns. 

The envelope of public investment needs to be 1.3% of GDP per year – that feels “realistic”, he posits. An important part of the question is affordability – both for politicians and the public. There is also the issue of who will finance investment – while most of it will be private money, it will be paid back by the utility bill payer. 

There has been underinvestment for example in wastewater management, said Heath. “Certain bills will have to go up over the next five to ten years,” to improve water quality, and address flooding and droughts. Against a backdrop of performance issues in the water sector and a cost-of-living crisis that “message might be a hard one to get across”. There is a need to build trust. He poses a clearly rhetorical question for the water sector, “why didn’t we fix the roof when the sun was shining?”.

No time to wait

In energy there is a recognition of the need for increased capital investment. But this will require not simply altering what we have, but adopting a different system. One that is less volatile than fossil fuel prices. The benefits longer term should be lower, stable operating costs based on renewable energy. “There are strong reasons why bills should fall over the longer-term – whether it is heat pumps versus gas boilers, electric vehicles versus petrol cars, wind farms versus gas-fired power stations”.

Looking ahead, we will need around ten million buildings to be low carbon by 2035, explains Heath. But “at the moment we are nowhere near that trajectory.” He made the NIC’s position clear: “Our view is that electrification is the answer to decarbonisation.” He also added that steps cannot be sequential but must be simultaneous – we need a retrofit campaign at the same time that we move away from gas boilers. 

We also need heat networks. The approach needs to be clean energy and energy efficiency at the same time. “We don’t have time to wait”. Lots of properties are efficient enough or could be with a relatively low intervention, such as insulation in cavity walls, he adds.

But this isn’t just the consumer’s job – we need policies that support consumers and a level of funding intervention to “shift the dial”. We need options for low-income households as well, promoting low or zero cost borrowing. This should lower costs for all. The expectation for new homes in 2025 needs to be consistent: “We need a standard across the private rented sector. If we are talking about decarbonising, we need a mix of public funding and grants, that could probably go to private landlords.”.

Government has set ambitious goals, but the means need to match the end, he says.

The question is, what’s driving policy, is it cost or security? It is not clear what the motive is or the goals, posits Heath, asking “what’s the rationale?”. How the government acts provides “signalling”. “We need to take gas off [the energy system] like we took coal off the system”. When asked about the logic behind the controversial new North Sea oil field, Rosebank, he explains that assessing new oil licensing is not part of the NIC’s remit.

But he is more than aware of the uncertainty of renewable energy and underlines the need for a plan for when the sun doesn’t shine, or the wind doesn’t blow. By contrast gas is very flexible. In this sense we need to redesign the whole [energy system] he says. But what that system looks like depends what you are trying to fix. For transport, the biggest lever by far, regarding carbon reduction, is shifting to electrification for surface traffic. But the benefits are multiple – including better air quality. He makes the case for reducing congestion as a way to “unlock economies” and says outside London there needs to be far greater investment in public transport and managing car use in city centres. 

Step change

Reiterating the issue about signalling and rationale, he points to a gap in the government’s rail strategy, as shown by HS2 and the network of public transport in the North. While NIC doesn’t advise on individual projects, he adds that there must be a coherent network strategy, and new long term [rail] plan. If we look at our big rail infrastructure projects in terms of management, they end up “more expensive than our European peers”.

There is a gulf in the discrepancy between costs versus initial budget. In April the Chancellor argued for accelerating the planning regime. Heath argues for a National Policy Statement (NPS) for all infrastructure sectors, that are evidence based, and regularly updated. As a minimum, we need a legal requirement to update those Policy Statements with guidance for spatial plans, every five years, including a framework of direct benefits for local communities hosting infrastructure in the national interest. In 2008 the average time for a new nationally significant infrastructure project was around 2.5 years; now it takes around 4.5 years for applications. He is hopeful that the planning reforms announced in the Autumn Statement will change that. 

While there is clearly huge change happening and needed in energy, another sector that needs reform is water. The prospect of more drought, pollution, and floods means we “can’t do the same as before”. We need a step change in approach, he says. But on the plus side, there are examples of good practice by firms like Severn Trent and United Utilities, adopting catchment-based approaches (the beginning of the water cycle rather than the end of pipe abatement approach). We need to move from pilot schemes that are innovative to a “fundamentally different approach” he explains. The regulator needs to create the right incentives for firms.

Ultimately all the changes that we need to adopt must consider the whole system, he warns, not just aspects. But such changes are possible. When asked what his outlook is, he says calmy: “I am hopeful”.